Notable Mergers and Acquisitions of the Day 12/23: (MDP)/(GCI) (STX)/(XRTX) (RGP)/(EROC)

December 23, 2013 10:06 AM EST
* Gannett Co., Inc. (NYSE: GCI) and Sander Media LLC announced today that KMOV-TV in St. Louis, MO, will be sold to Meredith Corporation (NYSE: MDP). As part of the sale, Sander Media will convey to Meredith substantially all of the assets used in the operation of KMOV-TV which Sander Media will acquire upon close of the Gannett-Belo transaction. In addition, Gannett will convey certain other assets that are needed to provide services to KMOV-TV, which Gannett will acquire from Belo upon close of the Gannett-Belo transaction. The sale to Meredith, upon government approval, will satisfy Gannett's and Sander Media's obligations under the previously announced proposed consent decree with the U.S. Department of Justice in connection with Gannett's acquisition of Belo.

Additionally, under a separate agreement, KTVK-TV and KASW-TV in Phoenix, AZ, will be sold to Meredith. At the closing, Meredith will simultaneously convey KASW-TV to SagamoreHill of Phoenix, LLC, which, through its affiliates, owns and operates two television stations in two markets. The agreed upon purchase price for the three stations is $407.5 million in cash, contingent upon regulatory approvals and other customary closing conditions.

Gracia Martore, President and Chief Executive Officer of Gannett, said, "We are very pleased to have reached this agreement with Meredith. Meredith is a highly respected multi-media company which shares our commitment to outstanding local journalism, and we are confident that these stations will be in good hands. We are also pleased to have reached an agreement with attractive terms for our shareholders, as these sales will significantly lower the effective purchase price for Belo while reducing only minimally the expected synergies associated with the Belo transaction, which we expect to close promptly."

The sale of these stations is expected to have an impact of less than $2 million on Gannett's previously disclosed projected annual run-rate synergies of $175 million within three years of closing of the Belo transaction. Gannett's pending acquisition of Belo and the sale of these stations to Meredith together are expected to generate significant free cash flow and be accretive to non-GAAP earnings per share by approximately $0.43 in 2014. The company expects to use the proceeds of the sale to reduce debt and for other purposes consistent with Gannett's stated capital allocation strategy. Gannett will maintain its strong broadcast presence in the St. Louis and Phoenix markets with KSDK-TV and KPNX-TV, respectively.

* Regency Energy Partners LP (NYSE: RGP) announced plans to purchase Eagle Rock Energy Partners, L.P.’s (Nasdaq: EROC) midstream business. The acquisition, valued at approximately $1.3 billion, will complement Regency’s core gathering and processing business, and when combined with the proposed acquisition of PVR Resources, will further diversify Regency’s basin exposure in the Texas Panhandle, East Texas and South Texas.

Eagle Rock’s midstream assets include approximately 8,100 miles of gathering pipeline and over 800 MMcf/d of processing plants and its cash flows are supported by large, long-term acreage dedications. The combined system is expected to provide significant synergies, increase efficiencies on Regency’s current system, and enhance services for its customers.

“This acquisition represents another attractive growth opportunity for Regency and is very strategic to our plans to increase our scale and expand our basin diversity in liquids-rich areas,” said Mike Bradley, president and chief executive officer of Regency. “When combined with the proposed acquisition of PVR Partners, our expanded footprint will strengthen Regency's position as a midstream provider in the Mid-Continent region and provide additional growth opportunities.”

“We expect this acquisition to be immediately accretive to our distributable cash flow per common unit and we also expect that this acquisition will be accretive to distributable cash flow per common unit on a pro forma basis with the pending acquisition of PVR Partners, L.P. As a result, we believe this transaction supports our objective of creating unitholder value through long-term cash distribution growth,” continued Bradley.

In light of the expected cash flow accretion from the Eagle Rock transaction, Regency management expects to recommend to its board of directors distribution increases that would represent a growth rate of 6-8% for full-year 2014. The recommended increases are subject to board approval based on Regency’s future operating results, including the performance of the acquired business.

The Eagle Rock acquisition is expected to close in the second quarter of 2014, and is subject to the approval of Eagle Rock’s unitholders, Hart-Scott-Rodino Antitrust Improvements Act approval and other customary closing conditions.

Regency expects to finance the acquisition by issuing $200 million of Regency common units to Eagle Rock, issuing $400 million of Regency common units to Energy Transfer Equity, L.P. (NYSE: ETE); and the assumption and like-kind exchange of up to $550 million of outstanding Eagle Rock senior notes into Regency senior notes. The remaining portion of the consideration will be funded from borrowings under Regency’s revolving credit facility.

Jamie Welch, Group Chief Financial Officer and Head of Corporate Development for Energy Transfer Equity, L.P. (NYSE: ETE), the owner of the general partner of Regency, stated, “ETE is very excited by Regency’s continued strategic growth and we fully support this transaction through a $400 million equity commitment. We believe that the acquisition of the Eagle Rock midstream business and the acquisition of PVR will be tremendous catalysts for continued unitholder growth for all Regency unitholders.”

Barclays Capital Inc. acted as financial advisor to Regency and provided a fairness opinion to Regency, and Andrews Kurth LLP acted as legal counsel to Regency with respect to the transaction.

* Seagate Technology (Nasdaq: STX) and Xyratex Ltd (Nasdaq: XRTX) announced that they have entered into a definitive agreement under which Seagate will acquire all outstanding shares of Xyratex in an all-cash transaction valued at $13.25 per share, or a total of approximately $374 million, including approximately $80 million in cash on Xyratex’s balance sheet as of August 31, 2013. The consideration represents a premium of approximately 27% per share over Xyratex’s stock price at the close of trading on December 20, 2013.

Xyratex has developed a leading hard disk drive (“HDD”) capital test equipment business. The acquisition of this business will further strengthen Seagate’s vertically integrated supply and manufacturing chain for disk drives and ensure uninterrupted access to important capital equipment. The acquisition also expands Seagate’s storage solutions portfolio by adding Xyratex’s industry-leading enterprise data storage systems and high-performance computing business. Seagate will operate this business as a standalone entity and will focus on opportunities to improve and expand the business.

“This is a strategically important acquisition for Seagate as we continue to focus on delivering best-in-class storage solutions for our customers,” said Dave Mosley, President of Operations and Technology at Seagate. “As the average capacity per drive increases to multi-terabytes, the time to test these drives increases dramatically. Therefore, access to world-class test equipment becomes an increasingly strategic capability. As a premier provider of HDD testing equipment, Xyratex is an important partner and we are excited to integrate these important capabilities which will considerably streamline our supply and manufacturing chain for our core HDD business. We are also pleased to acquire Xyratex’s storage systems and high-performance computing business, which provides us additional opportunities to serve our customers with a broader array of storage solutions.”

“Xyratex is very pleased to become a part of Seagate’s industry-leading organization,” said Ernie Sampias, Chief Executive Officer of Xyratex. “Seagate shares our commitment to innovation and the critical role that test plays in providing the best storage products at the lowest possible cost. After a thorough strategic review process in which we evaluated a wide range of alternatives, the Xyratex Board of Directors determined that this all-cash transaction with Seagate maximizes shareholder value through an attractive premium, and also affirms the significant value that our employees have created.”

The transaction has been approved by Xyratex’s Board of Directors and is subject to customary closing conditions, including review by regulatory bodies and approval by Xyratex shareholders. Baker Street Capital, Xyratex’s largest shareholder, has agreed to vote its shares in favor of the transaction. The transaction is currently expected to close in mid-calendar year 2014. Seagate expects to finance the transaction from existing cash balances and the transaction is not subject to any financing conditions.

Seagate currently expects the transaction to be neutral to Seagate’s earnings per share in its fiscal year 2015. Seagate expects positive cash flow immediately following the transaction and expects revenue contribution to be between $500-$600 million in its fiscal year 2015.

Allen & Company LLC served as financial advisor and Wilson Sonsini Goodrich & Rosati served as primary legal advisor to Seagate in connection with the transaction. Credit Suisse served as financial advisor and Latham & Watkins LLP served as legal advisor to Xyratex.

* Jos A Bank Clothiers, Inc. (Nasdaq: JOSB) responded to the non-binding acquisition proposal it received on November 26, 2013, from The Men's Wearhouse, Inc. (NYSE: MW).

The Company said that after thorough consideration by its Board of Directors, with the assistance of its financial and legal advisors, it has unanimously rejected the proposal made by Men's Wearhouse. The Company's Board of Directors concluded that the price proposed by Men's Wearhouse significantly undervalued the Company and its near and long-term potential and was not in the best interest of the Company's shareholders. Further, as the Company has said previously, it is reviewing all alternatives regarding potential strategic acquisition opportunities that would enable the Company to drive significant value for shareholders.

(Note: the original $55 per share offer can be read here.)

Robert N. Wildrick, Chairman of Jos. A. Bank, said, "Our Board undertook a thorough review and determined that the per share consideration in the proposal made to us by Men's Wearhouse was simply not in the best interest of our shareholders. At the same time, we continue to review acquisition opportunities that would represent a strong strategic fit with our Company and provide an opportunity to leverage our core competencies to drive meaningful growth, synergies and substantial value creation over the long term."

* Engility Holdings, Inc. (NYSE: EGL) and Dynamics Research Corporation (Nasdaq: DRCO), announced that they have entered into a definitive agreement under which Engility will acquire DRC. DRC is a U.S. government services, information technology and management consulting firm with leading capabilities in Healthcare, Homeland Security, Research & Development, Intelligence, Surveillance & Reconnaissance (ISR), Financial Regulation & Reform, and Defense Readiness, Logistics and Command, Control & Communications (C3).

Under the terms of the agreement, Engility will commence a tender offer for all outstanding shares of DRC common stock at a price of $11.50 in cash for each outstanding share. The transaction, which was unanimously approved by the boards of directors of both companies, is expected to be accretive to Engility’s 2014 earnings and significantly accretive to 2015 earnings and beyond. The acquisition is anticipated to close during the first quarter of 2014, subject to customary closing conditions and regulatory approval.

Founded in 1955, DRC has a proven track record of supporting the government’s highest priority programs in the Science and Engineering, IT, and technical and management consulting markets. DRC’s broad portfolio of over 300 active contracts, with prime positions on key Department of Defense (DoD) and federal civilian agency Indefinite Delivery, Indefinite Quantity (IDIQ) contract vehicles, will expand Engility’s addressable market and further diversify its customer base in the U.S. Air Force, U.S. Navy, Department of Health and Human Services, Department of Veterans Affairs, Department of Homeland Security, Intelligence Community, and other federal civilian and DoD customers. DRC has more than 1,100 employees, is a prime contractor on approximately 80% of its work, and has a track record of solid financial performance, with estimated revenue in 2013 of $274-277M and adjusted EBITDA of $24.3-24.7M.

“This acquisition is consistent with our strategy to expand and diversify our services offerings and presence with adjacent customers. It positions Engility within new higher-end markets, supporting enduring customer priority missions, and provides access to key prime contract vehicles. Long-term success in today’s consolidating federal services market will depend on both organic growth and strategic M&A to derive the benefits of scale and provide contracting flexibility to our customers,” said Engility President and CEO Tony Smeraglinolo. “DRC’s leadership team has successfully repositioned the company in high priority market areas. The company’s impressive contract portfolio significantly expands our combined market opportunity in areas where we currently do not have an existing customer relationship or where we are currently underrepresented. I look forward to welcoming DRC’s highly-talented employees to the Engility team.”

Jim Regan, DRC’s Chairman and CEO, added, “We are very excited to join the Engility team. Its customer and mission focus, long-term growth strategy and competitive business model are differentiated in the pure-play services market. Engility’s scale and ability to focus on growth in our high priority markets offers compelling new opportunities to both our employees and customers. It is a great cultural fit, and our customers will benefit from our combined expertise and broader service offerings.”

Completion of the transaction is subject to, among other things, the valid tender without withdrawal of a two-thirds majority of the outstanding shares of DRC common stock, regulatory approvals including approval under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and other customary closing conditions. Following completion of the tender offer, subject to customary exceptions, any shares of DRC stock not tendered will be converted into the right to receive the same price per share paid by Engility in the tender offer. The transaction is not subject to any financing condition.

Bank of America Merrill Lynch is serving as the financing provider to Engility.

SunTrust Robinson Humphrey, Inc. is serving as financial advisor to Dynamics Research Corporation, and Stifel, Nicolaus & Company, Incorporated provided a fairness opinion to DRC’s board of directors in connection with the transaction.

Bass, Berry & Sims PLC is providing legal counsel to Engility; Holland & Knight LLP and Nixon Peabody LLP are providing legal counsel to Dynamics Research Corporation.

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