Notable Mergers and Acquisitions of the Day 11/27: (RAH)/(CAG) (EQR)/(AVB) (ACHC)

• ConAgra Foods, Inc. (NYSE: CAG) and Ralcorp Holdings, Inc. (NYSE: RAH) today announced that the boards of directors of both companies have unanimously approved a definitive agreement under which ConAgra Foods will acquire Ralcorp, the largest manufacturer of private label food in the U.S. Under the terms of the agreement, Ralcorp shareholders will receive $90.00 per share in cash for each outstanding share of common stock held, representing a 28.2% premium to the closing price of Ralcorp’s common stock on November 26, 2012, and a 24.9% premium to the average closing price of Ralcorp’s common stock for the 30 trading days ending November 26, 2012. The transaction is valued at approximately $6.8 billion, including the assumption of debt.
  
  This transaction creates one of the largest packaged food companies in North America, with sales of approximately $18 billion annually and more than 36,000 employees. It will also position ConAgra Foods as the largest private label packaged food business in North America, with combined private label sales of approximately $4.5 billion.
  
  
  Compelling Financial Benefits
  
  ConAgra Foods expects the transaction to provide attractive sales and EPS growth over time. Because this transaction is expected to close by March 31, 2013, management expects it to have a modest benefit on fiscal 2013 financial results and will quantify that benefit in the coming months. Excluding any benefit from this transaction, ConAgra Foods’ expectations for fiscal 2013 fully diluted EPS remain unchanged at $2.03 to $2.06, adjusted for items impacting comparability. ConAgra Foods will provide additional details regarding the favorable impact of this transaction on its financial outlook for fiscal years 2013 and 2014, as well as its favorable impact on the company’s long-term financial algorithm, in due course as integration plans, the pace of expected synergies, and the financing components of the transaction are finalized.
  
  ConAgra Foods intends to use its strong infrastructure and productivity capabilities to drive significant cost synergies from this transaction, primarily in the areas of supply chain and procurement efficiencies. It expects to achieve approximately $225 million of cost synergies on an annual basis by the fourth full fiscal year after closing.
  
  The acquisition of Ralcorp is expected to be financed primarily with cash on hand, existing credit facilities and new borrowings, for which ConAgra Foods has received a commitment letter from BofA Merrill Lynch.
  
  ConAgra Foods is fully committed to its investment grade credit rating, and consistent with that commitment, expects to issue up to $350 million of equity. ConAgra Foods will prioritize rapid deleveraging in the near term through its strong cash flow generation. The company currently expects to maintain its dividend of $1.00 per share on an annual basis and will significantly reduce its share buyback activities for a period of time. ConAgra Foods remains committed to its long-term capital allocation priorities, including a top-tier dividend, strong balance sheet and strong liquidity.
  
  Integration
  
  ConAgra Foods and Ralcorp will establish a transition team comprised of members of both management teams to prepare for and to oversee the integration of the businesses.
  
  Terms and Conditions
  
  The transaction is subject to the approval of Ralcorp’s shareholders and customary regulatory approvals. The transaction is expected to close by March 31, 2013.
  
  Advisors
  
  Centerview Partners and BofA Merrill Lynch are serving as financial advisors to ConAgra Foods and Davis Polk & Wardwell LLP is serving as its legal advisor. Barclays and Goldman, Sachs & Co. are serving as Ralcorp’s financial advisors and Wachtell, Lipton, Rosen & Katz is serving as its legal advisor.
  
  
• After markets closed Monday, Equity Residential (NYSE: EQR) today announced that the company and AvalonBay Communities, Inc. (“AvalonBay”) (NYSE: AVB) have entered into an agreement with Lehman Brothers Holdings Inc. (“Lehman”) to acquire, for approximately $16 billion, the assets and liabilities of Archstone Enterprise LP (“Archstone”), which consists principally of a portfolio of high-quality apartment properties in major markets in the United States. Under the terms of the agreement, Equity Residential will acquire approximately 60% of Archstone’s assets and liabilities and AvalonBay will acquire approximately 40% of Archstone’s assets and liabilities. The transaction is expected to close during the first quarter of 2013.
  
  The combined purchase price for the assets consists of (i) $2.7 billion in cash, (ii) a fixed number of shares of Equity Residential and AvalonBay’s common shares valued at $3.8 billion as of the market’s close on Friday, November 23, 2012, and (iii) the assumption of approximately $9.5 billion of debt and $330 million of preferred equity. Of the debt to be assumed, approximately $8.6 billion is held by Fannie Mae and Freddie Mac, each of which has agreed to the assumption of this debt by Equity Residential and AvalonBay.
  
  Equity Residential will acquire 78 wholly-owned stabilized operating properties, consisting of 23,110 apartment units with an average monthly rent of $2,492 per unit. The transaction values the residential portion of these stabilized operating properties at $367,003 per apartment unit. The capitalization (cap) rate is approximately 5.0%. When adjusted for transaction costs and the debt mark-to-market, the cap rate would be approximately 4.7%.
  
  Equity Residential will pay its portion of the transaction consideration with $2.016 billion in cash and the issuance of 34,468,085 common shares to Lehman. In addition, the company will be responsible for approximately $5.5 billion of consolidated and unconsolidated secured debt (exclusive of an approximate $300 million mark-to-market adjustment), including $5.1 billion of Fannie Mae and Freddie Mac secured debt for which consent to assume has already been obtained.
  
  The company has also obtained a commitment from Morgan Stanley Senior Funding, Inc. to provide a $2.5 billion bridge loan facility.
  
  Equity Residential intends to fund a substantial portion of the acquisition with proceeds from asset sales. Equity Residential intends to use proceeds from approximately $3.0 billion to $4.0 billion in asset sales in exit markets such as Atlanta, Orlando, Phoenix and Jacksonville and from the sale of non-core assets in other markets between now and the end of 2013, most of which are intended to be structured as tax free exchanges. Of this amount, the company expects to close approximately $1.0 billion of its asset sales by the close of the Archstone transaction and expects that Archstone will sell approximately $750 million of assets that were to be acquired by Equity Residential prior to the close of the transaction, reducing Equity Residential’s purchase price by a like amount. The company then intends to sell approximately $2.0 billion to $3.0 billion in the balance of 2013, depending on market and other conditions. Equity Residential currently has approximately $400 million of assets under contract for sale; approximately $250 million under letter of intent and over $2.0 billion in various stages of marketing, with several billion dollars of additional assets identified and ready to begin the marketing process. The company can make no assurance that it will be able to complete its intended dispositions in the amount targeted, in the time frame expected, on attractive terms, or at all.
  
  Other expected sources of capital to fund the transaction include cash on hand, available borrowings under the company’s $1.75 billion revolving credit facility, issuances of common shares, debt financing, including potential new term loans or issuances of unsecured debt.
  
  Earnings Guidance
  
  The company is reaffirming its 2012 Normalized FFO guidance range of $2.74 to $2.78 per share.
  
  The company currently anticipates no change to the 4% to 5% same store revenue growth expectation that it has previously provided for 2013.
  
  The company expects that its 2013 Normalized Funds from Operations will be reduced by up to $0.04 per share because of the Archstone transaction, primarily due to the company’s planned disposition activity. Normalized FFO begins with Funds from Operations (as defined by the National Association of Real Estate Investment Trusts) and eliminates certain items that by their nature are not comparable from period to period or that tend to obscure the company’s operating performance. Transaction expenses, prepayment penalties and other similar non-comparable items relating to the Archstone transaction are excluded from the computation of Normalized FFO. The estimated change in Normalized FFO set forth above is forward looking and is based on estimates and assumptions made by management and may change materially due to, among other things, the actual timing and amount of the dispositions, pricing, changes in interest rates, changes in the operating environment and other unanticipated changes. Equity Residential expects to provide guidance for 2013 Funds from Operations and Normalized Funds from Operations as part of its Fourth Quarter 2012 earnings release on Tuesday, February 5, 2013.
  
  As previously discussed in this press release, certain Archstone assets primarily comprised of its interests in unconsolidated joint ventures that own apartment properties in various U.S. markets as well as Archstone’s interest in a portfolio of apartment communities in Germany, will be placed in a joint venture co-owned by Equity Residential and AvalonBay. Equity Residential will maintain a 60% interest and AvalonBay will maintain a 40% interest in the joint venture. The companies will co-manage these assets while working towards a liquidation program to preserve and enhance the value of the assets jointly owned. The combined gross value for both companies is approximately $500 million, with a net value (after considering debt at share) of approximately $170 million.
  
  Lehman has entered into certain registration rights and shareholder agreements with Equity Residential under which all the shares issued to Lehman will have a lock up period of 150 days following today’s announcement. In addition to other restrictions, as long as Lehman owns more than 5% of Equity Residential’s outstanding shares, Lehman will vote their shares in accordance with the recommendations of Equity Residential’s Board of Trustees, subject to certain exceptions.
  
  In the event that the Purchase Agreement is terminated by Lehman due to the failure of Equity Residential and AvalonBay to satisfy the conditions to closing, Equity Residential and AvalonBay are jointly and severally liable to pay to Archstone liquidated damages in an amount equal to $650 million, which amount will be increased to $800 million if Equity Residential and AvalonBay extend the closing date beyond 60 days following the date of the Purchase Agreement.
  
  
• Acadia Healthcare Company, Inc. (Nasdaq: ACHC) announced two agreements to purchase an aggregate of eight inpatient psychiatric facilities with approximately 600 beds.
  
  The Company has agreed to purchase Behavioral Centers of America, LLC, which is headquartered in Nashville, TN, for total consideration of $145 million in cash. BCA operates three inpatient psychiatric facilities and one psychiatric hospital within a hospital. The facilities are located in Ohio, Michigan and Texas and have 278 licensed inpatient beds, over 90% of which are acute inpatient beds. The facilities produced revenues of $60.5 million for the twelve months ended September 30, 2012. Acadia expects to complete the transaction, which is subject to customary closing conditions, in late December 2012.
  
  The Company also has agreed to acquire AmiCare Behavioral Centers, headquartered in Fayetteville, AR, for total consideration of $113 million in cash. AmiCare operates four inpatient psychiatric facilities in Arkansas that have 330 licensed inpatient beds, nearly 70% of which are acute inpatient beds. The facilities produced revenues of $61.7 million for the twelve months ended September 30, 2012. Acadia expects to complete the transaction, which is subject to customary closing conditions, in late December 2012.
  
  Acadia is evaluating alternatives to finance these transactions. While the final funding mix is yet to be finalized, management expects that these transactions will be accretive to its 2013 financial results.

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