Business Context and Reporting Period
This Form 8-K, filed on October 5, 2018, reports the completion of SYNNEX Corporation's (now TD SYNNEX) acquisition of Convergys Corporation. The transaction was executed via a merger agreement dated June 28, 2018, and amended on August 22, 2018. Upon completion, Convergys became a wholly-owned subsidiary of SYNNEX.
Key Financial Metrics and Transaction Details
- Consideration Paid: SYNNEX issued 11,510,855 shares of common stock and paid $1.2 billion in cash.
- Shareholder Ownership: Former Convergys shareholders own approximately 22% of the outstanding SYNNEX stock post-merger.
- Post-Merger Share Count: Approximately 51,161,022 shares of SYNNEX stock outstanding.
- Debt Financing: SYNNEX borrowed $1.45 billion under a new Credit Agreement to finance the cash portion of the deal and repay Convergys indebtedness.
- Debt Capacity: The Credit Agreement allows for up to $1.8 billion in term loans, with an additional $350 million available for repurchasing Convergys convertible debentures.
- Debt Terms: The loan matures five years after the initial funding date. Interest rates are variable based on LIBOR or Prime rates plus an applicable margin tied to the Consolidated Leverage Ratio.
Material Changes Versus Prior Period
The filing does not provide comparative revenue, profit, or cash flow metrics for the current period versus the prior period. The primary material change is the structural consolidation of Convergys into SYNNEX and the significant increase in debt obligations to fund the acquisition.
Guidance, Outlook, Risks, and Contingencies
- Financial Covenants: The new Credit Agreement imposes strict financial covenants, including a Consolidated Leverage Ratio cap (ranging from 4.0:1.0 to 4.25:1.0 depending on the post-merger quarter) and a minimum Consolidated Interest Coverage Ratio of 3.50:1.0.
- Restrictive Covenants: The agreement restricts SYNNEX's ability to incur additional indebtedness, create liens, dispose of assets, or repurchase capital stock without lender consent.
- Future Filings: SYNNEX intends to file Convergys' historical financial statements and pro forma financial information in an amendment (Form 8-K/A) within 71 calendar days.
- Employee Compensation: Outstanding Convergys equity awards were converted to cash or SYNNEX stock based on specific formulas, with some unvested awards continuing under original terms.
Important Facts for Investor Verification
- Verify the pro forma financial impact of the acquisition once the Form 8-K/A is filed, as current revenue and margin data are not included in this report.
- Monitor SYNNEX's ability to maintain the required Consolidated Leverage Ratio (max 4.25:1.0 initially) and Interest Coverage Ratio (min 3.50:1.0) under the new $1.45 billion debt load.
- Confirm the timeline for the repayment or settlement of Convergys' convertible debentures using the additional $350 million credit facility.
- Review the full text of the Credit Agreement (Exhibit 10.1) for specific definitions of leverage ratios and potential events of default.