Keystone Automotive shareholder to vote against LKQ merger

By Lisa Kerner

Charlotte, N.C., Aug. 20 - Keystone Automotive Industries, Inc. investor Rockhampton Management U.K. LLP said it will vote against the company's acquisition by LKQ Corp. announced on July 17.

"We believe the price of $48 per share significantly undervalues Keystone as it stands today. We hope that other shareholders vote AGAINST the proposed deal as well," Rockhampton's Saul Rubin wrote in an Aug. 20 letter to the company. The letter was included in a schedule 14A filing with the Securities and Exchange Commission.

The investor said it does not find Keystone's strategic rationale presented in its proxy "compelling."

"In our view, the directors of Keystone appear to have over-reacted to the large fall in the stock price subsequent to the administrative law judge's ruling in the Ford/ITC action," the letter stated.

Rubin also said the fairness opinion is not fair to Keystone shareholders because:

• It uses the wrong set of companies for comparison;

• It does not adequately reflect the growth and margin expansion of the company relative to others; and

• It does not disclose the operating assumptions supporting the discounted cash flow analysis.

According to the investor, a leveraged recapitalization would create more value for shareholders than the merger, in part because Keystone has no net debt and the company is "significantly underleveraged."

It was previously reported that Keystone's board unanimously approved the acquisition of the company by LKQ for $48 per share in cash, or about $811 million. The merger is expected to close early in the fourth quarter subject to Keystone shareholders' approval.

A $30 million termination fee is included in the transaction, which "delivers a true combination of complementary strengths," according to company president and chief executive officer Rick Keister.

Keystone, based in Pomona, Calif., distributes automotive body parts, bumpers and remanufactured alloy wheels to collision repair shops.

Chicago-based LKQ provides recycled light vehicle original equipment manufacturer products and aftermarket collision replacement products.

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