Notable Mergers and Acquisitions 11/14: (HAR) (MENT) (GIL) (AGII)
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HARMAN’s experience designing and integrating sophisticated in-vehicle technologies, as well as its long-term relationships with most of the world’s largest automakers, will create significant growth opportunities for the combined business by enabling it to leverage Samsung’s expertise in connected mobility, semiconductors, user experience, displays and its global distribution channels. In addition, the combination of HARMAN’s brands and audio capabilities and Samsung’s expertise in consumer electronics will deliver enhanced customer benefits and elevate user experiences across Samsung’s complete portfolio of consumer and professional products and systems.
“HARMAN perfectly complements Samsung in terms of technologies, products and solutions, and joining forces is a natural extension of the automotive strategy we have been pursuing for some time,” said Oh-Hyun Kwon, Vice Chairman and Chief Executive Officer of Samsung Electronics. “As a Tier 1 automotive supplier with deep customer relationships, strong brands, leading technology and a recognized portfolio of best-in-class products, HARMAN immediately establishes a strong foundation for Samsung to grow our automotive platform. Dinesh Paliwal is a proven global leader and, in our extensive discussions, we have developed deep respect for him, his strong senior leadership team and HARMAN’s talented employees. HARMAN’s sustained track record of rapid growth fueled by technology leadership and an unmatched automotive order pipeline reflects its commitment to innovation and customers.”
“The vehicle of tomorrow will be transformed by smart technology and connectivity in the same way that simple feature phones have become sophisticated smart devices over the past decade,” added Young Sohn, President and Chief Strategy Officer of Samsung Electronics. “We see substantial long-term growth opportunities in the auto technology market as demand for Samsung’s specialized electronic components and solutions continues to grow. Working together, we are confident that HARMAN can become a new kind of Tier 1 provider to the OEMs by delivering end-to-end solutions across the connected ecosystem.”
Dinesh Paliwal, HARMAN Chairman, President and CEO, stated, “This compelling all-cash transaction will deliver significant and immediate value to our shareholders and provide new opportunities for our employees as part of a larger, more diversified company. Today’s announcement is a testament to what we have achieved and the value that we have created for shareholders. Samsung is an ideal partner for HARMAN and this transaction will provide tremendous benefits to our automotive customers and consumers around the world. Combining Samsung’s strengths in leading-edge displays, connectivity and processing solutions with HARMAN’s technology leadership and long-standing customer relationships will enable OEMs to provide new offerings for their customers. Partnerships and scale are essential to winning over the long term in automotive as demand for robust connected car and autonomous driving solutions increases at a rapid pace. This transaction will bring HARMAN and Samsung’s complementary strengths together to accelerate innovation in this space. More broadly, this investment underscores the strength of HARMAN’s employees, as well as our success and leadership across our markets. We look forward to working together with Samsung to elevate experiences for consumers worldwide.”
Customer Benefits and Significant Growth Opportunities
Samsung expects the combination to deliver significant growth opportunities and benefits to customers by leveraging Samsung’s and HARMAN’s complementary technologies, resulting in increased market penetration across important end markets.
- Automotive: Combining HARMAN’s leadership in new connected car technologies, including its top positions in infotainment, cyber security, over-the-air updates and telematics, with Samsung’s significant expertise and experience in connectivity technologies, including 5G, UX/UI, display technology and security solutions, will enhance HARMAN’s automotive and connected services businesses to drive greater sales and provide significant benefits as automakers speed the adoption of next-generation connected cars.
- Audio: HARMAN’s leading brands and cutting-edge audio systems include JBL®, Harman Kardon®, Mark Levinson®, AKG®, Lexicon®, Infinity®, and Revel®. The company also licenses Bowers & Wilkins® and Bang & Olufsen® brands for automotive. All of these brands will greatly enhance the competitiveness of Samsung’s mobile, display, virtual reality and wearable products to deliver a fully differentiated audio and visual experience for customers.
- Professional: The combination will also expand the combined company’s business-to-business platform through its ability to deliver integrated, large-scale audio and visual professional solutions at stadiums, concert facilities and other performance centers such as The John F. Kennedy Center for the Performing Arts and STAPLES Center – home of the GRAMMY Awards®.
- Connected Services: Samsung will gain access to HARMAN’s 8,000 software designers and engineers who are unlocking the potential of the IoT market. This collaboration will deliver the next generation of cloud-based consumer and enterprise experiences, as well as end-to-end services for the automotive market through the convergence of design, data and devices.
Operating Structure and Leadership
Upon closing, HARMAN will operate as a standalone Samsung subsidiary, and continue to be led by Dinesh Paliwal and HARMAN’s current management team. Samsung is pursuing a long-term growth strategy in automotive electronics, and plans to retain HARMAN’s work force, headquarters and facilities, as well as all of its consumer and professional audio brands. Samsung believes the combination will increase career development and advancement opportunities for the employees of both companies.
Samsung’s Automotive Electronics Business Team, which was established in December of 2015 to identify opportunities for Samsung in the automotive sector, will work closely with the HARMAN management team to realize the full growth potential of the combination.
Terms of the Transaction
The purchase price represents a premium of 28% based on HARMAN’s closing stock price on November 11, 2016 and a 37% premium to HARMAN’s 30-calendar day volume weighted average price ending November 11, 2016. Samsung expects to use cash on hand to fund the transaction. The agreement has been unanimously approved by the boards of directors of both companies.
The transaction, which is subject to approval by HARMAN shareholders, regulatory approvals and other customary closing conditions, is expected to close in mid-2017.
Evercore is serving as financial advisor to Samsung and Paul Hastings LLP is acting as legal counsel. J.P. Morgan and Lazard are serving as financial advisors to HARMAN and Wachtell, Lipton, Rosen & Katz is acting as legal counsel.
*** Siemens is further building its Vision 2020 to shape Digital Industrial Enterprise by expanding its unique portfolio for industrial software. Siemens and Mentor Graphics (Nasdaq: MENT) ("Mentor") today announced that they have entered into a merger agreement under which Siemens will acquire Mentor for $37.25 per share in cash, which represents an enterprise value of $4.5 billion. The offer price represents a 21% premium to Mentor's closing price on November 11, 2016, the last trading day prior to the announcement. Mentor's Board of Directors approved and declared advisable the merger agreement, and Mentor's Board of Directors recommends the approval and adoption of the merger agreement by the holders of shares of Mentor common stock. Mentor shareholder Elliott Management has committed to support the transaction.
This acquisition decisively extends Siemens' leading Digital Enterprise Software portfolio with Mentor's well established electronics IC and systems design, simulation and manufacturing solutions. These capabilities are essential for today's smart connected products such as autonomous vehicles. The combination provides mechanical, thermal, electronic and embedded software tools which will allow Siemens' customers to further accelerate their innovation, drive production efficiencies and optimize the operation of their products in the field. Now, for the first time, quality, efficiency, flexibility, safety and speed can be optimized across technical domains, throughout the entire lifecycle and for the entire extended enterprise.
"Siemens is acquiring Mentor as part of its Vision 2020 concept to be the Benchmark for the New Industrial Age. It's a perfect portfolio fit to further expand our digital leadership and set the pace in the industry," said Joe Kaeser, President and CEO of Siemens AG.
"With Mentor, we're acquiring an established technology leader with a talented employee base that will allow us to supplement our world-class industrial software portfolio. It will complement our strong offering in mechanics and software with design, test and simulation of electrical and electronic systems," said Klaus Helmrich, member of the Managing Board of Siemens.
Mentor is headquartered in Wilsonville, Oregon, U.S., and has employees in 32 countries worldwide. In its fiscal year ended January 31, 2016, Mentor had over 5,700 employees and generated revenue of approximately $1.2 billion with an adjusted operating margin of 20.2%. Siemens expects these attractive margins to continue in the future and contribute significantly to the Product Lifecycle Management (PLM) software business of Siemens Digital Factory (DF) Division, which Mentor will join. Mentor serves a large, diverse customer base of marquee systems companies and IC/semiconductors companies with over 14,000 global accounts across communications, computer, consumer electronics, semiconductor, networking, aerospace, multimedia, and transportation industries. Mentor is viewed as a global leader in strategic industry segments including IC design, test and manufacturing; electronic systems design and analysis; and emerging markets including automotive electronics.
"Combining Mentor's technology leadership and deep customer relationships with Siemens' global scale and resources will better enable us to serve the growing needs of our customers, and unlock additional significant opportunities for our employees," said Walden C. Rhines, chairman and CEO of Mentor. "Siemens is an ideal partner with financial depth and stability, and their resources and additional investment will allow us to innovate even faster and accelerate our vision of creating top-to-bottom automated design solutions for electronic systems. We are excited to join the Siemens family, as it is clear they share the same values and focus on customer success, and are pleased that this transaction provides immediate and certain value to our stockholders."
Siemens expects to achieve synergies through a combination of revenue growth and anticipated margin expansion, with a total EBIT impact of over €100 million within 4 years from closing the transaction. Additionally, the transaction is expected to be EPS accretive within three years from closing. Closing of the transaction is subject to customary closing conditions and is expected in Q2 of calendar 2017. Mentor will be part of the PLM software business of Siemens' DF Division. DF is the industry leader in automation technology and a leading provider of PLM software.
"By adding Mentor's electronic design automation solutions and talented experts to our team, we're greatly enhancing our core competencies for product design that creates a very precise digital twin of any smart product and production line," noted Helmrich.
*** Gildan Activewear Inc. (NYSE: GIL) announced that it has entered into an asset purchase agreement (APA) to acquire the worldwide intellectual property rights related to the American Apparel brand and certain assets from American Apparel, LLC, (American Apparel), a U.S.-based manufacturer of fashion basics, for a cash purchase price of approximately $66 million. Gildan will also separately purchase inventory from American Apparel to ensure a seamless supply of goods in the printwear channel while the Company integrates the brand within its Printwear business. Gildan will not be purchasing any retail store assets. The closing of the transaction is subject to approvals by the American Apparel bankruptcy process and customary conditions, and is expected to occur during the first quarter of 2017.
The American Apparel brand is a highly recognized brand among consumers and within the North American printwear channel. The American Apparel brand would represent a strong complementary addition to the Company's portfolio of brands. The acquisition will create revenue growth opportunities by leveraging Gildan's extensive distribution network in North American and international printwear markets to further increase the brand's penetration in the faster growing fashion basics segments of these markets. In addition, with American Apparel®'s strong heritage as a consumer brand, the Company will evaluate potential wholesale opportunities for leveraging the brand within its Branded Apparel business.
American Apparel voluntarily filed for Chapter 11 bankruptcy protection on November 14, 2016. The Bankruptcy Court may require American Apparel to hold an auction for its assets and business under which the proposed acquisition would constitute the initial bid. Consummation of the acquisition would be subject to Gildan being selected as the successful bidder in any such auction and Bankruptcy Court approval. Gildan will be entitled to a break-up fee and certain expense reimbursements if it does not prevail as the successful bidder at any such auction.
*** Argo Group International Holdings, Ltd. (Nasdaq: AGII) announced it has entered into an agreement to acquire Ariel Re, a global underwriter of insurance and reinsurance business for approximately $235 million cash. The acquisition, which is expected to be complete during the first quarter of 2017, is subject to relevant regulatory approvals.
“Ariel Re is a terrific fit for Argo Group - operationally and culturally,” says Argo Group CEO Mark E. Watson III. “We remain focused on delivering enhanced shareholder value. This transaction enables us to build upon the successes realized individually by Argo Group and Ariel Re, utilizing our combined strength to deploy capital in selected areas to produce maximum return and continued growth.
“Under the leadership of Jose A. Hernandez, head of Argo Group’s International Business, the combination of Ariel Re and Argo Re will result in a market-leading business and will make a meaningful and immediate contribution to earnings and return on equity.
“This acquisition is part of Argo Group’s strategic initiative to build scale in its London- and Bermuda-based platforms by adding complementary lines of specialty business. After the acquisition, Argo Group will have a well-balanced portfolio mix of approximately 88 percent insurance and 12 percent reinsurance,” adds Watson.
This transaction provides Argo Group with added diversification, which improves the company’s ability to manage through changing market cycles. It also adds new capabilities that can be leveraged throughout the entire organization, including Ariel Re’s unique modeling and risk analysis tools, which will enhance Argo’s already robust underwriting analytics.
“Ariel Re is a group of proven insurance experts who rely on deep domain expertise, rigorous research and development, and innovative thinking - values and capabilities that align with those of Argo Group,” says Hernandez.
Ariel Re is jointly owned by Banco BTG Pactual S.A. and the Abu Dhabi Investment Council and underwrites a global portfolio of insurance and reinsurance business through Lloyd’s Syndicate 1910. Ariel Re’s book of business is well diversified by distribution, regional exposure and peril. The company has achieved superior returns by sourcing low-frequency/higher-severity, high-margin business.
“Argo Group have long been supporters of Ariel Re and we are delighted to take this relationship forward by bringing Ariel Re under the Argo banner,” says Ryan Mather, Ariel Re CEO. “There is great synergy between the teams from both companies and we are looking forward to working together to strengthen the offering for our clients.”
Argo Group’s financial advisor in connection with the transaction is Aon Securities. Its legal counsel is Willkie Farr & Gallagher LLP.
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