Equity investor asks EZCorp to rescind convertibles offering, alleges dictatorial practices

By Wendy Van Sickle

Columbus, Ohio, Dec. 7 – An investor in EZCorp Inc.’s common shares issued a statement opposing what he called an “ill-advised convertible debt offering” that was released Wednesday evening, after the company announced earlier in the day that it planned to price $175 million of seven-year convertible notes.

David Kanen, president of Kanen Wealth Management, which controls over 4% of EZCorp’s common shares, according to the statement, addressed EZCorp board chairman Phillip Cohen and the remaining board.

The statement alleges that the voting structure of the company essentially gives Cohen a license to behave like a dictator and asks that the convertibles offering be rescinded immediately.

Since the start of 2005, EZCorp’s shares have returned 70% while the only other publicly traded pawn operator, FirstCash Holdings, had a return of around 648% in the same period, the statement claims.

In the past 10 years EZCorp’s total return was negative 54% while FirstCash had a return over 100%, Kanen claims.

Kanen continued that Cohen paid himself and his consulting company $52 million from EZCorp in the past 17 years as the company underperformed to the tune of around $450 million in shareholder value destruction in the past decade.

“We question whether the [EZCorp] board can fulfill their fiduciary duty to shareholders. [EZCorp] seems to insist on doing the same things it has done for most of its history and is expecting a different result,” the statement, which is signed only by Kanen, charges.

“The good news is, [the company] can ‘fix’ a meaningful portion of its tenured history of epic underperformance by making simple changes,” the statement continues. “Firstly, the company must immediately suspend its offering of 2029 convertible notes. And instead spend the coming weeks/months pursuing non-convertible debt for around $150 million, and seek to avoid significant dilution to shareholders. After obtaining around $150 million in non-dilutive debt, the company should retire most of its 2024 convertible notes.”

The statement urges all directors stand up to Cohen, whose results it accused of being no better than those of Hugo Chavez, Nicolas Maduro, Fidel Castro or Kim Jong-il.

EZCorp planned to price the convertibles after the market close on Wednesday. They were talked at a coupon of 3.5% to 4% and an initial conversion premium of 27.5% to 32.5%, according to a market source.

Proceeds were to be used to repurchase a portion of the company’s 2.875% convertible notes due 2024 and/or its 2.375% convertible notes due 2025 in privately negotiated transactions, with remaining proceeds to be used for general corporate purposes, which may include additional share repurchases or the repurchase, redemption or retirement of other debt, including the existing convertible notes.

EZCorp is an Austin, Tex.-based pawn shop operator.

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