Notable Mergers and Acquisitions 11/2: (AVGO)/(BRCM) (WAGE)/(ADP) (TGEN)/(ADGE) (CPPL)/(TRP)

November 2, 2016 10:15 AM EDT

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*** Broadcom Limited (Nasdaq: AVGO) and Brocade Communications Systems, Inc. (Nasdaq: BRCD) announced that they have entered into a definitive agreement under which Broadcom will acquire Brocade, a leader in Fibre Channel storage area network (“FC SAN”) switching and IP networking, for $12.75 per share in an all-cash transaction valued at approximately $5.5 billion, plus $0.4 billion of net debt. Broadcom expects to fund the transaction with new debt financing and cash available on its balance sheet. Broadcom, with the support of Brocade, plans to divest Brocade’s IP Networking business, consisting of wireless and campus networking, data center switching and routing, and software networking solutions.

“This strategic acquisition enhances Broadcom’s position as one of the leading providers of enterprise storage connectivity solutions to OEM customers,” stated Hock Tan, President and Chief Executive Officer of Broadcom. “With deep expertise in mission-critical storage networking, Brocade increases our ability to address the evolving needs of our OEM customers. In addition, we are confident that we will find a great home for Brocade’s valuable IP networking business that will best position that business for its next phase of growth.”

“This transaction represents significant value for our shareholders, who will receive a 47% premium from the Brocade closing share price on Friday, October 28, 2016, and creates new opportunities for our customers and partners,” said Lloyd Carney, Chief Executive Officer of Brocade. “Our best-in-class FC SAN solutions will help Broadcom create one of the industry’s broadest portfolios for enterprise storage. We will work with Broadcom as it seeks to find a buyer for our IP Networking business which includes a full portfolio of open, hardware and software-based solutions spanning the core of the data center to the network edge.”

Upon closing, the transaction is expected to be immediately accretive to Broadcom’s non-GAAP free cash flow and earnings per share. Broadcom currently anticipates that Brocade’s FC SAN business will contribute approximately $900 million of pro forma non-GAAP EBITDA in its fiscal year 2018.

The board of directors of Brocade and the Executive Committee of the board of directors of Broadcom have unanimously approved the transaction, which is presently expected to close in the second half of Broadcom’s fiscal year 2017 which commenced on October 31, 2016, subject to regulatory approvals in various jurisdictions, customary closing conditions as well as the approval of Brocade’s stockholders. The closing of the transaction is not subject to any financing conditions, nor is it conditioned on the divestiture of Brocade’s IP Networking business.

*** WageWorks, Inc. (NYSE: WAGE) announced it has signed definitive agreements to acquire Automatic Data Processing Inc.’s (Nasdaq: ADP) Consumer Health Spending Account (CHSA) and Consolidated Omnibus Reconciliation Act (COBRA) businesses. This transaction is expected to close by the end of November, 2016 and further strengthens WageWorks' leadership position in the Consumer-Directed Benefits market.

ADP’s CHSA and COBRA businesses provide a range of services including HSA, HRA, FSA, commuter benefits, COBRA, and direct bill administration to approximately 10,000 employer clients in the United States.

The businesses will continue to service clients and their employees out of their current Alpharetta, Georgia and Louisville, Kentucky locations in the U.S. and Pune and Hyderabad locations in India, supported by additional capabilities, products and technologies provided by WageWorks.

WageWorks and ADP have also formed a partnership in which WageWorks’ full suite of products and services will be offered by ADP sales representatives to their extensive client base and future customers.

"We are very pleased to welcome ADP’s CHSA and COBRA businesses’ customers and employees to WageWorks. We believe this transaction fits in very well with our stated acquisition strategy of complementing our strong organic growth through acquisitions and relationships that expand our employer and employee participant base. We have an outstanding track record of successfully integrating acquired companies, and see this transaction as another strategic step in strengthening and growing our business," said Joe Jackson, CEO of WageWorks. “In addition, we are thrilled to have established an ongoing partnership with ADP. They have several thousand sales people who will now be able to offer our best-in-class services to their clients, and we look to benefit from their leading position in cloud-based human capital management.”

The transaction will be financed through both cash on the balance sheet, as well as the drawdown from the company’s existing line of credit.

*** Tecogen Inc. (Nasdaq: TGEN)) and American DG Energy Inc. (NYSE: ADGE) announced that their Boards of Directors unanimously approved a definitive agreement under which Tecogen will acquire all of the outstanding shares of American DG in a stock-for-stock merger. Each share of American DG common stock will be exchanged for 0.092 shares of Tecogen common stock, valuing American DG at an approximately 27% premium to the company's most recent closing share price. The transaction creates a vertically integrated clean technology company able to offer equipment design, manufacturing, installation, financing, and long term maintenance service. The combined company will retain the Tecogen Inc. name and be led by Co-Chief Executive Officers John Hatsopoulos and Benjamin Locke.

"We are extremely pleased with this transaction and believe that over time it will create significant value for shareholders. I'd like to thank the independent special committees of the boards of both companies for their diligent work to bring this deal to fruition," said John Hatsopoulos, co-founder, co-CEO, and director of both Tecogen and American DG.

Transaction Rationale and Highlights

  • Competitive Advantage - Bringing American DG under the Tecogen umbrella allows Tecogen to offer a cost-free-installation option to customers without access to financing, sufficient capital on hand, or for those who may not be interested in owning and maintaining the equipment – creating a vertically integrated clean technology company better able to compete with other distributed generation peers offering in-house financing arrangements.
  • Stable Revenue Base - On a combined basis, approximately half of total company annual revenue is initially expected be from stable, long-term contracted sources (Tecogen Service revenue and American DG Energy revenue). This revenue base will provide a reliable funding source for both operating expense and growth initiatives while also making the combined company's revenue profile more predictable, reducing the revenue volatility caused by somewhat cyclical equipment sales and installations.
  • Growth Potential – Shareholders of the combined company will benefit from Tecogen's ongoing growth initiatives and joint venture interests, including automotive emissions control joint venture Ultra Emissions Technologies Ltd. ("ULTRATEK") and cogeneration joint venture TTcogen LLC.
  • Cost Savings - The combined companies expect to benefit from approximately $1 million of general and administrative cash savings as duplicative functions are eliminated.

Upon closing of the transaction, Tecogen shareholders are expected to own approximately 81% and American DG shareholders are expected to beneficially own approximately 19% of the combined company. The stock-for-stock transaction is intended to be structured such that it is tax-free to shareholders.

Approvals and Timing

Completion of the transaction is subject to satisfaction of customary closing conditions and the approval of shareholders of both companies. No voting agreements have been entered into in connection with the transaction, and there are no lock-up agreements, no-shop covenants or termination fees contained in the merger agreement. The transaction is expected to close in the first half of 2017.

Advisors

Scarsdale Equities issued a fairness opinion to the Special Committee of the Board established by Tecogen Inc. in connection with the transaction, and White, White and Van Etten, P.C. are acting as the Special Committee's legal counsel. Cassel Salpeter & Co. is acting as financial advisors to the Special Committee of the Board established by American DG Energy Inc. and Gennari Aronson, LLP is acting as legal counsel to the American DG Special Committee.

*** Columbia Pipeline Partners (NYSE: CPPL) announced that it has entered into a definitive agreement and plan of merger with Columbia Pipeline Group, Inc. (Columbia) pursuant to which Columbia will acquire, for cash, all of the outstanding common units of the Partnership, at a price of US$ 17.00 per common unit for an aggregate transaction value of approximately US$915 million. Columbia is a wholly-owned subsidiary of TransCanada Corporation (NYSE: TRP).

The price represents an increase of US$1.25 or eight per cent per unit when compared to the offer of US$15.75 per common unit made by Columbia on September 25, 2016.

In addition, until the closing of the merger, unit holders of the Partnership will continue to receive regular quarterly distributions of $0.1975 per unit, and at closing, holders of the Partnership's common units will be paid a pro-rated distribution for any partial period to the closing date.

As the general partner of the Partnership is an indirect wholly-owned subsidiary of Columbia, a committee composed of the independent directors of the board of directors of the Partnership's general partner (the Conflicts Committee) was formed to consider Columbia's offer. The Conflicts Committee approved the merger agreement and determined that the merger agreement and the merger transactions are fair and reasonable to and in the best interests of the Partnership and the holders of the Partnership's common units unaffiliated with Columbia entities. Based on the recommendation of the Conflicts Committee, the board of directors of the Partnership's general partner approved the merger agreement and recommended that the Partnership's unitholders approve the merger.

The merger is expected to close in the first quarter of 2017, and is subject to satisfaction of certain conditions, including the approval of the merger agreement and the transactions contemplated thereby by (1) a majority of the outstanding Partnership common units, voting as a class, (2) a majority of the outstanding Partnership common units held by unitholders unaffiliated with Columbia entities, voting as a class, and (3) a majority of the outstanding Partnership subordinated units, voting as a class. Columbia indirectly owns 100% of the subordinated units and has delivered a written consent approving the merger and the transactions contemplated thereby. Upon closing of the merger, the Partnership will be an indirect wholly owned subsidiary of TransCanada and will cease to be a publicly held partnership.

Jefferies LLC acted as financial advisor to the Conflicts Committee. Akin Gump Strauss Hauer & Feld LLP and Potter Anderson & Corroon LLP are serving as legal counsel to the Conflicts Committee.

TransCanada retained Morgan Stanley to act as its financial advisor and Vinson & Elkins LLP to act as its legal advisor.

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