Notable Mergers and Acquisitions 11/3: (LSCC) (AXL)/(MPG) (IFF) (IQNT)

November 3, 2016 9:56 AM EDT

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*** Lattice Semiconductor Corporation (Nasdaq: LSCC) and Canyon Bridge Capital Partners, Inc. announced that the Company and Canyon Bridge Acquisition Company, Inc. (“Parent”), an affiliate of Canyon Bridge, have signed a definitive agreement under which Parent will acquire all outstanding shares of Lattice for approximately $1.3 billion inclusive of Lattice’s net debt, or $8.30 per share in cash. This represents a 30% premium to Lattice’s last trade price on November 2, 2016, the last trading day prior to announcement.

Darin G. Billerbeck, President and Chief Executive Officer of Lattice, commented, “We are pleased to announce the transaction today with Canyon Bridge, which will unlock tremendous value for shareholders. This transaction is the culmination of an extensive review process with our Board, financial and legal advisers, and it delivers certain and immediate cash value to shareholders while reducing our execution risk. We are excited to leverage Canyon Bridge’s resources and market connections as we enhance our focus on executing our long-term strategic plan of continued innovation. Importantly, we will operate as a standalone subsidiary after the acquisition and do not expect any changes in our operations or our unwavering commitment to continued innovation for our customers.”

Ray Bingham, Founding Partner, Canyon Bridge, noted, “Lattice’s low-power FPGA franchise, along with its video connectivity and wireless solutions, make it a compelling, strategic investment. We expect the Company will continue to leverage its existing customer relationships with major OEMs globally, while further broadening the role of its technology solutions and accelerating its strategic plans.”

Benjamin Chow, Founding Partner, Canyon Bridge, added, “Equally critical in our decision to partner with Lattice is the Company’s world-class management team and its dedicated, highly experienced employee base. Our long-term interests are aligned with Lattice’s employees and customers. We plan to build upon Lattice’s achievements and are excited to provide the resources necessary to help the Company achieve significant growth and long-term success.”

The transaction has been unanimously approved by both companies’ boards of directors and is expected to close in early 2017 subject to customary closing conditions, regulatory approvals and approval by Lattice’s shareholders. Lattice and Canyon Bridge are committed to proactive engagement with regulators to facilitate the government review process.

Upon the completion of the transaction, Lattice will be a standalone subsidiary of Canyon Bridge and Lattice’s senior management team will continue to lead the business from its current headquarters in Portland, OR.

Morgan Stanley & Co. LLC is serving as the sole financial adviser to Lattice and Skadden, Arps, Slate, Meagher & Flom LLP is serving as legal adviser. Lazard is serving as the financial adviser to Canyon Bridge and Jones Day is serving as legal adviser.

*** American Axle & Manufacturing Holdings, Inc. (NYSE: AXL) and Metaldyne Performance Group Inc. (MPG) (NYSE: MPG) announced that the companies have entered into a definitive merger agreement under which AAM will acquire MPG for approximately $1.6 billion in cash and stock, plus the assumption of $1.7 billion in net debt. The combination brings together highly complementary businesses and forms a premier, global Tier 1 supplier with broad capabilities across powertrain, drivetrain and driveline product lines, as well as diversified customer base and end-markets.

Under the terms of the agreement, each share of MPG's common stock will be converted into the right to receive $13.50 per share in cash and 0.5 share of AAM common stock. Upon closing of the transaction, AAM's shareholders will own approximately 70% of the combined company and MPG's shareholders will own approximately 30%. The transaction has been unanimously approved by the boards of directors of both companies and is anticipated to close in the first half of 2017 subject to shareholder and regulatory approval and other customary closing conditions.

Concurrent with the signing of the merger agreement, AAM entered into a voting agreement with an affiliate of American Securities LLC, the controlling stockholder of MPG, pursuant to which American Securities LLC has agreed to vote in favor of and otherwise support the transaction, subject to the terms of the voting agreement. Following the transaction, an affiliate of American Securities LLC will own approximately 23% of the combined company.

"AAM's transformational acquisition of MPG brings together two complementary Tier 1 organizations to create a company with greater scale and increased diversity across products, customers and end markets," said David C. Dauch, AAM's Chairman and Chief Executive Officer. "MPG's expertise in complex, highly-engineered powertrain components and its global footprint will be tremendous assets to AAM. We are excited about the powerful industrial logic in this combination that will allow us to create additional value for our customers and other key stakeholders. Together, we are forming a company with increased earnings potential and enhanced cash flow generation that will allow us to rapidly reduce leverage while fueling growth and delivering value to our shareholders."

George Thanopoulos, MPG's Chief Executive Officer, added, "This compelling transaction offers MPG shareholders an immediate premium and significant participation in the growth potential of the combined organization and its talented associates. MPG and AAM share a similar culture and value system, laser focused on quality, operational excellence and technology leadership, which creates a natural fit and clear path to value creation for stakeholders of both companies."

Compelling Strategic Rationale

  • Creates a global leader in powertrain, drivetrain and driveline: The combined company will have the power to deliver a wide range of quality, highly engineered components, modules and sub-systems across multiple engine, transmission and driveline applications.
  • Diversified global customer base and end markets: Accelerates AAM's profitable growth and diversification objectives, significantly reducing product, customer and end-market concentrations.
  • Complementary technologies focused on light-weighting, fuel efficiency, vehicle safety and performance solutions: Expertise in complementary product, process and systems technology strongly position the company to address the global automotive mega trends for both mechanical and alternative propulsion systems.
  • Stronger financial profile through greater size, scale and enhanced cash flow generation: On a pro forma basis, the combined entity will represent nearly $7 billion of annual sales and have the potential to generate over $1.2 billion of EBITDA and $400 million of free cash flow after full integration.
  • Powerful industrial logic with significant synergies: Estimated annual run rate of targeted cost synergies estimated to be between $100 and $120 million by 2018.

Financial Highlights The acquisition of MPG meets AAM's strategic and financial criteria for disciplined capital allocation. MPG has a strong free cash flow profile, market leading products and profitability metrics, and attractive growth characteristics.

The transaction is expected to be accretive to cash flow and EPS in the first full year following the transaction. By 2018, AAM expects the combined company to achieve annual run-rate cost synergies of between $100 and $120 million, primarily derived from optimizing the operating structure, eliminating redundant public company costs, achieving purchasing leverage advantages and operational economies of scale. The cash portion of the merger consideration will be financed through a combination of cash on hand and debt.

Upon closing, AAM expects a pro forma 2016E Net Debt / Adjusted EBITDA ratio of approximately 3.5x. AAM expects the combined company to generate significant operating profitability and cash flow that will facilitate rapid debt reduction. AAM is targeting a Net Debt / Adjusted EBITDA ratio of 2x by the end of 2019.

Governance and Leadership David C. Dauch will continue to serve as Chairman and Chief Executive Officer of AAM, which will remain headquartered in Detroit. Effective as of the closing of this transaction, AAM's board of directors will be expanded to 11 members with three designees of American Securities LLC joining AAM's current board, including George Thanopoulos.

Advisors Representing AAM as lead financial advisor is Greenhill & Co., LLC, with Shearman & Sterling LLP acting as legal advisor. J.P. Morgan also represents AAM as a financial advisor and is providing committed debt financing. Representing MPG as exclusive financial advisor is BofA Merrill Lynch and Weil, Gotshal & Manges LLP is acting as its legal advisor.

*** International Flavors & Fragrances Inc. (NYSE: IFF) announced that it has entered into an agreement to acquire Fragrance Resources.

Founded in 1987, Fragrance Resources is a privately-held, family-owned fragrance company. For almost 30 years, it has distinguished itself with exceptional creative talent and quality service to faster-growing regional customers. The company has facilities in Germany, North America, France, and China.

“IFF’s Vision 2020 business strategy is well-served with this highly-complementary bolt-on acquisition, helping us to win where we compete in key fragrance markets and categories as we look to accelerate growth,” said IFF Chairman and CEO Andreas Fibig. “With our shared values and a passion for our people, products, and customers, Fragrance Resources will be a strong addition to IFF.”

Nicolas Mirzayantz, Group President, Fragrances, added “Since 1987, the Fragrance Resources team has been a key player in faster-growing specialty fine fragrances – an important growth category. The addition of this outstanding company into the IFF family will help us strengthen our position in strategic areas and further penetrate the critical and accelerating regional customer base that we see as the engine of growth. We look forward to welcoming the Fragrance Resources family into ours.”

The transaction, funded from existing resources, is expected to add approximately $75 million in revenue and be modestly EPS accretive—both in 2017—excluding transaction costs. Financial terms of the deal have not been disclosed.

The completion of this transaction is subject to clearance by the relevant regulatory authorities and satisfaction of other customary closing conditions. Until the transaction closes, which is expected to occur during January 2017, Fragrance Resources and IFF will operate as separate companies.

*** Inteliquent, Inc. (Nasdaq: IQNT) entered into a definitive agreement to be acquired by an affiliate of GTCR LLC, a leading private equity firm, and merged with a subsidiary of Onvoy, LLC a fast-growing leader in Communications Enablement services. Under the terms of the agreement, Inteliquent stockholders of record will receive $23.00 in cash per share of common stock, which represents a 37% premium to Inteliquent’s closing stock price on November 1, 2016. The value of the transaction is approximately $800 million.

“Over the past several quarters, Inteliquent has been transforming its business to become a leader in the next-generation communications services market,” said Matt Carter, Inteliquent’s Chief Executive Officer. “The acquisition of Inteliquent by GTCR and Onvoy validates our Growth Forward strategy. We believe this transaction will deliver immediate, significant and certain cash value to our stockholders while creating a market leading provider.”

“We are excited to partner with the Inteliquent and Onvoy management teams to create a leading provider of communications enablement solutions,” added GTCR Managing Director Lawrence Fey. “The combination of Inteliquent and Onvoy is transformational and creates an entity that is well positioned to provide robust next-generation solutions to the communications enablement market.”

“Inteliquent’s commitment to the core switching infrastructure has earned the trust of the nation’s top carriers. We believe this will lead to additional opportunities for other carriers to partner with Inteliquent to outsource network infrastructure and achieve cost savings without sacrificing quality and reliability,” said Fritz Hendricks, Chief Executive Officer of Onvoy. “We look forward to working with the Inteliquent team to continue the network expansion and to empower innovation for our shared customer base.”

The combined company intends to continue to maintain a significant presence in Chicago.

Additional Transaction Details

The Inteliquent Board of Directors unanimously approved the transaction and agreed to recommend that Inteliquent’s stockholders vote to adopt the definitive agreement. The transaction is subject to certain conditions, including approval from Inteliquent stockholders, the expiration or termination of the applicable waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as well as FCC and state regulatory approvals, approvals and other customary closing conditions. There is no financing condition associated with the proposed acquisition. Inteliquent expects to hold a special meeting of its stockholders to consider and act upon the transaction as promptly as practicable. The transaction is expected to close in the first half of 2017.

Under the terms of the agreement, for a period of 30 calendar days, Inteliquent may solicit alternative proposals from third parties. Inteliquent does not anticipate that it will disclose any developments with regard to this process unless and until the Inteliquent Board of Directors makes a decision with respect to a potential superior proposal. There are no guarantees that this process will result in a superior proposal.

Perella Weinberg Partners is acting as exclusive financial advisor to Inteliquent with Kirkland & Ellis LLP serving as legal counsel. Credit Suisse is acting as exclusive financial advisor to GTCR and Onvoy with Latham & Watkins LLP serving as legal counsel.

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