Business Context and Reporting Period
Company: Ball Corporation
Filing Type: Form 8-K (Current Report)
Date of Report: February 19, 2015
Event: Entry into a Material Definitive Agreement to acquire Rexam PLC.
On February 19, 2015, Ball Corporation announced a recommended offer to acquire all outstanding shares of Rexam PLC in a cash and stock transaction. The acquisition is expected to be completed in 2016, subject to regulatory approvals and shareholder votes.
Key Financial Metrics and Transaction Terms
Transaction Value: The offer values Rexam at an equity value of £4.3 billion ($6.6 billion), based on a 90-day volume weighted average price of Ball stock and an exchange rate of $1.54:£1.
Consideration Structure: For each Rexam share, holders will receive:
- 407p in cash
- 0.04568 new shares of Ball common stock
Financing Arrangements:
- Revolving Credit Facility: A $3 billion multicurrency revolving credit facility with a maturity date of February 19, 2018. Proceeds will be used to repay existing indebtedness, redeem $500 million of 6.75% senior notes due 2020, and redeem $500 million of 5.75% senior notes due 2021.
- Bridge Loan Facility: A £3.3 billion bridge term loan facility to fund the cash consideration of the acquisition. Interest rates start at LIBOR plus 3.5% and increase by 0.50% every 3 months, capped at 7.0%.
Leverage Covenants: The Revolving Credit Agreement requires Ball to maintain a maximum leverage ratio of 4.00 to 1.00 prior to the Acquisition and 5.50 to 1.00 on and after the Acquisition.
Material Changes and Agreements
Co-operation Agreement: Ball, Rexam, and Ball UK Acquisition Limited entered into an agreement where Ball leads regulatory clearance efforts. Ball agreed to limit divestitures of can production facilities or ends production assets to those generating revenue in excess of $1.58 billion (based on 2014 data) in the EU and US.
Break Fees: Ball agreed to pay Rexam break fees in the event of specific termination scenarios:
- £302 million if regulatory conditions are not satisfied or if Ball withdraws the recommendation due to regulatory divestiture requests.
- £129 million if Ball withdraws its recommendation for shareholder approval or if the shareholder meeting does not occur within 180 days.
- £43 million if Ball shareholders do not approve the issuance of stock within 180 days.
Guidance, Risks, and Contingencies
Conditions to Closing: The acquisition is contingent upon:
- Approval by a majority of Ball shareholders for the issuance of new stock.
- Approval by Rexam shareholders (75% majority) and sanction by the High Court of England and Wales.
- Expiration of waiting periods under the Hart-Scott-Rodino Act and other antitrust laws (including EU and Brazil).
- Absence of a material adverse effect on Rexam.
Risks and Uncertainties: The filing highlights risks including failure to obtain regulatory approvals, potential divestitures, changes in foreign exchange rates, and the impact of the announcement on business relationships. The bridge loans may be converted to rollover loans or exchange notes if not repaid by the maturity date.
Investor Verification Checklist
- Verify the status of regulatory approvals in the US, EU, and Brazil, as these are critical conditions for closing.
- Confirm the outcome of the Ball shareholder vote regarding the issuance of new common stock.
- Monitor the leverage ratio covenants (4.00:1 pre-acquisition, 5.50:1 post-acquisition) and potential impact on credit ratings.
- Review the specific divestiture requirements to ensure they do not exceed the $1.58 billion revenue threshold for can and ends production assets.
- Assess the interest rate exposure on the £3.3 billion bridge loan, noting the escalating margin structure.