Notable Mergers and Acquisitions of the Day 02/08: (CVC)/(CHTR) (SSRX) (ACGL)

February 8, 2013 10:10 AM EST
* After markets closed Thursday, Charter Communications, Inc. (NASDAQ: CHTR) and Cablevision Systems Corporation (NYSE: CVC) entered into a definitive agreement under which Charter Communications Operating, LLC will acquire Cablevision's Bresnan Broadband Holdings, LLC ("Optimum West") for $1.625 billion in cash. Optimum West manages cable operating systems in Colorado, Montana, Wyoming and Utah that pass more than 660,000 homes and serve 304,000 video subscribers and 366,000 customer relationships.

The $1.625 billion acquisition price represents a purchase price multiple of 8.9x Optimum West's third quarter 2012 annualized Adjusted EBITDA1 and a purchase price multiple of less than 8.0x Charter's estimate of Optimum West's first year Adjusted EBITDA under Charter. The transaction will be structured to deliver to Charter a full step-up in the tax basis of the acquired assets. Taking into account Charter's estimate of the present value of this tax asset, the effective purchase price multiple is less than 7.0x the estimated first year Adjusted EBITDA. "Given the double digit growth profile of Optimum West, we view the implied purchase price multiple as attractive. In addition, the acquisition will increase our conversion rate of Adjusted EBITDA to free cash flow.1 At closing, we expect to be at 5.0x leverage and continue to target 4.0x to 4.5x over time," noted Christopher Winfrey, Charter's CFO.

Charter will fund the acquisition of Optimum West with $1.5 billion of committed bank financing to Charter Communications Operating, LLC, and liquidity from cash on hand and its revolving credit facility.

The transaction is subject to customary closing conditions, including regulatory approval. We expect closing to occur in the third quarter of 2013.

Credit Suisse and Goldman Sachs acted as financial advisors to Charter, and have also provided debt financing commitments for the transaction.

Citi and J.P. Morgan acted as co-lead financial advisors to Cablevision. BofA Merrill Lynch and Guggenheim Securities also provided financial advice to Cablevision. Sullivan & Cromwell LLP acted as legal counsel to Cablevision.

* 3SBio, Inc. (Nasdaq: SSRX) has entered into an agreement and plan of merger (the "Merger Agreement") with Decade Sunshine Limited, an exempted company with limited liability incorporated under the laws of the Cayman Islands ("Parent"), and Decade Sunshine Merger Sub, an exempted company with limited liability incorporated under the laws of the Cayman Islands and a direct wholly owned subsidiary of Parent ("Merger Sub").

Pursuant to the terms of the Merger Agreement, each of the Company's ordinary shares (a "Share"), including Shares represented by American Depositary Shares, each representing seven Shares (the "ADSs"), issued and outstanding immediately prior to the effective time of the merger will be cancelled in exchange for the right to receive US$2.20 in cash per Share, or US$15.40 per ADS, without interest, except for (i) the Shares beneficially owned by Parent, Merger Sub or certain Shares beneficially owned by certain directors, officers or employees of the Company (collectively, the "Rollover Shareholders"), and certain restricted shares and restricted share units issued by the Company to the Rollover Shareholders (collectively, the "Consortium Shares"), (ii) the Shares beneficially owned by the Company or any direct or indirect wholly owned Subsidiary of the Company and (iii) the Shares owned by holders who have validly exercised and not effectively withdrawn or lost their appraisal rights pursuant to Section 238 of the Cayman Islands Companies Law, as amended. The per Share consideration of US$2.20 or per ADS consideration of US$15.40 represents a premium of approximately 32.9% over the closing price on September 11, 2012 and a 33.4% premium over the 30-trading day volume-weighted average closing price on September 11, 2012, the last trading day prior to the Company's announcement on September 12, 2012 that it had received a "going private" proposal from Dr. Jing Lou, chairman and chief executive officer of 3SBio, and CPEChina Fund, L.P., a China-focused private equity fund associated with CITIC Private Equity Funds Management Co. Ltd. ("CITIC PE" and together with Dr. Jing Lou and the other Rollover Shareholders, the "Buyer Group"). Collectively, the Consortium Shares owned by the Buyer Group represent approximately 18.1% of the Company's total issued and outstanding share capital.

Parent intends to finance the merger through a combination of debt, equity and cash in the Company. Parent has entered into a facility agreement pursuant to which China CITIC Bank International Limited has agreed to provide debt financing for the transaction. CITIC PE has provided equity commitment. Dr. Jing Lou and CITIC PE each entered into a limited guaranty in favor of the Company.

The Company's Board of Directors, acting upon the unanimous recommendation of an independent committee formed by the Board of Directors (the "Independent Committee"), approved the Merger Agreement and the merger contemplated in the Merger Agreement and resolved to recommend that the Company's shareholders vote to approve and authorize the Merger Agreement and the merger. The Independent Committee, which is composed solely of independent directors unrelated to Parent, Merger Sub or any of the management members of the Company, negotiated the terms of the Merger Agreement with the assistance of its legal and financial advisors.

The merger contemplated in the Merger Agreement, which is currently expected to close during the second quarter of 2013, is subject to various closing conditions, including the approval by an affirmative vote of shareholders representing two-thirds or more of the Company's ordinary shares present and voting in person or by proxy as a single class at an extraordinary general meeting of the Company's shareholders convened to consider the approval and adoption of the Merger Agreement and the merger, as well as certain other customary closing conditions. Dr. Jing Lou and the other Rollover Shareholders have agreed under a voting agreement to vote all the Consortium Shares in favor of the merger. If completed, the merger will result in the Company becoming a privately-held company and its ADSs would no longer be listed on the NASDAQ global market.

Jefferies International Limited is serving as financial advisor to the Independent Committee. Cleary Gottlieb Steen & Hamilton LLP is serving as United States legal advisor to the Independent Committee, and Walkers is serving as Cayman Islands legal advisor to the Independent Committee. Skadden, Arps, Slate, Meagher & Flom LLP is serving as United States legal advisor to the Buyer Group, Akin Gump Strauss Hauer & Feld LLP is serving as United States legal advisor to CITIC PE, and Conyers Dill & Pearman is serving as Cayman Islands legal advisor to the Buyer Group. BofA Merrill Lynch is serving as financial advisor to the Buyer Group.

* Arch Capital Group Ltd. [Nasdaq: ACGL] announced that its U.S.-based subsidiaries (Arch U.S. MI) have entered into a definitive agreement to acquire CMG Mortgage Insurance Company (CMG MI) from its current owners, PMI Mortgage Insurance Co. (OTCBB: PPMIQ), which has been in rehabilitation under the receivership of the Arizona Department of Insurance since 2011, and CMFG Life Insurance Company (CUNA Mutual). Arch U.S. MI also agreed to acquire PMI’s mortgage insurance operating platform and related assets from PMI. This transaction will allow ACGL to enter the rapidly improving U.S. mortgage insurance marketplace and will broaden its existing mortgage insurance and reinsurance capabilities. Arch U.S. MI expects to hire the current experienced senior management team and staff of PMI. ACGL’s global mortgage insurance and reinsurance operations will report to Marc Grandisson, Chairman and CEO of Arch Worldwide Reinsurance Group.

The transaction will provide Arch U.S. MI with nationwide mortgage insurance licenses and a comprehensive mortgage insurance operating platform. Additionally, Arch U.S. MI expects to enter into distribution and reinsurance agreements with CUNA Mutual, which will continue to serve credit union customers on behalf of Arch U.S. MI. With these proposed arrangements, Arch U.S. MI will gain significant access to the credit union marketplace immediately upon closing.

It is anticipated that the transaction will close within 12 months, subject to approvals of the Arizona receivership court, applicable regulators and government-sponsored enterprises (GSEs), including the Federal National Mortgage Association (Fannie Mae) and the Federal Home Loan Mortgage Corporation (Freddie Mac), and the satisfaction of customary closing conditions. Additional transaction highlights are included below.

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