Business Context and Reporting Period
This Form 8-K is filed by Primus Telecommunications Group, Incorporated (Primus) on February 17, 2011, regarding its ongoing merger with Arbinet Corporation (Arbinet). The filing details a specific event under Item 8.01: Arbinet's sale of a patent portfolio and the subsequent adjustment to the merger consideration. Stockholder meetings for both companies are scheduled for February 25, 2011, with the merger expected to close on February 28, 2011, pending satisfaction of conditions.
Key Financial Metrics and Transaction Details
- Patent Sale Proceeds: Arbinet sold a portfolio of patents and applications to AIP Acquisition LLC for a purchase price of $4,000,000. The closing occurred on February 16, 2011.
- Transaction Costs: Estimated aggregate transaction costs, fees, expenses, and gross tax liabilities are capped at $350,000.
- Net Proceeds: Assuming maximum costs, net proceeds from the patent sale are estimated at $3,650,000.
- Adjusted Merger Consideration: Arbinet elected to add the net proceeds to the aggregate base merger consideration. The base consideration increased from $28,000,000 to $31,650,000.
- Exchange Ratio: Based on the increased consideration and assumptions as of January 7, 2011, the expected exchange ratio is 0.5794 (approximately 1 share of Primus for 1.73 shares of Arbinet), up from the previously reported 0.5126.
- Post-Merger Ownership: Arbinet stockholders are expected to own approximately 24.6% of the outstanding Primus common stock immediately following the merger, compared to the previously estimated 22%.
Material Changes Versus Prior Period
The primary material change is the increase in the aggregate base merger consideration due to the patent sale. Previously, the base consideration was set at $28,000,000. With the inclusion of the $3,650,000 in net proceeds, the total base consideration is now $31,650,000. Consequently, the exchange ratio for Arbinet shareholders has improved from 0.5126 to 0.5794. Additionally, the filing notes that the actual exchange ratio cannot be finalized until just before the merger closing due to variables in share counts and equity awards.
Guidance, Outlook, and Management Commentary
- Regulatory Approval: Primus and Arbinet have obtained the required authorization from the United States Federal Communications Commission (FCC) to consummate the acquisition.
- License Agreement: In connection with the patent sale, Arbinet and the buyer entered into a license agreement granting Arbinet (and subsequently Primus) a royalty-free, worldwide, assignable, and perpetual right to use the sold patents.
- Executive Compensation: Christie A. Hill, currently General Counsel of Arbinet, is expected to become General Counsel and Corporate Secretary/Senior Vice President - Compliance Officer of Primus upon merger consummation. Her compensation package includes a $300,000 base salary, a $75,000 signing bonus, and eligibility for performance bonuses and equity grants.
- Pro Forma Financials: Primus has updated its unaudited pro forma condensed combined financial information to reflect the increased merger consideration, assuming the merger occurred on September 30, 2010 (balance sheet) and January 1, 2009 (statement of operations).
- Risks: The filing includes standard forward-looking statements cautioning that actual results may differ materially from expectations. The actual exchange ratio may vary significantly based on final share counts and equity award assumptions.
Important Facts for Investor Verification
- Verify the final calculation of transaction costs and tax liabilities to confirm the exact net proceeds added to the merger consideration.
- Confirm the final exchange ratio immediately prior to the February 28, 2011 closing, as it depends on the exact number of Arbinet shares outstanding and assumed equity awards.
- Review the Joint Proxy Statement/Prospectus filed on January 19, 2011, for comprehensive details on the merger terms and risks.
- Note that the buyer of the patents, AIP Acquisition LLC, is wholly owned by the Singer Children's Management Trust, which holds significant stakes in both Arbinet (23.1%) and Primus (9.5%) and has agreed to vote in favor of the merger.