RBC Floats Follow-On Stock Offering

RBC Bearings Inc. (USA; NASDAQ: ROLL) and several large stockholders recently put 8.9 million common shares on the market in a follow-on and secondary offering. The placement was completed, including the underwriters' choice to exercise their over-allotment option, at a price of $20.50 per share. RBC went public, placing its shares on the NASDAQ, in August 2005. In this follow-on, RBC itself placed only 3 million new shares; existing stockholders took the opportunity to drop the other 6 million. RBC now has approximately 19.5 million shares outstanding. The proceeds from those 3 million shares, including 1.2 million over-allotment, were approximately $57.2 million after expenses (or $19.10 per share) -- all of which the company said is being applied toward paying down its $147.6 million Term Loan facility, part of RBC's total debt load of $169 million. The $57.2 million does not include any proceeds from the 6 million shares sold by shareholders in the secondary offering; the shareholders received those proceeds. By far the largest stockholder selling its RBC stake was J.H. Whitney & Co., a private equity investment firm and RBC's, "primary equity partner." Prior to the IPO, Whitney owned 95.5% of RBC's closely-held shares. After the IPO, its holdings were close to 45%. According to SEC documents, Whitney sold off its entire RBC holding, all 5,637,412 shares, netting close to $110 million. Several analysts said they believe this was Whitney's long-term exit strategy for its RBC investment. Private equity funds usually invest where they expect outsize gains, preferably via IPO, and once that is achieved, often cash out completely and move on to the next opportunity. It is unclear exactly what Whitney's total investment had been, but SEC filings seem to indicate it was something more than $25 million. The only other major secondary seller was RBC Chairman and CEO, Michael Hartnett, who unloaded 355,000 shares for $6.9 million. Dr. Hartnett did particularly well; those 355,000 shares were purchased by exercising warrants at $0.40 per share, then immediately selling them for $19.475. The seeds for these secondary placements by Whitney and Dr. Hartnett were sown in RBC's IPO. The action could have been a result of a request by either, or triggered by RBC's follow-on. In the IPO filing, RBC noted it was required to allow Dr. Hartnett and Whitney to sell their shares. The IPO documents disclosed: "Whenever we propose to register a public offering of our common stock, upon any request by Dr. Hartnett or Whitney Investor, we are required to include their shares in the offering, subject to customary cutback provisions." RBC also indicated it would cover Hartnett's and Whitney's related secondary expenses. One analyst noted it is highly unusual for a company to immediately use all the proceeds from a follow-on to pay down debt, and so soon after its IPO -- particularly while its pension plan remains underfunded. RBC still has 1.966 million shares locked up in a stock option plan and warrants, carrying a weighted average exercise price of only $7.94 per share. Merrill Lynch & Co. was the book-running manager for the follow-on, while KeyBanc Capital Markets and Robert W. Baird & Co. were co-managers.