Notable Mergers and Acquisitions 8/25: (BERY)/(AEPI) (SIG) (KZ)
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AEP is a leading manufacturer of flexible plastic packaging films in North America. AEP manufactures and markets a diverse line of flexible plastic packaging products for consumer, industrial, and agricultural applications. Headquartered in Montvale, New Jersey, AEP operates 14 manufacturing facilities in the United States and Canada and has approximately 2,600 employees. For the four quarters ended April 2016, AEP generated net sales of $1.1 billion, net income of $39 million, and adjusted EBITDA of $103 million.
“We respect and admire the impressive company Brendan Barba has built over the last 40 years and look forward to welcoming AEP employees into Berry’s organization,” said Jon Rich, Chairman and CEO of Berry Plastics. “AEP, together with Berry’s Engineered Materials Division, creates an impressive packaging film producer serving the North American market. This unique combination offers the opportunity for significant value creation for Berry and AEP shareholders alike, as we realize procurement and operating cost savings across the two organizations.”
J. Brendan Barba, AEP’s Chairman and CEO, commented, “We are excited to announce this compelling transaction with Berry, which delivers substantial value to our shareholders, while providing the opportunity to participate in the upside of the combination. We believe Berry is the right partner to expand our product portfolio to deliver high quality packaging films to even more customers around the world. Berry shares our commitment to teamwork and success, and we are confident our valued employees will benefit from the opportunities that come from being part of a larger company. We look forward to working with Berry to plan for a seamless integration for our customers and employees and to begin the next chapter in the company’s history."
Select Benefits of the Transaction
Highly complementary fit. Together we will be able to optimize complementary production capacities, reduce material and conversion costs, and better serve customers from an expanded North American footprint with a portfolio of products that is one of the most comprehensive in the industry.
Significant, clearly identifiable cost synergies. Berry expects to realize cost synergies of $50 million or more annually, in line with previous Berry acquisitions of a similar nature. Berry also expects to realize these cost savings through procurement initiatives, operational improvements, sharing of best practices, improved asset utilization, and logistics optimization across the combined plant network.
Attractive transaction economics. The transaction is expected to be accretive to Berry’s adjusted net income and adjusted free cash flow by more than 10 percent, after expected synergies. On a pro forma basis, Berry’s four quarters ended June 2016 adjusted free cash flow would increase by approximately $85 million to $560 million. The transaction will be deleveraging to Berry’s balance sheet after synergies.
Approvals, Closing, and Funding Considerations
The transaction is expected to be completed in the December 2016 quarter, subject to the approval of AEP shareholders and customary closing conditions, including applicable regulatory approvals. Certain of AEP’s executive officers and directors, who in aggregate, beneficially own 21.5 percent of AEP’s common stock outstanding, have agreed to vote in favor of the proposed transaction. Berry intends to fund the cash component of the acquisition with existing cash and a new term loan, and has committed financing in place.
*** Signet Jewelers Limited (NYSE: SIG) announced that affiliates of Leonard Green & Partners, L.P. will invest $625 million in the form of convertible preferred shares. Signet will use the proceeds from the LGP investment to fund a repurchase of up to $625mm in common stock either in the open market or through privately negotiated transactions. In conjunction with this transaction, Signet will expand its Board of Directors from ten to eleven and appoint Jonathan Sokoloff to the Signet Board upon the closing of the transaction, which is expected to occur in the third quarter of FY 2017.
Mark Light, Chief Executive Officer of Signet Jewelers, said, “We are very pleased to announce this strategic partnership with Leonard Green, one of the most experienced and successful investors in the retail industry. For more than 25 years, Leonard Green has successfully partnered with some of the best known companies in the retail sector and worked to create significant shareholder value. We view Leonard Green’s significant investment in Signet as a strong vote of confidence in our business and its long term growth prospects.”
Todd Stitzer, Chairman of Signet Jewelers, said, “We found in Leonard Green a long term partner who will provide a strong foundation to our shareholder base and will bring additional retail and financial expertise to our Board of Directors to help us further grow and shape the Signet portfolio of brands in a continuously evolving retail landscape.”
Jonathan Sokoloff added, “Signet Jewelers is an outstanding company – an innovator in its industry with some of the world’s most recognizable store banners and jewelry brands. We are pleased to make this investment and look forward to our partnership with the Board and management team.”
The investment by Green Equity Investors VI, L.P., an affiliate of LGP, in Signet will include the following terms:
- $625mm in convertible preference shares
- The convertible preference shares accrue a 5% p.a. dividend, payable quarterly in arrears, in cash or by increasing the liquidation preference, at the option of Signet
- The preference shares will be convertible into Signet common shares at a premium of 18% to the volume weighted average price of the common shares for the 20 trading days immediately following Signet’s second quarter earnings announcement on August 25, 2016, with a maximum conversion price of $100 per share
- LGP will be subject to a two year lock-up period and Signet will also have the right to force conversion after two years subject to Signet’s common shares achieving a specific price threshold
As a part of the transaction, Signet is increasing its Board authorized share repurchase program by $625 million, bringing the total authorization to $1.1 billion when combined with the $511 million remaining under the previously authorized repurchase program. The transaction is expected to close in the third quarter of FY 2017, subject to the receipt of customary regulatory approvals. Additional information regarding the investment will be included in a Form 8-K to be filed today by Signet with the Securities and Exchange Commission.
J.P. Morgan Securities LLC acted as financial advisor and Weil, Gotshal & Manges LLP acted as legal advisor to Signet. Guggenheim Securities acted as financial advisor and Latham & Watkins LLP acted as legal advisor to Leonard Green & Partners, L.P.
*** KongZhong Corporation (Nasdaq: KZ) announced that its board of directors (the "Board") has received a revised non-binding proposal letter, dated August 25, 2016, from Mr. Leilei Wang, chairman and chief executive officer of the Company, and IDG-Accel China Growth Fund II L.P., who, together with certain other parties, formed a buyer group (the "Buyer Group") to acquire all of the outstanding ordinary shares of the Company not owned by them or their affiliates (the "Transaction") for US$7.18 in cash per American depositary share ("ADS", each representing forty ordinary shares), or approximately US$0.1795 per ordinary share. A copy of the proposal letter is attached hereto as Exhibit A.
The special committee of the Board (the "Special Committee"), formed to consider the original proposal by the Buyer Group, is evaluating this revised proposal with the assistance of its financial and legal advisors. The Special Committee cautions the Company's shareholders and others considering trading in the Company's securities that no decision has been made by the Special Committee or the Board with respect to the revised proposal. There can be no assurance that any definitive offer will be made, any agreement will be executed or that this or any other transaction will be approved or consummated.
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