Following a steep drop in its stock’s value in mid-August, B. Riley Financial Inc. announced plans to clean up its balance sheet through two possible transactions last week.
The Sawtelle-based diversified financial services platform said it expects to yield $410 million of gross cash proceeds from these deals.
From Aug. 9 to Aug. 12, B. Riley’s stock price fell by 53% and continued to descend before reaching a close price of $5.85 at the end of that week – compared to its Aug. 9 close price of $16.95. On Sept. 12, the price sat at $6.21.
This plummet came alongside an announcement from the company’s Chair and Co-Chief Executive Bryant Riley that B. Riley was under investigation by the Securities and Exchange Commission related to the company’s dealings with Franchise Group Inc., whose former Chief Executive Brian Kahn is being investigated for misconduct. Additionally, the firm is under the microscope of federal regulators about whether it sufficiently warned shareholders of risks associated with its assets, Bloomberg reported.
Estimating more than $2 billion in debt as of June, B. Riley said it is negotiating the sale of a 53% stake in Great American Group, a subsidiary of B. Riley, at an estimated $380 million enterprise value. The Great American Group is a financial advisory firm in Woodland Hills and spans numerous sectors including retail, automotive, manufacturing and energy.
B. Riley also said it has entered a “non-binding commitment” for debt financing of B. Riley and Bebe Stores, Inc. brands for an anticipated $236 million of proceeds.
These two transactions will go toward paying down the company’s senior secured debt arranged by Nomura Holdings Inc. – a Tokyo-based financial holding company – with a goal of reducing that debt to $125 million by the end of the year.
“Given the opportunities we have in our core middle market financial services businesses, we believe it is the right time to monetize these assets and leverage the proceeds to accelerate debt repayment,” Riley said in a statement last week.
Despite announcing these proposed transactions, the firm warned the public that it “should not place undue reliance on such forward-looking statements.”
“If such risks or uncertainties materialize or such assumptions prove incorrect, our business, operating results, financial condition, and stock price could be materially negatively affected,” B. Riley said in a Sept. 9 statement.
B. Riley did not respond to a request for comment.
The company, which reported its total cash and investments to be $1.1 billion as of June, stated it plans to use its cash on hand plus proceeds from additional asset sales to repay all 2025 maturities.
In mid-August, Riley submitted a proposal to the company’s board of directors outlining his intention to purchase the outstanding shares of B. Riley for $7 per share and to take the company private. Last week, the company announced the creation of a special committee tasked with assessing Riley’s proposal and deciding on a path forward, though it remains unclear when a determination will be made.
“There can be no assurance that the proposal will result in a transaction and the Company does not undertake any obligation to provide any updates with respect to this or any other transaction, except as required under applicable law,” B. Riley said.
