A small shareholder has come out against Ritchie Bros. Auctioneers Inc.’s acquisition of IAA Inc., opposing a merger that’s received support by the activist Starboard Value LP.

Jordan Moelis, managing partner of Deep Field Asset Management LLC, said Ritchie paid an “extraordinary price” to get the backing of Starboard for the proposed deal and shareholders should reject it.

The Canadian company is trying to buy IAA, which auctions scrapped and damaged vehicles, for about $6 billion in cash and stock. Last week, Ritchie said it will take a US$500 million investment from Jeffrey Smith’s Starboard, enabling it to revise its takeover bid to include more cash and fewer shares.

Deep Field, which has a stake worth about US$12.4 million, said in a letter to Ritchie shareholders that Starboard is getting a deal with “virtually no downside, nearly all the upside” to help fund an acquisition that doesn’t make strategic sense.

Deep Field, based in Beverly Hills, California, joins two larger holders, Luxor Capital Group and Janus Henderson Investors, in opposing the deal.

Almost all of Starboard’s investment — US$485 million — is in the form of convertible preferred shares on which the firm will earn a 5.5 per cent dividend. Smith’s firm is also eligible to receive common-share dividends, and he would get a board seat.

“There are two possible reasons for why RBA management accepted this terrible financing,” Moelis said in the letter that was viewed by Bloomberg News. “Either they were so out of touch that they accepted unconscionable terms, or they knew it was a usurious price and paid it anyway, carelessly using shareholder money to insulate themselves from the harsh criticism of their shareholders, today and in the future.”

Ritchie said in response that “several of our largest shareholders have publicly supported the transaction, including Independent Franchise Partners and Eagle Asset Management — who collectively own approximately 8 per cent of the company’s outstanding shares — as well as Starboard Value LP.” Starboard didn’t respond to a request for comment.

SPECIAL DIVIDEND

Ritchie was up 0.2 per cent Friday to US$62.11 as of 1:50 p.m. in New York. The shares have recovered almost all of their lost value since the deal was first announced in November.

Ritchie shareholders were given more cash when the company revised its bid. The new deal is cheaper overall — US$44.40 per IAA share, compared with about $45 for the original deal, based on the Jan. 20 closing price. Ritchie holders will receive a special dividend of $1.08 per share if the transaction is approved and own a slightly larger stake in the combined business.

Those deal amendments are worth US$115 million in value to Ritchie shareholders, the auction company said.

Ritchie and IAA investors are scheduled to vote on March 14. If they approve and the merger closes, IAA will get four seats on the board. One will be chosen by IAA shareholder Ancora Alternatives, which will vote in favor of the revised transaction as a “compelling deal for all stakeholders,” Ancora President James Chadwick said in a statement.