Hillman Solutions Corp. current report, 12 July 2021

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Filing Overview

Landcadia Holdings III, Inc. filed this Form 8-K on July 12, 2021 under Item 8.01, one day before its scheduled special stockholder meeting. The filing supplements the definitive proxy statement/prospectus for Landcadia’s proposed business combination with Hillman Holdco and its subsidiaries, which would create the post-combination Hillman Solutions Corp. The Form S-4 was declared effective on June 24, 2021.

Financial and Transaction Metrics

  • The filing does not provide current-period revenue, profit, cash flow, margins, liquidity, or operating performance metrics for Hillman.
  • Jefferies is entitled to $17.5 million of deferred IPO underwriting commissions, with up to $4.5 million potentially allocated to other banks, implying $13.0 million for Jefferies if the transaction closes.
  • Landcadia agreed to pay Jefferies $8.4 million for placement-agent services and $13.5 million for capital-markets advisory services, contingent on closing. The filing states that no separate fee will be paid for the capital-markets-advisor role beyond the disclosed arrangement.
  • An affiliate of Jefferies may fund an additional $3.0 million of the PIPE investment, in addition to the $25.0 million commitment from JFG Sponsor.
  • In connection with Hillman’s proposed closing financing, Jefferies expects to receive $6.8 million of M&A advisory fees and financing fees disclosed as $18.6 million from Hillman at closing; the filing also describes a separate expectation of up to $22.7 million in fees for Jefferies Finance’s lending and administrative-agent roles.
  • Jefferies Finance previously received approximately $9.5 million in 2018 and $875,000 for an add-on financing in connection with Hillman’s existing senior credit facilities.
  • JFSI is expected to enter into an interest-rate swap and is described as expecting fees of up to $568,000 in one disclosure and an aggregate of $81,000 in another. The filing text contains an apparent inconsistency that should be reconciled against the definitive transaction documents.

Material Changes and Supplemental Disclosures

  • The supplemental disclosures were made voluntarily in response to shareholder demand letters alleging deficiencies related to the business combination disclosures. Landcadia and its board stated that the claims lack merit, denied wrongdoing, and said the supplements were intended to reduce litigation and transaction-delay risk.
  • The filing provides expanded disclosure regarding Jefferies’ and affiliated entities’ conflicts and financial interests, including underwriting, placement-agent, advisory, lending, administrative-agent, and interest-rate-swap roles.
  • Jefferies and Barclays were engaged by Hillman Holdco to evaluate strategic alternatives, including a sale of control. The filing states that neither firm provided a formal report, opinion, or appraisal of Hillman.
  • Richard Handler, a Jefferies executive and Landcadia-related director, did not attend the January 24, 2021 board meeting at which the transaction was approved, although he communicated his approval beforehand.
  • Daniel O’Leary agreed to join the post-combination company’s board as a Landcadia nominee.
  • Landcadia’s board unanimously approved the merger agreement, subscription agreements, and related transactions, and determined that the proposed business combination represented at least 80% of the assets held in the trust account.

Outlook, Risks, and Contingencies

The transaction remained subject to stockholder approvals, regulatory approvals, financing and other customary closing conditions. If Landcadia failed to complete an initial business combination within the applicable period, it would be required to liquidate, and the deferred IPO underwriting commissions would not be paid and would instead remain available for return to public stockholders.

  • Key risks include failure to close the transaction, termination of the merger agreement, litigation arising from the demand letters or transaction, and failure to obtain required stockholder or regulatory approvals.
  • Other cited risks include disruption to Hillman’s operations, inability to realize anticipated transaction benefits, competition, difficulty managing profitable growth or retaining key employees, transaction costs, changes in law, COVID-19 impacts, adverse economic conditions, and failure to maintain Nasdaq listing.
  • The filing’s statements regarding anticipated fees, financing, closing, future performance, and transaction benefits are forward-looking and subject to material uncertainty.

Investor Verification Items

  • Confirm the final amounts and recipients of Jefferies’ deferred underwriting, placement-agent, advisory, financing, and other transaction-related fees.
  • Reconcile the inconsistent disclosure regarding JFSI’s expected interest-rate-swap fee of up to $568,000 versus $81,000.
  • Review the definitive proxy statement/prospectus and Form S-4 for the complete merger consideration, financing structure, debt terms, dilution, redemption assumptions, and Hillman operating results, which are not provided clearly in this Form 8-K.
  • Verify whether all stockholder, regulatory, financing, and other closing conditions were ultimately satisfied and whether the business combination closed as planned.
  • Assess the impact of disclosed conflicts of interest and the absence of a formal fairness opinion, report, or appraisal from Jefferies or Barclays.