Southland Cancels Sale of Junk Bonds
Southland Corp. on Tuesday canceled a $1.5-billion “junk bond” offering that was to have been a key part of a $5.1-billion buyout of the convenience store giant by its founding family.
Investors took the Southland announcement badly, and the company’s shares closed down $16.75 at $51 in after-hours trading in Los Angeles. Trading in the shares on the New York Stock Exchange was suspended late in the day because sell orders far outnumbered buyers.
In a brief statement, Southland, best known for its 7-Eleven stores, cited market conditions for its decision. It also said it would adjourn a special meeting of shareholders set for Thursday without conducting any business. No new date was set.
The company had first scheduled the meeting for last Thursday but put it off, saying that it was having problems selling the $1.5 billion worth of subordinated debt, or junk bonds.
“The junk bond market was severely hurt (by the crash). It’s hard to price them in all the uncertainty,” said retail analyst Ed Gagnon of Rauscher Pierce Refnes Inc. in Dallas.
Junk bonds, or debt securities rated below investment grade, have fueled many of the corporate takeovers of recent years. But, in the past month since the stock market collapse, junk bond prices have dropped sharply and stayed down even as other, better-rated bonds recovered.
Analysts had suggested that the big Southland junk bond offering would have had to yield more than 17%. Aside from the poor condition of the junk bond market, the Southland offering was clouded by fears of a recession.
The completion of the Southland buyout is contingent on the sale of some the company’s businesses, and analysts said some investors figured a recession would hurt or prevent any such sales.
The Thompson family, which has been conducting the buyout through Thompson Inc., has been acquiring Southland shares since July 5 and now owns about 75% of the company, or some 34.1 million of the its 48.9 million shares outstanding. The family, descendants of company founder Joe C. Thompson Sr., announced the buyout in July to counter a takeover bid by the Belzberg family of Vancouver, Canada.
The Dallas-based company said it would continue to monitor the junk bond market and study possible financing alternatives. A spokeswoman declined to discuss the alternatives.
Southland said it will use its best efforts to arrange the financing as soon as practicable, but noted that there could be no assurance as to the timing.
