Business Context and Reporting Period
Company: Henry Schein, Inc.
Filing Type: Form 8-K (Current Report)
Date of Report: April 23, 2018 (Earliest event reported: April 20, 2018)
Event: Entry into Material Definitive Agreements regarding a Reverse Morris Trust transaction.
Henry Schein, Inc. announced definitive agreements to spin off its animal health business into a new entity, HS Spinco, Inc. ("Spinco"), and subsequently merge Spinco with Direct Vet Marketing, Inc. (d/b/a Vets First Choice) ("DVM"). Upon consummation, Henry Schein stockholders will own approximately 63% of the combined entity, while former DVM stockholders will own approximately 37%.
Key Financial Metrics and Transaction Terms
This filing details a corporate restructuring rather than periodic financial performance. Key financial terms include:
- Special Dividend: Spinco will pay Henry Schein a special dividend. The sum of this dividend and the Intercompany Debt Repayment will not exceed $1.2 billion.
- Additional Special Dividend: In certain circumstances, an additional cash dividend of up to $50 million may be paid.
- Debt Financing: Spinco intends to arrange debt financing ("Spinco Financing") in an aggregate principal amount of at least $900 million and no more than $1.2 billion (potentially increased by the Additional Special Dividend amount) to fund the dividends and debt repayment.
- Put Rights Amendment: Henry Schein agreed to purchase remaining equity interests in Butler Animal Health Holding Company, LLC from the "Darby Sellers" for an aggregate purchase price of $365 million.
Note: The filing does not provide revenue, profit, cash flow, or margin data for the reporting period.
Material Changes and Transaction Structure
The filing outlines a multi-step transaction structure:
- Contribution: Henry Schein contributes its animal health business assets and entities to Spinco.
- Dividend and Debt Repayment: Spinco pays the Special Dividend and repays intercompany debt to Henry Schein.
- Distribution: Henry Schein distributes all Spinco common stock to its stockholders pro rata.
- Merger: Immediately following the distribution, a subsidiary of Spinco merges with DVM, making DVM a wholly-owned subsidiary of Spinco.
Additionally, the Company entered into an Employee Matters Agreement to allocate liabilities for employee compensation and benefit plans between the Company and Spinco.
Guidance, Risks, and Contingencies
Conditions to Closing: The transaction is subject to several conditions, including:
- Approval by DVM stockholders.
- Effectiveness of the SEC registration statement and listing approval on the Nasdaq Global Select Market.
- Expiration of the Hart-Scott-Rodino Antitrust waiting period.
- Receipt of solvency and surplus opinions and customary tax opinions.
- No "material adverse effect" occurring with respect to DVM or Spinco.
Risks and Forward-Looking Statements: The Company cautions that the transaction may not be consummated due to regulatory approvals, financing issues, or failure to meet conditions. Risks include the ability to integrate operations, retain key personnel, and realize anticipated synergies. The filing includes standard safe harbor language regarding forward-looking statements.
Investor Verification Checklist
- Verify the final terms of the Spinco Financing (amount and interest rates) once consummated.
- Monitor the status of regulatory approvals, specifically the Hart-Scott-Rodino waiting period and SEC registration statement effectiveness.
- Confirm the record date for the distribution of Spinco stock to Henry Schein stockholders.
- Review the upcoming Form S-1/S-4 prospectus for detailed financial information regarding Spinco and DVM.
- Track the closing of the $365 million Put Rights Amendment transaction with the Darby Sellers.