Notable Mergers and Acquisitions 10/21: (EV) (BTI)/(RAI) (JCOM)/(EVDY) (PFPT)

October 21, 2016 10:11 AM EDT

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*** Eaton Vance Corp. (NYSE: EV) announced the execution of a definitive agreement to acquire the business assets of Calvert Investment Management, Inc. (Calvert), an indirect subsidiary of Ameritas Holding Company. In conjunction with the proposed acquisition, the Boards of Trustees of the Calvert mutual funds (Calvert Funds) have voted to recommend to Fund shareholders the approval of investment advisory contracts with a newly formed Eaton Vance affiliate, to operate as Calvert Research and Management, if the transaction is consummated.

Calvert is a recognized leader in responsible investing, with approximately $12.3 billion of fund and separate account assets under management as of September 30, 2016. The Calvert Funds are one of the largest and most diversified families of responsibly invested mutual funds, encompassing actively and passively managed U.S. and international equity strategies, fixed income strategies and asset allocation funds managed in accordance with the Calvert Principles for Responsible Investment. As a responsible investor, Calvert seeks to invest in companies that provide positive leadership in their business operations and overall activities that are material to improving societal outcomes.

Founded in 1976, Calvert has a long history in responsible investing. In 1982, the Calvert Social Investment Fund (now Calvert Balanced Portfolio) was launched as the first mutual fund to oppose investing in South Africa's apartheid system. Other Calvert innovations include the first responsibly managed fixed income and international equity funds, and pioneering programs in shareholder advocacy, corporate engagement and impact investing.

"I am extremely pleased that Eaton Vance has chosen to make Calvert the centerpiece of its expansion in responsible investing," said John Streur, President and Chief Executive Officer of Calvert. "By combining Calvert's expertise in sustainability research with Eaton Vance's investment capabilities and distribution strengths, we believe we can deliver best-in-class integrated management of responsible investment portfolios to investors across the U.S. and internationally. Eaton Vance is the ideal partner to help Calvert fulfill its mission to deliver superior long-term performance to clients and achieve positive impact."

"As part of Eaton Vance, we see tremendous potential for Calvert to extend its leadership position among responsible investment managers," said Thomas E. Faust Jr., Chairman and Chief Executive Officer of Eaton Vance. "By applying our management and distribution resources and oversight, we believe Eaton Vance can help Calvert become a meaningfully larger, better and more impactful company."

Completion of the transaction is subject to Calvert Fund shareholder approvals of new investment advisory agreements and other closing conditions, and is expected on or about December 31, 2016. Because the transaction is structured as an asset purchase, liabilities in connection with Calvert's previously disclosed compliance matters and other pre-closing obligations will remain with the seller. Terms of the transaction are not being disclosed.

"The acquisition of Calvert provides significant potential benefits to Eaton Vance shareholders, both long-term and near-term," said Laurie G. Hylton, Vice President and Chief Financial Officer of Eaton Vance. "Calvert is a leading brand in one of the most promising categories of investing, and we expect to help them achieve substantial growth over time. Reflecting the current profitability of acquired operations and anticipated cost savings, we also expect the transaction to be immediately accretive."

*** British American Tobacco p.l.c. (NYSE: BTI), which owns 42.2% of Reynolds American Inc. (NYSE: RAI), has made a proposal to merge with Reynolds through the acquisition of the remaining 57.8% in the company. US securities laws require BAT to announce its merger proposal promptly after it was made to the Board of Reynolds. As a result, BAT has been unable to have prior negotiations with Reynolds regarding the proposal.

BAT’s proposal to merge with Reynolds:

Values Reynolds at $56.50 per share, of which $24.13 would be in cash and $32.37 would be in BAT shares.1
Represents a premium of 20% over the closing price of Reynolds common stock on 20 October 2016.

This would create a stronger, truly global tobacco and Next Generation Products (“NGP”) company with:

A leading position in the US tobacco market, the largest global profit pool (ex-China) with strong growth dynamics.
A significant presence in high growth emerging markets across South America, Africa, the Middle East and Asia, together with the most attractive developed markets.
A unique portfolio of strong brands, bringing together ownership of Newport, Kent and Pall Mall.
Combined Next Generation Products and R&D capabilities to deliver a world class pipeline of vapour and tobacco heating products across all the fastest growing NGP markets globally.
Creating the world’s largest listed tobacco company by net turnover and operating profit.

There is a strong financial rationale for the transaction that supports long-term delivery for all stakeholders:

This is a premium offer, supported by modest cost synergies, with a significant share consideration enabling participation in the long-term benefits.
It is earnings accretive in the first full year.
It is expected to be accretive to dividends per share.
The transaction would create a broader, larger business, delivering more diversified sources of profit growth.
The combined company would maintain a strong financial profile, with a target of maintaining a solid investment grade credit rating and enhanced cash generation.

Key terms of proposed transaction

The proposed transaction would be effected through a US statutory merger in which Reynolds shareholders, other than BAT, would receive $24.13 in cash and 0.5502 BAT shares for each of their Reynolds shares.

The total consideration for the remaining 57.8% of Reynolds would be $47 billion, of which approximately $20 billion would be in cash and $27 billion in BAT shares.

The Proposal represents a premium of 20% over the closing price of Reynolds common stock on 20 October 2016 and an Enterprise Value of $93 billion which, based on reported LTM EBITDA to 30 September 2016 represents a multiple of 16.3x.

The proposed merger is subject to endorsement of Reynolds’s independent directors (not designated by BAT) and approval by BAT and Reynolds shareholders.

BAT’s Chief Executive, Nicandro Durante commented:

“We have been a shareholder in Reynolds since its creation in 2004 and have benefited from its growth in the US market. The acquisition of Lorillard in 2015 has further strengthened Reynolds’s business. The proposed merger of our two great companies is the logical progression in our relationship and offers all shareholders a stake in a stronger, truly global tobacco and Next Generation Products company. BAT is proud of its track record of consistent delivery for shareholders and this transaction would further strengthen that delivery in the future."

*** j2 Global, Inc. and Ziff Davis, LLC, a leading digital media company in the technology, gaming and lifestyle categories, announced that Ziff Davis has entered into a definitive merger agreement to acquire Everyday Health, Inc. (NYSE: EVDY), a leading provider of digital health marketing and communications solutions. Under the terms of the agreement, Ziff Davis will acquire Everyday Health for $10.50 per share in cash, representing an approximate enterprise value of $465 million. Ziff Davis comprises the Digital Media Division of j2 Global, Inc.

Under the terms of the merger agreement, Ziff Davis will commence a tender offer to acquire all of the outstanding shares of Everyday Health for $10.50 per share in cash followed by a merger in which each remaining untendered share of Everyday Health common stock would be converted into the right to receive the same $10.50 cash per share consideration as in the tender offer. The transaction is conditioned upon satisfaction of the minimum tender condition, which requires that shares representing more than 50 percent of Everyday Health’s common shares be tendered, and is subject to regulatory approvals and other customary closing conditions.

*** Proofpoint, Inc., (Nasdaq: PFPT) has entered into a definitive agreement to acquire FireLayers, an innovator in cloud security. With this acquisition, Proofpoint will extend Targeted Attack Protection (TAP) to SaaS applications, enabling customers to protect their employees using SaaS applications from advanced malware. In addition, the threat intelligence extracted from SaaS applications will enhance the Proofpoint Nexus security and compliance platform, expanding Proofpoint’s ability to deliver protection for the way people work today.

“FireLayers gives us a platform to scale and protect the thousands of SaaS applications that enterprises use, as well as a seasoned product and engineering team to execute,” said Gary Steele, Proofpoint CEO. “Also, as part of today’s news, we are pleased to expand our global cybersecurity presence in EMEA with a new office location in Israel.”

As users increasingly click links and access files in cloud services, SaaS applications have become an important and often invisible threat vector for malware. The combination of Proofpoint TAP and FireLayers will enable enterprises to detect and block both malicious files and links shared via SaaS applications. As with other modules of TAP, this will be sold separately and will be available in the first half of 2017.

The new FireLayers-powered SaaS application threat intelligence will feed the Proofpoint Nexus platform to amplify Proofpoint’s correlated threat intelligence across its global ecosystem. With today’s announcement, enterprises will be able to protect themselves against a variety of targeted attacks, including for example:

  • Malware in files shared via SaaS file sharing platforms, such as Microsoft Office 365 (both SharePoint Online and OneDrive for Business) or Dropbox, and within files uploaded to a ticket in customer service applications, such as Salesforce or ServiceNow
  • Malicious links embedded in resumes uploaded to Human Capital Management applications such as Oracle Taleo and Workday
  • Malware posted by an attacker, who has compromised a trusted partner, to SaaS collaboration tools including Box or Slack

“We built FireLayers with one goal: to help enterprises secure their cloud applications—and we are thrilled to accelerate our mission and bring Proofpoint’s exceptional capabilities to SaaS applications,” said Yair Grindlinger, CEO and co-founder of FireLayers. “Our decision to join Proofpoint is based on its high caliber cybersecurity innovation and effectiveness at protecting customers worldwide from advanced threats. And the new Proofpoint Israel office extends that exceptional leadership presence into Israel for long-term success.”

The purchase price for the transaction is approximately $55 million, with approximately $46 million in cash and the remaining approximately $9 million in Proofpoint stock subject to continued vesting. The closing is subject to customary closing conditions and is expected to occur this quarter.

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