Business Context and Reporting Period
This Form 8-K, filed on April 30, 2019, by Gardner Denver Holdings, Inc. (GDI), reports the entry into a definitive agreement for a Reverse Morris Trust transaction with Ingersoll Rand plc. The transaction involves the separation of Ingersoll Rand's Industrial segment and its subsequent merger with Gardner Denver.
Key Financial Metrics and Transaction Structure
The filing details a complex restructuring rather than standard periodic financial results. Key financial terms include:
- Distribution Payment: Ingersoll Rand Industrial is required to pay Ingersoll Rand approximately $1.9 billion in cash upon consummation of the distribution.
- Financing: Debt financing commitments totaling $1.9 billion have been secured from Citigroup, KKR, and Goldman Sachs to fund the distribution payment.
- Ownership Structure: Post-merger, existing Gardner Denver shareholders will own approximately 49.9% of the combined company, while former Ingersoll Rand shareholders will own approximately 50.1%.
- Termination Fee: Gardner Denver is obligated to pay a termination fee of $176 million to Ingersoll Rand under specific termination scenarios.
- Expense Reimbursement: Gardner Denver may reimburse Ingersoll Rand up to $35 million in transaction expenses if the deal fails due to shareholder vote rejection.
Note: This filing does not provide revenue, profit, cash flow, or margin data for either company.
Material Changes and Agreements
The primary material change is the execution of the Merger Agreement and Separation Agreement. Key provisions include:
- Corporate Name: Following the merger, Gardner Denver is expected to change its name to Ingersoll Rand, Inc.
- Leadership: Peter Stavros will serve as Chairman of the Board, and Vicente Reynal will serve as CEO of the combined entity.
- Board Composition: The board will consist of 10 members: 7 selected by the current Gardner Denver board and 3 selected by Ingersoll Rand.
- KKR Stockholder Amendment: An amendment to the Stockholders Agreement adjusts KKR's director nomination rights to 14% of the board if they hold 10% or more of shares, and 10% if they hold between 5% and 10%.
Outlook, Risks, and Contingencies
The transaction is subject to several closing conditions and risks:
- Regulatory Approvals: Completion requires expiration of the Hart-Scott-Rodino waiting period and approvals from competition authorities in the EU and China.
- Shareholder Approval: The transaction requires approval by Gardner Denver's stockholders for the issuance of new shares.
- Tax Status: The transaction is expected to be tax-free for U.S. federal income tax purposes, subject to specific exceptions for fractional shares and Irish tax matters.
- Forward-Looking Risks: Risks include failure to obtain regulatory approvals, inability to realize synergies, integration difficulties, and potential stockholder litigation.
Investor Verification Checklist
- Verify the status of regulatory approvals from the EU and China.
- Confirm the outcome of the Gardner Denver shareholder vote on the share issuance.
- Review the definitive Merger Agreement (Exhibit 2.1) and Separation Agreement (Exhibit 10.1) for detailed covenants and representations.
- Monitor the filing of the proxy statement and registration statements with the SEC for further details on the transaction.
- Assess the impact of the $1.9 billion debt financing on the combined company's future leverage and liquidity.