Notable Mergers and Acquisitions 8/16: (AIG)/(ACGL) (PX) (STEM) (CTAS)/(GK) (CXO) (MGM)
- Wall Street flat as telecom gains fail to counter oil drop
- Equinix (EQIX) Announces $3.6B Acquisition of Data Center Portfolio from Verzion (VZ)
- Deal Progress Said to Slow as Johnson & Johnson (JNJ) Puts Actelion (ALIOY) Under Microscope - Source
- Trump Wants to Cancel New Air Force One Order with Boeing (BA)
- Roper Industries (ROP) to acquire Deltek in $2.8B Deal
Find out which companies are about to raise their dividend well before the news hits the Street with StreetInsider.com's Dividend Insider Elite. Sign-up for a FREE trial here.
Total consideration for the transaction is $3.4 billion, consisting of $2.2 billion of cash, $250 million of newly issued Arch perpetual preferred stock, and $975 million of newly issued Arch convertible non-voting common-equivalent preferred stock.
In lieu of receiving the perpetual preferred stock, AIG may elect to receive up to $250 million in pre-closing dividends, subject to regulatory approval, or Arch may provide additional cash consideration. In addition to the $3.4 billion of total consideration, AIG will retain all mortgage insurance business ceded under an existing 50% quota share agreement between UGC and AIG subsidiaries for business originated from 2014 through 2016.
“Today we have reached an important milestone in a strategy we committed to in March 2015, when I stated in my first shareholder letter as AIG CEO that we would ‘sculpt the future AIG’ into a more focused company and that selective divestitures would be an important part of reaching that goal,” said Peter Hancock, President and Chief Executive Officer of AIG. “We restated that objective earlier this year when we made the IPO and eventual sale of UGC a key part of an updated overall strategic framework for AIG.”
“We believe this transaction maximizes UGC’s value while further streamlining our organization. It puts us in a stronger position to invest in the talent and technology essential to being our clients’ most valued insurer, while we continue to deliver on the promise made by AIG’s Board and management to return $25 billion to our shareholders by the end of 2017. The deal also maintains our affiliation with the mortgage insurance market and its leading company, through retention of recent business written by UGC and our stake in Arch.”
Closing of this transaction is subject to required regulatory approvals.
Each share of convertible non-voting common-equivalent preferred stock automatically converts to ten Arch common shares upon transfer to a third-party in a widely dispersed offering or certain other transfers. Based on the closing stock price of Arch on August 12, 2016, the convertible non-voting common-equivalent preferred stock would convert into approximately 9% of the Arch common stock (based on the number of shares outstanding that day). AIG has agreed to enter into an investor rights agreement with Arch, which will provide, among other things, customary registration rights following a lock-up period.
“We are excited about the combination of ACGL and United Guaranty because these companies have led the market in innovation through their risk based pricing models and focus on data analytics,” said Dinos Iordanou, Chairman and CEO of Arch Capital Group Ltd. “We believe that the companies’ complementary risk management cultures will further accelerate innovation and sound risk management and help us to maximize our best-in-class processes in the specialty insurance space.”
Mr. Hancock added, “We believe UGC and the outstanding professionals who work there have gained a strong partner in Arch to continue to grow and facilitate home ownership for consumers and provide valuable and necessary protection to mortgage lenders.”
J.P. Morgan Securities LLC and Morgan Stanley & Co. LLC served as financial advisors to AIG, and Sullivan & Cromwell LLP served as legal advisor to AIG on the transaction.
UGC is the leading private mortgage insurance company in the United States with $186.4 billion of first-lien primary mortgage insurance in force as of June 30, 2016. UGC has active relationships with over 1,800 customers and approximately 1,050 employees including a national sales force of approximately 100 professionals. UGC is headquartered in Greensboro, North Carolina and is a wholly owned subsidiary of AIG.
Arch Capital Group Ltd. is a Bermuda public limited liability company with approximately $7.60 billion in capital at June 30, 2016, and, through operations in Bermuda, the United States, Europe and Canada, writes specialty lines of property and casualty insurance and reinsurance, as well as mortgage insurance and reinsurance, on a worldwide basis.
*** Linde AG confirms that it is in preliminary talks about a potential merger with Praxair, Inc. (NYSE: PX). These discussions are ongoing and have not resulted in any concrete results or agreements yet. Accordingly it is currently not foreseeable whether there will be any kind of transaction. Should these talks be successfully continued, Linde will inform the capital market and the public in accordance with statutory requirements.
*** StemCells, Inc. (Nasdaq: STEM) and Microbot Medical Ltd., a private company organized under the laws of the State of Israel (“Microbot”), announced that they have entered into a definitive merger agreement, with plans to pursue the development of robotics based medical devices for the treatment of cerebrospinal fluid and gastrointestinal disorders, as well as other conditions.
“This transaction concludes an extensive search for strategic alternatives conducted by StemCells since we failed to see robust clinical results in our Phase II clinical study of human neural stem cells in chronic spinal cord injury,” said Ian Massey, the CEO of StemCells, Inc. “We believe both our investors and the market at large will see the potential of Microbot’s robotics platform, specifically its catheter and shunt technologies, and will appreciate Microbot’s overall business opportunities and potential.”
Harel Gadot, the CEO & Chairman of Microbot added, “We are pleased that this transaction will give us a presence in the U.S. capital markets, and we are very excited to continue advancing the development of our proprietary technologies that we believe have the potential to improve the lives of many patients globally. We thank StemCells for its efforts and contributions to improving human health over the years.”
The board of directors of each company has unanimously approved the terms of the merger agreement and has recommended that its shareholders approve the transaction. Completion of the merger is subject to approval of the StemCells and Microbot shareholders and certain regulatory approvals and customary conditions. In addition, in order to satisfy certain closing conditions for the merger, StemCells will be negotiating reductions in outstanding balances with its creditors.
Ropes & Gray LLP acted as legal advisor to StemCells and Ruskin Moscou Faltischek, P.C. and Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. acted as legal advisor to Microbot. Additional information about the proposed transaction can be found in the Form 8‑K filed by StemCells on August 15, 2016.
*** Cintas Corp. (Nasdaq: CTAS) and G&K Services, Inc. (Nasdaq: GK) today announced that they have entered into a definitive agreement under which Cintas will acquire all outstanding shares of G&K Services for $97.50 per share in cash, for a total enterprise value of approximately $2.2 billion, including acquired net debt. The purchase price represents a premium of about 19 percent to the closing price per share of G&K Service’s common stock on August 15, 2016. G&K Services, with annual revenue of approximately $1 billion, is a service-focused market leader of branded uniform and facility services programs in the United States and Canada.
The merger of the two companies will provide continued opportunity for Cintas to achieve its mission to exceed customers’ expectations in order to maximize the long-term value of the company for its shareholders and employees, whom the company calls partners. The combined company will provide innovative products and caring service to over 1 million business customers. Cintas has had strong organic growth over many years, and the merger with G&K Services will provide access to additional processing capacity. Route density will also increase which will improve customer service and result in significant cost savings.
Scott D. Farmer, Cintas’ Chief Executive Officer, stated, “Cintas’ management team and Board of Directors have a deep level of respect for G&K Services, its long and impressive heritage, and its employees. Our companies share a dedication to customers, employees-partners and shareholders, which will build a great foundation for a successful combination.”
The boards of directors of both companies have approved the transaction, which is subject to approval by the holders of G&K Services common stock, the expiration or termination of applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended, and other customary closing conditions. The transaction is expected to close in the next four to six months.
The transaction is expected to be accretive to Cintas’ earnings per share in its second full year after closing. Additionally, Cintas anticipates realizing annual synergies in the range of $130 million to $140 million. Synergies are projected to be realized in their entirety in the fourth full year after closing.
Upon completion of the merger, G&K Services will be a wholly owned subsidiary of Cintas, and is expected to initially operate under its existing brand name. Working together, decisions will be made over time regarding the integration of the two companies, ultimately resulting in a fully harmonized team.
Cintas will hold a conference call to discuss today’s acquisition announcement beginning at 11:00 a.m. Eastern time this morning, August 16, 2016. Please dial in prior to the start of the call using the following details:
US/Canada toll free: 888-737-3703International toll: 913-312-0942Conference code: 3772179
KeyBanc Capital Markets, Inc. provided a fairness opinion to the Board of Directors of Cintas. Cintas expects to finance the transaction through a combination of existing cash, assumption of existing G&K Services debt, and new debt. Fully committed financing in the form of a bridge credit facility has been provided by KeyBank National Association and JPMorgan Chase Bank, N.A. Jones Day and Keating Muething & Klekamp PLL acted as legal counsel to Cintas.
*** Concho Resources Inc. (NYSE: CXO) announced it has reached a definitive agreement to acquire approximately 40,000 net acres in the core of the Midland Basin from Reliance Energy, a privately held, Midland-based energy company, for $1.625 billion. The privately negotiated acquisition is consistent with Concho’s opportunistic and disciplined portfolio management strategy as it expands its core Midland Basin position to more than 150,000 net acres and production of 30 thousand barrels of oil equivalent per day (MBoepd).
- Adds approximately 40,000 net acres with an average 99% working interest to Concho’s core Midland Basin position
- Includes approximately 10 MBoepd (67% oil) of current production
- Enhances the Company’s drilling inventory with more than 530 long-lateral drilling locations targeting the Middle Spraberry, Lower Spraberry and Wolfcamp B
- Provides expansive development upside across multiple zones
Tim Leach, Chairman, Chief Executive Officer and President, commented, “This transaction demonstrates Concho’s commitment to the Midland Basin as a core operating area and highlights our continued efforts to consolidate complementary leasehold. In line with the objectives of our southern Delaware Basin acquisition in the first quarter of 2016, these assets not only build scale, but more importantly high-grade our inventory with additional long-lateral locations that compete with the best projects in the Permian Basin. As we continue to enhance our ability to efficiently allocate capital across our four key assets in the Permian Basin, we are uniquely positioned to deliver attractive returns today and build shareholder value over the long term.”
The acquisition includes 10 MBoepd from 326 vertical wells and 44 horizontal wells, only one of which was completed in 2016. The present value of this stable production base at current NYMEX strip pricing is approximately $0.5 billion, with the remaining $1.1 billion of the purchase price attributable to 40,000 undeveloped acres.
Estimated proved reserves attributable to the acquisition total approximately 43 million Boe. Proved developed reserves represent approximately 69% of the total proved reserves. The estimate of proved reserves is based on the Company’s internal estimates as of June 30, 2016, and utilizes the Securities and Exchange Commission’s reserve recognition standards and pricing assumptions based on the trailing 12-month average first-day-of-the-month prices of $39.63 per Bbl of oil and $2.24 per MMBtu of natural gas.
The acquired acreage is located in Andrews, Martin and Ector counties in Texas with minimal leasehold obligations. The acquisition adds more than 530 long-lateral drilling locations to the Company’s inventory. Due to the contiguous nature of the acquired assets, two-thirds of these locations are two-mile laterals, and the remaining locations are 1.5-mile laterals. The engineered locations are based on eight locations per zone in the Middle Spraberry, Lower Spraberry or Wolfcamp B, with two to three of these zones targeted per drilling spacing unit. The Company believes there is substantial development upside from applying optimal drilling and completion methods, testing closer well spacing and delineating other zones.
Consideration in the transaction includes approximately $1.1 billion of cash and 3.96 million shares of Concho’s common stock valued at approximately $0.5 billion and issuable pursuant to a stock payment option that the Company intends to exercise. The Company intends to fund the cash portion of the acquisition through proceeds from a potential equity market transaction, subject to market conditions and other factors. The acquisition is expected to close in October 2016, and is subject to customary closing conditions.
Vinson & Elkins LLP acted as legal advisor and Evercore acted as financial advisor to Concho on the acquisition. Sidley Austin LLP acted as legal advisor to Reliance Energy.
*** MGM Resorts International (NYSE: MGM) announced that it has entered into a definitive agreement to acquire 188,100,000 ordinary shares of its subsidiary MGM China Holdings Limited, from Grand Paradise Macau ("GPM"), a an entity controlled by Ms. Pansy Ho. As a result of the transaction, the Company will acquire an additional 4.95% of the outstanding ordinary common shares of MGM China and will own approximately 56% of MGM China's outstanding common shares.
"MGM Resorts is committed to the long term growth of Macau as a premier international tourism destination and we are pleased that we can build upon our longstanding relationship with Pansy to further work toward our mutual interests," said Jim Murren, Chairman and Chief Executive Officer of MGM Resorts. "Together, we believe in the future of the Macau marketplace and are confident in the success of MGM China as we expand into Cotai next year."
"The transaction represents another important step in expanding this multifaceted relationship with the MGM Resorts, while remaining a significant shareholder in MGM China," said Pansy Ho. "I am excited to deepen my relationship with the MGM family."
As consideration for the MGM China shares, the Company will issue to GPM (or its nominee) 7,060,492 shares of its common stock and pay cash consideration of $100 million. In addition, the Company has agreed to pay GPM (or its nominee) a deferred cash payment of $50 million, which will be paid to GPM (or its nominee) over time in amounts equal to the ordinary dividends received on such shares, with a final payment on the fifth anniversary of the closing date of the transaction if any portion of the $50 million remains unpaid at that time, subject to certain conditions. The shares of the Company that are issued to GPM (or its nominee) are expected to be registered with the Securities and Exchange Commission and listed on the New York Stock Exchange.
In addition, the Company has been informed that Ms. Ho has entered into an agreement to acquire 4 million shares of MGM Resorts stock at $25.00 per share from Tracinda Corporation. Upon completion of these transactions, Ms. Ho would own approximately 4.8% of the outstanding common stock of MGM Resorts.
"We continue to execute on value accretive transactions with the long term benefits in mind as MGM Resorts is increasing its stake in MGM China in a financially prudent manner," added Mr. Murren.
The transaction is subject to customary closing conditions and is expected to be completed during the third quarter of 2016.
To keep up on all the Mergers & Acquisitions data in real-time, go to our M&A Insider page.
Serious News for Serious Traders! Try StreetInsider.com Premium Free!
You May Also Be Interested In
- Microsoft (MSFT) and LinkedIn's (LNKD) Proposed Merger Cleared in Europe, with Conditions
- Equinix (EQIX) Announces $3.6B Acquisition of Data Center Portfolio from Verzion (VZ)
- Consolidated Communications (CNSL) to Acquire FairPoint Communications (FRP) in $1.5B Deal
Create E-mail Alert Related CategoriesSpecial Reports
Related EntitiesKirk Kerkorian, Tracinda Corp., JPMorgan, KeyBanc, Morgan Stanley, Notable Mergers and Acquisitions, Earnings, Definitive Agreement, IPO
Sign up for StreetInsider Free!
Receive full access to all new and archived articles, unlimited portfolio tracking, e-mail alerts, custom newswires and RSS feeds - and more!