Notable Mergers and Acquisitions of the Day 03/15: PVH, D/CNX, PEGA/CHRD, OSIP

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PVH Hot Sheet

Overall Analyst Rating:
BUY (= Flat)

Revenue Growth %: +13.5%

Phillips-Van Heusen Corporation (NYSE: PVH) confirmed it has agreed to acquire Tommy Hilfiger B.V., which is controlled by funds affiliated with Apax Partners L.P., for total consideration of €2.2 billion (approximately $3.0 billion) plus the assumption of €100 million in liabilities.

The consideration includes €1.924 billion in cash and €276 million in PVH common stock.

The combination will create one of the world’s largest and most profitable apparel companies; a global business with combined revenue of approximately $4.6 billion.

PVH expects the transaction to be immediately accretive to earnings per share before one-time costs and accounting charges. PVH expects earnings accretion of $0.20 to $0.25 per share on a non-GAAP basis in the 2010 fiscal year ending January 30, 2011 and earnings accretion of $0.75 to $1.00 per share in the 2011 fiscal year ending January 29, 2012. The 2010 earnings accretion estimate excludes one-time cash integration costs and transaction expenses of approximately $100 million related to the transaction, or approximately $1.00 per share. PVH expects to realize approximately $40 million of annualized cost synergies in the transaction.

The closing of the transaction is subject to receipt of financing and other customary conditions, including receipt of required regulatory approvals, which PVH does not anticipate difficulty in obtaining. The transaction does not require a PVH stockholder vote and is expected to close during PVH’s fiscal 2010 second quarter.
Dominion (NYSE: D) today announced that it has agreed to sell its natural gas and oil exploration and production business to a newly-formed subsidiary of CONSOL Energy (NYSE: CNX), for a total of $3.475 billion, subject to adjustments pursuant to the terms of the Purchase and Sale Agreement. The transaction includes the rights to approximately 491,000 acres in the Marcellus formation.

"With today's announced divestiture, Dominion is taking another significant step in moving toward a more regulated business model. This transaction is accretive to earnings per share, reduces our commodity sensitivity by over 20 percent, and eliminates our need to issue new shares to fund our infrastructure growth program through 2011," said Chairman, President and Chief Executive Officer Thomas F. Farrell II.

"We are gratified that CONSOL will end up with such an outstanding company. Dominion's exploration and production activities in the Appalachian region have had an excellent record of success. We wish to thank the employees of our E&P business for their outstanding work and professionalism."

"The decision to sell our E&P business came as a result of our previously-announced plan to monetize our Marcellus acreage, either in multiple transactions or all at once. As we analyzed the various alternatives, and their respective impact on the value of the remaining business, we determined that combining our conventional Appalachian E&P operations with the rights to the Marcellus formation resulted in the best long-term value for our investors," Farrell said.

Farrell added: "Our regulated businesses are now expected to contribute about 70 percent of our consolidated operating earnings in 2011, up from less than 45 percent in 2006. Exiting the E&P business will enhance the visibility of our core natural gas pipeline and storage businesses and reduce our on-going capital expenditures by approximately $200 million per year. Our activities in the Appalachian region will focus on investments such as the Appalachian Gateway project as well as the significant amount of new gathering and pipeline infrastructure that development of the Marcellus formation will demand."

The transaction is expected to close by April 30, subject to customary closing conditions. Estimated after-tax proceeds of $2.2 to $2.4 billion, depending on the final tax determination, should enable Dominion to offset its equity needs for 2010 and 2011, fund the revenue credits to Dominion Virginia Power customers included in the rate case settlement agreement and repurchase common stock. Proceeds could also be used to fund a contribution to our employee benefit plans and/or reduce debt.

The company is affirming its 2010 operating earnings guidance of $3.20 to $3.40 per share. In providing its full-year 2010 operating earnings guidance the company notes that there could be differences between expected reported (GAAP) earnings and estimated operating earnings for matters such as, but not limited to, divestitures or changes in accounting principles. With the exception of the Dominion Peoples and Appalachian E&P divestitures, Dominion management is not able to estimate the impact, if any, of these items on reported earnings. Accordingly, Dominion is not able to provide a corresponding GAAP equivalent for its operating earnings guidance. At this time, Dominion management expects the February 2010 sale of Dominion Peoples to result in an after-tax loss of approximately $140 million, as well as after-tax expenses of approximately $50 million that would negatively impact full-year 2010 reported earnings, but would not be included in operating earnings. Also, Dominion management expects an after-tax gain of approximately $1.37 billion for the Appalachian E&P sale to be reflected in 2010 reported earnings, but would not be included in 2010 operating earnings.

Dominion is being advised in the sale by the investment banking firm of Barclays Capital Inc. Baker Botts L.L.P. is the company's legal adviser for the sale.
Pegasystems Inc., (NASDAQ: PEGA), the leader in business process management (BPM) software solutions, and Chordiant Software, Inc.(NASDAQ: CHRD), a leading provider of customer relationship management (CRM) software and services, today announced they have entered into a definitive agreement for Pegasystems to acquire Chordiant.

Under the terms of the agreement, Pegasystems will make a cash tender offer of $5.00 per share for all outstanding shares of Chordiant common stock for a total purchase price of up to approximately $161.5 million, assuming all outstanding shares are tendered. Upon satisfaction of the conditions to the tender offer and after such time as all shares tendered in the tender offer are accepted for payment, the agreement provides for the parties to effect, subject to customary conditions, a merger to be completed following the completion of the tender offer which would result in all shares not tendered in the tender offer being converted into the right to receive $5.00 per share in cash. The transaction is subject to customary closing conditions, including regulatory approvals, and is expected to close in the second calendar quarter of 2010. Chordiant reported revenue of $76.3 million and $52.3 million of cash and investments for its four quarters ended December 31, 2009. The boards of directors of both Pegasystems and Chordiant unanimously approved the definitive agreement.

Pegasystems' commitment to innovation and customer success has resulted in ten consecutive quarters of record revenue. Its industry-leading Build for Change? technology is both fueling widespread BPM adoption and being widely embraced to improve customer experience. Chordiant's predictive decision management solutions are renowned for delivering increased customer lifetime value to their clients.

The combined company's expanded global customer base, including many of the world's largest organizations, can now take advantage of these complementary solutions. Chordiant clients will be able to incorporate Pegasystems intent-driven process automation to enhance customer experience in their existing foundation and marketing solutions. Pegasystems' clients can take advantage of Chordiant's predictive decision management solutions, extensive CRM assets, and expertise in customer experience.

Many of the leading global systems integrators, who are part of Pegasystems' growing alliance program, have also built practices around Chordiant software. The combination of the two companies would enable an expanded partner network to enhance their practices and realize incremental growth.

"This combination creates a broader portfolio which will offer an expanded client base new capabilities to meet next-generation CRM needs," said Alan Trefler, Founder and CEO of Pegasystems. "We are excited to add Chordiant's technology and domain expertise to bolster our previously announced investment plans in BPM and CRM."

"We expect this acquisition to be accretive, but under the new purchase accounting rules, transactional costs are now expensed rather than included in the calculation of goodwill," said Craig Dynes, CFO for Pegasystems. "Accordingly, significant closing costs, integration expenses and other purchase accounting valuation charges will be dilutive to GAAP reported earnings. However, on a non GAAP basis, excluding these one-time charges and the reduction in maintenance and other revenues that are currently recorded as deferred revenue on Chordiant's balance sheet, we expect this transaction to be accretive by as much as $0.03 to Pegasystems' 2010 earnings per share and by as much as $0.20 to Pegasystems' 2011 earnings per share. Pegasystems has not yet provided guidance on 2011 earnings. We anticipate providing revised guidance giving effect to these purchase accounting adjustments as the closing of this transaction approaches."

"We are excited to bring Pegasystems' industry-leading Build for Change technology to help our clients further optimize customer experience," commented Steven Springsteel, Chairman, President and CEO of Chordiant Software. "We expect that our customer base will welcome this news, and can look forward to the increased innovation that Pegasystems is known for, along with the many other benefits resulting from the mutual strengths and combined scale of our companies."

Bridge Street Advisory Services, a division of Financial Telesis Inc., is acting as financial advisor to Pegasystems, and Wilson Sonsini Goodrich & Rosati P.C., is acting as legal advisor to Pegasystems. Morgan Stanley & Co. Incorporated is acting as financial advisor to the Board of Chordiant, and Cooley Godward Kronish LLP is acting as legal advisor to Chordiant.
OSI Pharmaceuticals, Inc. (NASDAQ: OSIP) today announced that its Board of Directors, after careful review and consideration with the assistance of OSI's management and outside legal and financial advisors, has unanimously rejected the unsolicited, conditional tender offer from Astellas US Holding, Inc., a wholly-owned subsidiary of Astellas Pharma Inc., to acquire all outstanding shares of OSI common stock for $52.00 per share in cash. The OSI Board unanimously recommends that OSI stockholders reject the offer and not tender their shares into the offer.

Robert A. Ingram, Chairman of the Board of Directors of OSI, commented, "After carefully analyzing and considering Astellas' offer, the Board has unanimously concluded that the offer does not fully reflect OSI's fundamental, intrinsic value. We believe that OSI is a unique asset - the only profitable, mid-cap biotech company with a growing, high quality and fully integrated oncology franchise and a strong diabetes and obesity franchise which also has a proven track-record of success. The OSI Board takes its fiduciary duties seriously and will continue to do what's right for OSI stockholders. In that regard, the Board of Directors has instructed OSI management, with the assistance of the Company's financial advisors, to contact appropriate third parties in order to explore the availability of a transaction that reflects the full intrinsic value of the Company."

OSI Chief Executive Colin Goddard, PhD, added, "OSI is well positioned and we continue to successfully execute on our strategic plan. In addition to our blockbuster oncology drug, Tarceva, and our highly differentiated pipeline in two of the highest growth and most attractive therapeutic areas, we have substantial financial assets, including significant DPIV patent royalties, substantial cash balances and net operating loss carryforwards. Our business remains strong, as exemplified by our 13% revenue growth in 2009, which we accomplished while solidifying our patent position and advancing our pipeline. We expect 2010 to be another year of strategic and financial growth."

Centerview Partners LLC is acting as lead financial advisor to OSI. Lazard also recently was retained as a financial advisor to OSI. Skadden, Arps, Slate, Meagher & Flom LLP & Affiliates is acting as legal advisor.

The basis for the Board's recommendation is set forth in a Solicitation/Recommendation Statement on Schedule 14D-9, which was filed by OSI today with the Securities and Exchange Commission, accompanied by a letter to stockholders.