Business/Automotive Editors
PHOENIX--(BUSINESS WIRE)--Dec. 31, 1999--Ugly Duckling Corp.
(Nasdaq:UGLY), the largest and fastest-growing used-car sales company
focused exclusively on the sub-prime market, today announced that it
has sold its Cygnet Dealer Finance (CDF) subsidiary to an entity
controlled by Ernest C. Garcia II, Chairman and principal shareholder
of Ugly Duckling, for approximately $37.5 million, the estimated book
value of the Company's investment in CDF.
CDF provides receivable backed financing to small, independent
buy-here, pay-here dealers throughout the country. "While we believe
CDF is a very good business with excellent potential, we believe that
we are better off focusing our management and capital on continuing to
build the country's largest chain of used-car dealerships targeted
exclusively to the sub-prime market. Our core business has tremendous
growth potential and we are focused on exploiting that potential,"
said Greg Sullivan, Chairman and Chief Executive Officer of Ugly
Duckling.
"In this regard, we recently completed a process in which Cygnet
Financial Services (CFS), which acquired economic interests in
distressed sub-prime auto portfolios and serviced those portfolios,
was absorbed into the loan servicing operations of Ugly Duckling. We
closed CFS's loan servicing operations in Nashville and Denver,
consolidating all CFS loan servicing into Dallas, where Ugly Duckling
already has a loan servicing center. The divestiture of CDF completes
the process and enables management and the investment community to
focus exclusively on our core business."
The purchase price of CDF was paid through the assumption by the
buyer of approximately $8 million of outstanding debt owed by the
Company to Verde Investments Inc., an affiliate of Garcia; a $12
million, 10-year promissory note from the buyer to the Company that is
guaranteed by Verde; and the remainder in cash.
The $12 million note is subordinate to senior secured financing
to CDF and senior to the debt to Verde assumed by buyer. The Company
also received warrants to acquire up to 50% of the buyer for $1,
exercisable beginning two years from close, though five years after
the note is paid in full.
The warrants would be forfeited in the event that the $12 million
note is repaid in full within one year. The percentage of the buyer
purchasable under the warrants would be reduced to 25% if the note
were reduced to $4 million within two years and to 10% if the warrant
were paid in full within two years.
The transaction was approved by a Special Transaction Committee
of the Board of Directors made up of independent directors, which
received a fairness opinion from an investment banking firm that the
transaction was financially fair to Ugly Duckling. Commented Sullivan:
"We had previously tried to market CDF to third parties with no luck.
Fortunately, Ernie was very interested in this business and made an
offer to purchase it on terms that were satisfactory. I really feel
like this is a win/win transaction.
"I believe that CDF will do better with the focus and attention
it will get as a separate company, while I am confident that it is in
the best interests of Ugly Duckling to get our capital out of CDF and
focus on our core business." |
