Notable Mergers and Acquisitions 11/15: (REG)/(EQY) (EL) (BSX) (FINL)

November 15, 2016 9:44 AM EST

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*** Regency Centers Corporation (NYSE: REG) and Equity One, Inc. (NYSE: EQY) announced that they have entered into a definitive merger agreement under which Equity One will merge with and into Regency, with Regency continuing as the surviving public company and creating the preeminent shopping center Real Estate Investment Trust (“REIT”). The resulting enterprise will have industry-leading operating, development, redevelopment capacities as well as an unparalleled portfolio of primarily grocery-anchored properties uniquely positioned to sustain growth in net operating income (“NOI”) and create value for all of its stakeholders. The combined company is expected to have a pro forma equity market capitalization of approximately $11.7 billion and a total market capitalization of $15.6 billion, making it the largest REIT by equity value in the shopping center index.

“Bringing together these two highly complementary businesses creates a best-in-class platform capable of delivering sustained growth and value creation over the long-term,” said Martin E. “Hap” Stein, Jr., Chairman and Chief Executive Officer of Regency. “Shareholders of both companies are poised to benefit from an expanded presence in top metro areas, a higher organic growth profile, expanded development and redevelopment program, and greater tenant diversity. Through this transaction we are creating the nation’s preeminent shopping center REIT with excellent embedded growth potential. Importantly, we expect the transaction to be accretive to core FFO per share while preserving a sector-leading balance sheet, with greater financial flexibility to support growth initiatives.”

“This merger will be a transformative event for both companies,” said David Lukes, Chief Executive Officer of Equity One. “The alignment of our respective portfolios, development/redevelopment pipelines, industry-leading operations, and access to a lower cost of capital, opens us to new avenues of growth that will benefit all shareholders. Equity One shareholders are receiving an attractive valuation for the company’s assets, and have the opportunity to participate in the future growth prospects of a powerful new company led by a best-in-class management team.”

Under the terms of the Agreement, each share of Equity One common stock will be converted into 0.45 shares of newly issued shares of Regency common stock. On a pro forma basis, following the closing of the transaction, Regency shareholders are expected to own approximately 62 percent of the combined company’s equity, and former Equity One shareholders are expected to own approximately 38 percent. The merger is subject to customary closing conditions, including the approval of both Regency and Equity One shareholders. The parties currently expect the transaction to close during the first quarter or early second quarter of 2017.

This strategic transaction was unanimously approved by the Board of Directors of both companies. The merger will create a national portfolio of 429 properties encompassing more than 57 million square feet, including co-investment partnerships, and located primarily in high density in-fill and affluent trade areas. The combination will provide increased penetration within key target areas, broader tenant diversity, and meaningful balance sheet capacity. As a result, the combined company will feature the attributes necessary to deliver consistent NOI growth, along with the capabilities to pursue accretive capital deployment opportunities through disciplined development and intense asset management.

Summary of Strategic Benefits

The merger of Regency and Equity One uniquely positions the combined company to enhance shareholder value as the preeminent grocery-anchored shopping center REIT:

  • Unparalleled Portfolio of High-Quality Centers: Increased concentration in higher density, in-fill metro areas. The company’s five largest areas of Southern and Northern California; Southeast Florida; New York; and the Washington / Baltimore corridor, which together will represent more than 50 percent of total annualized rent, increases density by more than 30 percent and demographic purchasing power by 15 percent.
  • Enhanced NOI Growth Profile: The high quality of the combined platform provides for significant and sustainable embedded NOI and net asset value growth opportunities.
  • Expanded Value-Creation Opportunities: The combined best-in-class national development, redevelopment, and leasing platform is positioned to produce industry-leading performance.
  • Greater Diversity of High-Quality Tenants: The top 10 tenants of the combined company, which include category-leading grocers and retailers such as Publix, Kroger, Whole Foods, and TJX, will represent approximately 18 percent of total ABR, with no single tenant representing more than approximately three percent.
  • Superior Financial Strength and Flexibility: With enhanced size and scale, the combined company will maintain a conservative balance sheet with the flexibility to pursue compelling investment opportunities.
  • Annualized Operating Cost Savings: The combined company expects to realize approximately $27 million in annual run-rate cost savings by 2018, primarily related to the elimination of duplicative corporate and property-level operating costs. In addition, the combined company expects to realize additional synergies from economies of scale, increased operational efficiencies and its ability to augment an already-talented team.

Leadership and Organization

Both the Board of Directors of Regency and the Board of Directors of Equity One unanimously approved the transaction. The number of directors on Regency’s Board of Directors will be increased to 12, of which two directors designated by Equity One and one director designated by Gazit-Globe will be appointed to the Regency Board. Mr. Stein will serve as Chairman and Chief Executive Officer of the combined company, and Regency’s President and Chief Financial Officer, Lisa Palmer, Executive Vice President of Development, Mac Chandler, and Executive Vice President of Operations, James Thompson, will continue in their respective roles at the combined company. Chaim Katzman, current Chairman of Equity One and Gazit-Globe’s designee on the Regency Board, will serve as non-executive Vice Chairman of the combined company. Gazit-Globe, which owns approximately 34 percent of the outstanding stock of Equity One, has agreed to vote in favor the transaction. John C. Schweitzer will continue to serve in his role as lead director for Regency.

Upon completion of the merger, the company’s headquarters will remain in Jacksonville, Florida. The company will retain the Regency name and will continue to trade under the ticker symbol REG (NYSE).

Pro Forma Operations and Balance Sheet

Both companies own and operate high-quality grocery-anchored shopping centers located in fundamentally strong areas throughout the country. On a pro forma basis, the combined company will have an increased presence in higher-density, in-fill trade areas and enhanced tenant diversification. Given the complementary assets and operations of the two companies, the combined platform has meaningful opportunities for synergies, and margin improvement is expected. The combined company expects to increase cash flow at the property level by marking rents to market rates, realizing contractual rent increases, growing small shop occupancy and re-merchandising. In addition, the combined company is expected to have greater liquidity, a strong investment-grade balance sheet and a well-staggered debt maturity profile supported by long-standing relationships.

Dividend Policy and Declaration

Each company is expected to continue its ordinary course dividend policy during the pendency of the merger, and will also pay a pro-rated pre-closing dividend, so as to equalize the dividend payment dates and periods for each company.


J.P. Morgan Securities LLC is acting as financial advisor, and Wachtell, Lipton, Rosen & Katz is acting as legal advisor, to Regency. Barclays is acting as lead financial advisor, Citigroup Global Markets Inc. is acting as co-financial advisor, and Kirkland & Ellis LLP is acting as legal advisor to Equity One. ICR, LLC served as communications advisor for the transaction.

*** The Estée Lauder Companies Inc. (NYSE: EL) announced that it has signed an agreement to acquire Too Faced, the feminine, playful makeup brand renowned for high-quality, stylish cosmetics that consumers love. Too Faced, one of the fastest growing makeup brands in specialty-multi and online, is expected to strengthen the Company’s leadership position in the fast-growing prestige makeup category globally, increase the Company’s consumer reach in the specialty-multi channel, and win with millennials – all in strong alignment with the Company’s strategy.

Launched in 1998 by cosmetics visionaries Jerrod Blandino and Jeremy Johnson, and currently led by Johnson, Blandino and CEO Eric Hohl, Too Faced offers an unabashedly empowering line of cosmetic products for the eyes, face and lips. Beloved for its high-quality, innovative formulas, irreverent product names and distinctive packaging, Too Faced creates an emotional, authentic connection with consumers and has developed a strong following and built a vibrant community among millennials who are passionate about social media, fashion and pop culture. Too Faced has over 7.3 million Instagram followers and is among the top eight makeup brands in the specialty-multi channel in the United States.

Too Faced has experienced impressive growth over the past several years, and is expected to reach more than $270 million in net sales in 2016. This represents growth of more than 70% for the year and 60% compounded annually over the past three years. Too Faced has been part of leading global growth equity firm General Atlantic’s portfolio since 2015. The Estée Lauder Companies has agreed to acquire the entities that own the brand for a purchase price of approximately $1.45 billion. The acquisition is expected to close in December 2016.

“Too Faced is one of the most dynamic makeup brands in the world,” said Fabrizio Freda, President and Chief Executive Officer of The Estée Lauder Companies. “It has tremendous growth momentum in specialty-multi and online – important, strategic and fast-growing channels. With Too Faced, we see terrific opportunity for additional value creation through expansion in new and existing markets both in the U.S. and internationally, as well as in travel retail globally. Jeremy, Jerrod, Eric and the entire Too Faced team have built an amazing and innovative brand. We look forward to working with them to continue to build on the brand’s winning spirit.”

“We are delighted to be joining forces with The Estée Lauder Companies as we continue to drive Too Faced’s dynamic growth,” said Jeremy Johnson and Jerrod Blandino, Co-Founders of Too Faced. “We started our careers behind the counters of the Estée Lauder brand, so this is truly a ‘homecoming’ for us. The Estée Lauder Companies appreciates our unique vision – to provide innovative, cruelty-free makeup products that give women the confidence to ‘have fun, play and dream big’ – and is committed to ensuring that we retain and build on the core pillars of our brand that are so important to us and our fans. This commitment, combined with ELC’s incredible world-class resources, will help us assure the ongoing growth and success of Too Faced for many years to come.”

Too Faced’s diverse range of color cosmetics includes cult favorites across all makeup subcategories. The iconic Better Than Sex Mascara, which launched in 2013, quickly became the number one selling mascara with all of the brand’s primary retail partners in multiple markets, and has sold over 2.5 million units globally. Born This Way, the brand’s coveted undetectable foundation that launched in July 2015, has also become one of the bestselling foundations within its channels of distribution. Too Faced is also known for its unique and beautifully packaged eye shadow palettes and collections, which strategically combine bestsellers with new creations; for example, the brand’s Christmas Collection has become a hero franchise that is significantly reinvented every year, driving its phenomenal success.

“The entrepreneurial spirit at the heart of The Estée Lauder Companies is evident in the remarkable success of Too Faced,” said William P. Lauder, Executive Chairman of The Estée Lauder Companies. “Jerrod and Jeremy started the brand with a simple, yet compelling creative concept, and transformed it into something that is truly extraordinary. We are absolutely delighted that Jeremy and Jerrod are ‘returning’ to the Company where they began their careers in beauty, and we welcome the entire Too Faced team to our family.”

"Too Faced is a terrific growth company with an impressive track record of successful product innovation and an authentic connection with its customers. We’ve enjoyed a strong partnership with Jeremy, Jerrod, Eric and the rest of the Too Faced team and believe the company’s bright future will only be enhanced as part of The Estée Lauder Companies’ portfolio,” said Andrew Crawford, Managing Director and Global Head of Retail & Consumer at General Atlantic.

John Demsey, Executive Group President, The Estée Lauder Companies Inc., will add Too Faced to the portfolio of brands that he oversees.

The Estée Lauder Companies Inc. received financial advice from Evercore and BNP Paribas, and legal counsel from Lowenstein Sandler LLP. Too Faced received financial advice from Goldman, Sachs & Co. and Jefferies LLC, and legal counsel from Paul, Weiss, Rifkind, Wharton & Garrison LLP.

*** Boston Scientific (NYSE: BSX) has acquired the gynecology and urology portfolio of Distal Access, LLC, a Salt Lake City based company that designs minimally invasive medical devices. The portfolio includes the Resectr Tissue Resection Device, a single-use solution designed to effectively remove uterine polyps.

Uterine polyps can cause a variety of symptoms, including abnormal uterine bleeding and infertility. Nearly 80 percent of women will develop one or more polyps in their lifetime1 and polyps should be removed in order to determine if they are benign or contain malignant or pre-malignant cells. More than 400,000 polypectomies, the procedure to remove polyps, are performed annually in the United States. 2

"The Resectr device is exactly the type of innovation we need to help make healthcare more cost-effective and accessible for physicians and their patients," said David Pierce, senior vice president and president, Boston Scientific, urology and pelvic health. "This acquisition is part of our commitment to advance comprehensive solutions for women's health that can help physicians provide high-quality care."

The Resectr device is compatible with a broad range of hysteroscopes and enables physicians to treat patients with polyps in an office, hospital or ambulatory surgery center and reduces the need for investment in additional capital equipment required with traditional surgical tools used in this procedure. Used in conjunction with a diagnostic hysteroscope, the Resectr device offers the flexibility to treat polyps in a single office visit. Clinical studies have demonstrated that outpatient treatment of uterine polyps is a cost-effective alternative3 to inpatient treatment with similar clinical outcomes. 4

The Resectr device will be integrated into the Boston Scientific urology and pelvic health business which offers minimally invasive solutions for gynecologic surgery, including the Symphion™ System for uterine tissue removal and Genesys HTA System for the treatment of abnormal uterine bleeding. In addition, the urology and pelvic health portfolio includes products focused on kidney stones, benign prostatic hyperplasia (BPH), erectile dysfunction, male incontinence and pelvic floor disorders.

The acquisition of the gynecology and urology portfolio from Distal Access is immaterial to earnings per share (EPS) in 2016 and 2017 on an adjusted and GAAP basis. Specific terms of the transaction were not disclosed.

  1. Khan AT, Shehmar M, Gupta JK. Uterine fibroids: current perspectives. Int J Womens Health. 2014 Jan 29;6:95-114.
  2. MedTech 360 Market Analysis. Rep. Burlington: MedTech Reports, 2015. Print.
  3. Diwakar, L., Te Roberts, Nam Cooper, L. Middleton, S. Jowett, J. Daniels, P. Smith, and Tj Clark. "An Economic Evaluation of Outpatient versus Inpatient Polyp Treatment for Abnormal Uterine Bleeding." BJOG: An International Journal of Obstetrics & Gynaecology BJOG: Int J Obstet Gy 123.4 (2015): 625-31. Web.
  4. "AAGL Practice Report: Practice Guidelines for the Diagnosis and Management of Endometrial Polyps." Journal of Minimally Invasive Gynecology 19.1 (2012): 3-10. Web.

*** The Finish Line, Inc. (Nasdaq: FINL) announced that it is currently exploring strategic alternatives for JackRabbit, the Company’s specialty running store chain, to further enhance shareholder value. After a comprehensive review, the Company believes its long term growth strategy and profitability improvement plans align with simplifying the business to focus on the Finish Line brand and has decided to evaluate possible alternatives for JackRabbit including a potential sale.

(NOTE: It was recently reported that Finish Line would be looking at options for the unit.)

The Board of Directors and management team are currently working with Peter J. Solomon Company, LLC as their financial advisor and there is no definitive timeline or assurance that this process will result in a sale transaction. The Company does not intend to provide any further updates on this process unless or until the Board has approved a final decision.

As a result of the exploration of strategic alternatives for JackRabbit, the Company expects to record a non-cash goodwill impairment charge in the third quarter of fiscal year 2017 of approximately $44 million.

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