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While Cintas (CTAS) endures modest losses today, UniFirst (UNF -14%) is selling off to its worst levels of the year after CTAS terminated discussions with UNF surrounding its January proposal to acquire the firm for $275.00 a share, a 46% premium to UNF's 90-day average price. Shortly after CTAS, a prominent business equipment supplier, announced its proposal to purchase UNF, a similar uniform rental firm, UNF rejected the unsolicited offer.

However, many investors were confident that a deal would ultimately be made, keeping shares of UNF over 30% higher from its closing price immediately before the proposal. Nevertheless, as time passed and few details emerged, doubt started to creep in, causing UNF to steadily slide lower in the following weeks, only to sink toward levels from before the January proposal today after CTAS terminated the M&A discussions.

• Why are investors fleeing UNF today? The potential deal with CTAS offered considerable appreciation; $275 represented an 8% premium from UNF's record closing highs reached in 2021 and a 63% premium to levels closed prior to the January proposal.
• It also seems more likely that the two parties will not be reconvening for any future discussions. While CTAS has offered to acquire UNF in the past, proposing a $255/share buyout in 2022, the current deal was met with fierce rejection from the start. In November 2024, CTAS first delivered its updated proposal to UNF's Board, increasing its initial $255 offer to $275 despite UNF refusing to meet. UNF's cold reception led to CTAS publicly publishing its intent to acquire the firm, hoping enough pressure could be placed on UNF to finally accept the terms.
• Nevertheless, even after these actions, UNF's Board unanimously rejected the offer almost immediately. Frankly, it is surprising that investors kept shares trading at elevated levels despite UNF's clear unwillingness to budge from going it alone.

Where does UNF go from here? Financials are in good shape; UNF has no long-term debt, which provides it with ample flexibility to tackle its operational goals. Speaking of which, UNF commented in January that it was encouraged by the pipeline of large account opportunities it was working on. However, some incremental weaknesses have cropped up compared to this time last year. During Q1 (Nov), net wearer levels for UNF's existing customers contracted yr/yr. Still, UNF showcased the progress it has been making regarding margins, driving decent improvements in operating income and adjusted EBITDA during Q2 despite posting a sluggish +1.9% bump in consolidated revenue yr/yr.

Overall, the proposed deal between CTAS and UNF falling through is unfortunate news for both companies, albeit to a lesser extent for CTAS. UNF is confident in extracting more value as an independent company than being absorbed by CTAS. However, in the current climate, which remains subject to economic and competitive pressures, it could take time before UNF reaches levels near CTAS's proposed price.