Business Context and Reporting Period
This Form 8-K, filed on August 20, 2018, serves as a supplement to the Joint Proxy Statement/Prospectus regarding the proposed merger between Cohu, Inc. ("Cohu") and Xcerra Corporation ("Xcerra"). The filing provides updated disclosures in response to shareholder class action lawsuits and clarifies financial analyses used to value the transaction. A special meeting of Cohu stockholders to vote on the merger is scheduled for August 30, 2018.
Key Financial Metrics and Valuation Data
The filing does not report Cohu's current period revenue, profit, or cash flow. Instead, it discloses valuation multiples and projected cash flows used by financial advisor Cowen to assess the merger.
- Comparable Company Multiples (as of May 4, 2018):
- Cohu: Implied Enterprise Value to Revenue (CY2017A: 1.5x, CY2018E: 1.4x); Implied Enterprise Value to Adjusted EBITDA (CY2017A: 9.6x, CY2018E: 8.0x).
- Xcerra: Implied Enterprise Value to Revenue (CY2017A: 1.2x, CY2018E: 1.2x); Implied Enterprise Value to Adjusted EBITDA (CY2017A: 7.1x, CY2018E: 7.4x).
- Projected Unlevered Free Cash Flow (Cohu):
- Eight-month period ending Dec 29, 2018: $23.3 million.
- Fiscal 2019: $46.5 million.
- Fiscal 2020: $53.1 million.
- Fiscal 2021: $57.9 million.
- Fiscal 2022: $60.2 million.
- Projected Unlevered Free Cash Flow (Xcerra):
- Three-month period ending July 31, 2018: $5.3 million.
- Fiscal 2019: $51.4 million.
- Fiscal 2020: $54.9 million.
- Fiscal 2021: $56.3 million.
- Fiscal 2022: $57.6 million.
- Discount Rates Used in DCF Analysis: Cohu (9.5% to 11.5%); Xcerra (12.0% to 14.0%).
- Terminal Multiples Used: 6.0x to 8.0x Adjusted EBITDA for both companies.
Material Changes and Disclosures
The filing amends and restates several sections of the original Proxy Statement:
- Fiscal Year Correction: Corrected the fiscal year end date for Cohu from December 31, 2018, to December 29, 2018.
- Board Designees: Disclosed that following the Merger Agreement execution, Xcerra provided a list of potential board members. On August 14, 2018, Cohu Chairman Jim Donahue formally invited David G. Tacelli and Jorge L. Titinger to join the Cohu Board post-merger.
- Financial Analyses: Updated tables regarding comparable company transactions and discounted cash flow (DCF) analyses to reflect specific cash flow projections and valuation multiples.
Legal Proceedings, Risks, and Outlook
Legal Proceedings:
- Two putative shareholder class action lawsuits were filed in July 2018 against Xcerra and its board, alleging violations of federal securities laws and omissions of material facts in the proxy statement.
- On August 19, 2018, Xcerra reached an agreement with the plaintiff in the first lawsuit (Shui Action) to dismiss the complaint in exchange for supplemental disclosures (this filing). Xcerra denies the allegations and states it is mooting the claims solely to avoid litigation costs.
Risks and Uncertainties:
- Failure to obtain stockholder approval or regulatory clearances (including HSR Act).
- Failure to secure necessary financing for the transaction.
- Integration risks and inability to achieve anticipated synergies.
- Impact of interest expense on financing debt and rising interest rates.
- Potential disruptions to business operations and relationships with customers or suppliers.
Outlook: Management believes the merger will create value but notes that actual results could differ materially from forward-looking statements due to the risks listed above.
Investor Verification Checklist
- Verify the final vote count at the special meeting on August 30, 2018, to confirm stockholder approval of the merger.
- Confirm the status of the second class action lawsuit (Khan Action) and whether it has been dismissed or stayed.
- Review the definitive financing agreements to ensure Cohu can secure the debt required to close the transaction.
- Monitor regulatory filings for any antitrust reviews or clearance delays under the Hart-Scott-Rodino Act.
- Validate the accuracy of the projected cash flows ($23.3M for Cohu's partial year) against actual performance in the coming quarters.