Post Holdings, Inc. current report, 02 August 2018

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Business Context and Reporting Period

Company: Post Holdings, Inc.
Filing Date: August 2, 2018
Reporting Period: Current Report (Form 8-K) regarding events on July 31 and August 2, 2018.
Context: Post Holdings, Inc. announced the entry into a Transaction Agreement to spin off its private brands food products business (the "Private Brands Business") into a new holding company, 8th Avenue Food & Provisions, Inc. ("8th Avenue").

Key Financial Metrics and Transaction Structure

Total Proceeds: Post anticipates receiving total proceeds of $875.0 million upon closing.
Capital Structure of Proceeds:

  • Equity Investment: $250.0 million from THL Equity Fund VIII Investors (PB), LLC ("THL").
  • Debt Financing: $625.0 million from a committed senior increasing rate bridge loan ("Bridge Loan").
Ownership Structure Post-Closing:
  • Post Holdings: Will hold 6,050,000 shares of 8th Avenue Class B common stock (approx. 60.5% economic interest, with 6 votes per share).
  • THL: Will hold 3,950,000 shares of Class A common stock and 2,500,000 shares of 11% Series A Cumulative Perpetual Preferred Stock.
Debt Assumption: 8th Avenue will assume the Bridge Loan; Post will retain the cash proceeds. 8th Avenue is expected to refinance this with permanent debt shortly after closing.

Material Changes and Business Scope

The transaction represents a material restructuring of Post's operations. The Private Brands Business being transferred to 8th Avenue includes the following entities and product lines:

  • Attune Foods: Nut butter and granola/snacks business.
  • Agricore United Holdings (Dakota Growers): Pasta manufacturing.
  • Golden Boy Foods: Nut butter and nut products.
  • American Blanching Company: Nut processing.
Post will transfer approximately 62.5% of Agricore's capital stock to THL for $250.0 million and contribute the remaining equity interests of the Private Brands Business to 8th Avenue in exchange for Class B common stock.

Outlook, Governance, and Risks

Closing Timeline: Expected to close on the later of October 1, 2018, or the first business day of the month following satisfaction of all conditions.
Termination Date: The agreement may be terminated if closing does not occur by February 2, 2019.
Governance:

  • Post will elect 5 directors to the 8th Avenue board.
  • THL will elect 1 director.
  • Class B stock (Post) carries 6 votes per share; Class A stock (THL) carries 1 vote per share.
Risks and Contingencies:
  • Refinancing Risk: 8th Avenue must secure permanent financing to replace the Bridge Loan.
  • Liability Cap: THL's aggregate liability for breach of the agreement is capped at $35.0 million plus costs.
  • Restrictions: Post is subject to a 5-year noncompetition and nonsolicitation restriction (terminating earlier if Post ownership drops below 30%).
  • Conditions: Closing is subject to regulatory approvals, funding of the Bridge Loan, and THL's equity commitment.
Management Changes: James E. Dwyer, Jr. (President and CEO of 8th Avenue) had his employment agreement amended to reflect his role as head of the Private Brands business, with rights assigned to Dakota Growers.

Investor Verification Checklist

  • Verify the final closing date and whether the October 1, 2018 target is met.
  • Confirm the successful funding of the $625.0 million Bridge Loan and the subsequent refinancing into Permanent Financing.
  • Monitor regulatory approval status, as closing is contingent on required consents.
  • Review the final capital structure of 8th Avenue to ensure the debt-free, cash-free, and normalized working capital adjustments are executed as agreed.
  • Assess the impact of the 5-year noncompetition clause on Post's future strategic flexibility.