TRG | The Bottom Line – 7/7

This week came to a close with Beacon Roofing Supply (BECN) announcing the repurchase of CD&R’s preferred shares (9.65MM share dilution eliminated). Why now? BECN initiated the conversation with CD&R upon the stock price crossing $82.52 in late June. BECN management indicated the company was comfortable in the outlook and cashflow ability of the company going forward to execute the agreement. The initial agreement was put in place back in 2018 with 400K preferred share sold to CD&R at $1,000 / share with a redemption price of $2,000 / share. The implied preferred shares strike price was $82.52, which the stock crossed in late June 2023. CD&R has doubled its investment on just the value of the shares. Dividends were also paid out to the preferred at $6MM / quarter or $24MM a year. CD&R had been reinvesting these proceeds back into BECN stock on the open market, further boosting the overall return on investment. The deal takes out 9.69MM shares on an as converted basis, leaving 63.4MM of common outstanding. Keep in mind that when calculating diluted adj. EPS shares will still be added to account for stock comp and other minor adjustments (a few million shares). Today’s announcement does not necessarily change CD&R’s positive outlook on the company’s prospects and 2025 earnings goals, as the NYC-based PE firm continues to own 15.2MM shares of common stock (~24% of the 63.4MM outstanding).