Central European Distribution (CEDC) Pops on Potential Strategic Investment by Russian Standard
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Central European Distribution Corp. (Nasdaq: CEDC) shares are higher pre-market following a proposal by Russian Standard for a strategic investment in CEDC. Shares are up over 20 percent early Thursday. Below is a portion of the amended 13D filing with the U.S. SEC.
On February 1, 2012, RSC sent a letter to the Board of Directors of Central European Distribution Corp. (Nasdaq: CEDC) ('the Issuer') describing a proposal Russian Standard Corp. ('RSC') had developed since its letter to the Issuer dated December 6, 2011, which was previously filed with Amendment No. 1 to the Schedule 13D on December 7, 2011. In this letter, RSC proposed a strategic alliance between Russian Standard Group and the Issuer comprised of two separate transactions.
As part of the initial transaction, RSC would exchange at par value up to approximately $103 million of face value of the Issuer’s 2013 Senior Convertible Notes (the “Issuer’s Notes”) currently owned by RSC at an exchange price of $7.00 per share resulting in an increase of RSC’s ownership to up to 25.00% of the Issuer’s common stock. In addition, RSC would be prepared to discuss assisting the Issuer in addressing the remaining $207 million of face value of the Issuer’s Notes by potentially extending a backstop credit facility to the Issuer, subject to terms to be agreed upon by RSC and the Issuer.
As part of the second transaction, RSC would provide the Issuer with a portfolio of leading premium brands currently held by Roust, Inc., including the distribution rights in Russia to Russian Standard, the Gancia brand portfolio and a selection of other premium brands, at a fair value to be determined in conjunction with the Board of Directors of the Issuer. As part of the consideration for these assets, RSC would receive newly issued common stock from the Issuer in order to increase RSC’s ownership to up to 32.99% of the Issuer’s common stock. To the extent the consideration provided in common stock does not fully recognize the fair value of the assets, RSC would receive additional consideration from the Issuer in a form that will not put any additional pressure on the cash flows of the Issuer in the short term.
As a result of the two transactions, RSC would become a substantial shareholder and potentially debtholder in the Issuer and in order to safeguard its investment, RSC would require certain minority protections, including the right to appoint up to three directors on the Board of Directors of the Issuer, the right to jointly appoint key members of the Issuer’s Russian management team and protective rights in the event of significant corporate transactions. The Reporting Persons believe that both of the proposed transactions, and each individually, would result in substantial, immediate benefits for the Issuer and its shareholders because they would (i) improve the financial position of the Issuer by improving the Issuer’s leverage profile and by potentially removing the refinancing risks associated with the Issuer’s Notes, (ii) create immediate value for the Issuer’s shareholders by converting debt into equity at a significant premium to the current share price, (iii) provide significant improvement in the Issuer’s cash flows due to a reduction in interest expense and the injection of the Roust, Inc. assets, (iv) strengthen the Issuer’s position as a market leader in Russia with an increased portfolio of leading premium spirits and wine brands and (v) create synergies through increased revenues from new customers and reduced costs from improved efficiency.
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On February 1, 2012, RSC sent a letter to the Board of Directors of Central European Distribution Corp. (Nasdaq: CEDC) ('the Issuer') describing a proposal Russian Standard Corp. ('RSC') had developed since its letter to the Issuer dated December 6, 2011, which was previously filed with Amendment No. 1 to the Schedule 13D on December 7, 2011. In this letter, RSC proposed a strategic alliance between Russian Standard Group and the Issuer comprised of two separate transactions.
As part of the initial transaction, RSC would exchange at par value up to approximately $103 million of face value of the Issuer’s 2013 Senior Convertible Notes (the “Issuer’s Notes”) currently owned by RSC at an exchange price of $7.00 per share resulting in an increase of RSC’s ownership to up to 25.00% of the Issuer’s common stock. In addition, RSC would be prepared to discuss assisting the Issuer in addressing the remaining $207 million of face value of the Issuer’s Notes by potentially extending a backstop credit facility to the Issuer, subject to terms to be agreed upon by RSC and the Issuer.
As part of the second transaction, RSC would provide the Issuer with a portfolio of leading premium brands currently held by Roust, Inc., including the distribution rights in Russia to Russian Standard, the Gancia brand portfolio and a selection of other premium brands, at a fair value to be determined in conjunction with the Board of Directors of the Issuer. As part of the consideration for these assets, RSC would receive newly issued common stock from the Issuer in order to increase RSC’s ownership to up to 32.99% of the Issuer’s common stock. To the extent the consideration provided in common stock does not fully recognize the fair value of the assets, RSC would receive additional consideration from the Issuer in a form that will not put any additional pressure on the cash flows of the Issuer in the short term.
As a result of the two transactions, RSC would become a substantial shareholder and potentially debtholder in the Issuer and in order to safeguard its investment, RSC would require certain minority protections, including the right to appoint up to three directors on the Board of Directors of the Issuer, the right to jointly appoint key members of the Issuer’s Russian management team and protective rights in the event of significant corporate transactions. The Reporting Persons believe that both of the proposed transactions, and each individually, would result in substantial, immediate benefits for the Issuer and its shareholders because they would (i) improve the financial position of the Issuer by improving the Issuer’s leverage profile and by potentially removing the refinancing risks associated with the Issuer’s Notes, (ii) create immediate value for the Issuer’s shareholders by converting debt into equity at a significant premium to the current share price, (iii) provide significant improvement in the Issuer’s cash flows due to a reduction in interest expense and the injection of the Roust, Inc. assets, (iv) strengthen the Issuer’s position as a market leader in Russia with an increased portfolio of leading premium spirits and wine brands and (v) create synergies through increased revenues from new customers and reduced costs from improved efficiency.
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