Business Context and Reporting Period
Company: Forestar Group Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: June 3, 2012
Event: Entry into a Material Definitive Agreement to acquire CREDO Petroleum Corporation ("Credo").
Key Financial Metrics and Transaction Terms
- Acquisition Price: $14.50 per share in cash for each outstanding share of Credo common stock.
- Option Treatment: Outstanding options will be cancelled for the excess of $14.50 over the exercise price, less applicable taxes.
- Financing: The transaction is not subject to a financing condition. Forestar has obtained a bridge financing commitment from Key Bank National Association and intends to amend existing credit facilities to fund a significant portion of the purchase price.
- Ownership Support: Forestar entered into a Voting Agreement with holders of approximately 21.1% of Credo's outstanding common stock to vote in favor of the merger.
Material Changes and Transaction Structure
On June 3, 2012, Forestar entered into an Agreement and Plan of Merger with Credo and Longhorn Acquisition Inc. (a wholly owned subsidiary of Forestar). Upon closing, Longhorn Acquisition Inc. will merge with and into Credo, with Credo surviving as a wholly owned subsidiary of Forestar.
- Board Approval: The boards of directors of both Forestar and Credo have approved the Merger.
- Shareholder Approval: The Merger requires approval by Credo's stockholders but is not subject to approval by Forestar's stockholders.
- Termination Provisions: The agreement may be terminated under certain circumstances, potentially triggering transaction expense reimbursements or a termination fee payable by Credo to Forestar.
Guidance, Outlook, and Risks
Timeline: Forestar expects the transaction to close in the second half of 2012, subject to customary closing conditions.
Management Commentary: Management will discuss the transaction in a conference call on June 4, 2012. A press release and investor presentation were issued on the same date.
Risks and Contingencies:
- Alternative Proposals: Credo is permitted to actively solicit and consider alternative proposals until 11:59 p.m. on July 3, 2012.
- Forward-Looking Statements: Risks include the timing of consummation, failure to satisfy closing conditions, inability to achieve synergies, integration challenges, and diversion of management time.
- Market Factors: General economic conditions, commodity price changes, housing demand, and regulatory changes could impact the transaction or future results.
Important Facts for Investor Verification
- Verify the final approval status of the merger by Credo's stockholders.
- Monitor the July 3, 2012 deadline for Credo to consider alternative proposals.
- Review the upcoming Credo proxy statement (Schedule 14A) for detailed financial information and risk factors.
- Confirm the final terms of the bridge financing and credit facility amendments.
- Assess the potential impact of the termination fee structure on Credo's balance sheet if the deal fails.