Crown Group Acquires Majority Ownership of Smart Choice Automotive Group
2 December 1999
Crown Group Acquires Majority Ownership of Smart Choice Automotive Group
TITUSVILLE, Fla.--Dec. 2, 1999--Smart Choice Automotive Group, Inc. (OTC BB: "SMCH") today announced that Crown Group, Inc. (Nasdaq National Market: "CNGR") has acquired voting control of Smart Choice through the merger of a wholly-owned Smart Choice subsidiary into Crown's 85%-owned subsidiary, Paaco Automotive Group, Inc. and a $3 million cash investment into Smart Choice.Crown and Smart Choice announced on August 27, 1999 that they had entered into a letter of intent with respect to Crown's proposed acquisition of a controlling interest in Smart Choice. The terms of the transaction, as completed, differ substantially from those outlined in the letter of intent.
Contemporaneously with Crown's equity investment and the merger of its Paaco subsidiary into Smart Choice, approximately $19.5 million of Smart Choice's outstanding debt and preferred stock was converted into shares of Smart Choice common stock (approximately $4.5 million of the converted Smart Choice debt was acquired by Crown for approximately $2.3 million in cash). Following this transaction, Smart Choice has approximately $2.6 million of subordinated debt outstanding. In connection with the transaction, the combined company obtained a restructured and restated $150 million senior finance receivables and inventory credit facility which contains more favorable terms than the facilities it replaced.
In exchange for its $3 million investment, its contribution of Paaco, and the conversion of Smart Choice debt, Crown received shares of Series E Convertible Preferred Stock representing 70% of the ownership and voting rights of Smart Choice on an "as converted" basis. The minority shareholders of Paaco received shares of Series E Convertible Preferred Stock representing 5% of Smart Choice's outstanding voting securities. The holders of the converted Smart Choice debt and preferred stock received shares of Smart Choice common stock equivalent to approximately 21.7% of the outstanding voting securities. Existing Smart Choice shareholders will own approximately 4.3% of the outstanding Smart Choice voting securities. The holders of the shares of Smart Choice common stock issued in connection with the transaction, and Crown and other holders of Series E Convertible Preferred Stock have certain registration rights.
For its most recent fiscal year ended December 31, 1998, Smart Choice reported revenues from continuing operations of $95.4 million and a loss from continuing operations of $7.3 million. For the nine months ended September 30, 1999, Smart Choice reported revenues of $71.4 million and a loss from continuing operations of $24.2 million.
For the fiscal year ended April 30, 1999, Paaco generated revenues of $70.7 million and recorded a net loss of $1.4 million. Since that time, Paaco has undergone a substantial financial and organizational restructuring which has resulted in two consecutive profitable quarters.
James E. Ernst has been appointed President and Chief Executive Officer of Smart Choice by the Company's board of directors. Mr. Ernst has a long association with Crown and has recently been responsible for the restructuring of Paaco's operations. He is a Certified Public Accountant and was formerly President and Chief Executive Officer of both Casino Magic Corp and Casino America, Inc.
Gary Smith will continue to manage the Florida-based operations of Smart Choice, as President of First Choice, while Larry Lange remains responsible for the Company's Texas-based operations, as President of Paaco. Joe Cavalier has joined Smart Choice as its new Chief Financial Officer, and Ron Anderson will have principal responsibility for the Company's receivables financing activities.
Smart Choice's board of directors includes Edward R. McMurphy as Chairman, and T. J. Falgout, III - both senior executives of Crown. Robert Abrahams, James E. Ernst, Gary Smith and Larry Lange comprise the remainder of the board.
The combined business, which employs over 500 people, operates 22 used car dealerships in Florida and Texas, and it will have an aggregate portfolio of net finance receivables totaling over $160 million. Headquartered in Dallas, Texas, Paaco operates 11 dealerships in the Dallas-Ft. Worth Metroplex and the Houston area. The dealerships, which cater primarily to an Hispanic customer base, provide installment financing for over 95% of the automobiles which are purchased by its customers. Smart Choice, headquartered in Titusville, Florida, currently operates a network of 11 dealerships in the State of Florida. The company provides installment financing for the used cars sold by its dealerships.
"I believe that the capital restructuring of Smart Choice, the reorganization of the operations of both companies, and significant overhead reductions, will allow the `new' Smart Choice to be nicely profitable," stated Ed Ernst. "Our strengthened management team, with its focus on cash flow, expense control and profitability, should allow the combined company to compete effectively as the premier retailer and financier of used automobiles in its respective markets."
This press release includes statements that may constitute "forward-looking" statements, usually containing the words "believe", "estimate", "project", "expect", or similar expressions. These statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements inherently involve risks and uncertainties that could cause actual results to differ materially from the forward-looking statements. Factors that could cause or contribute to such differences include, but are not limited to, those relating to the development of the companies' businesses, risks associated with acquisitions, continued availability of lines of credit for the companies' businesses, changes in interest rates, changes in the industries in which the companies operate, competition, dependence on existing management, and other risks which are discussed in the companies' periodic filings with the Securities and Exchange Commission. By making these forward-looking statements, Smart Choice undertakes no obligation to update these statements for revisions or changes after the date of this release.