Business Context and Reporting Period
This Form 8-K, filed on September 25, 2018, by SYNNEX Corporation (now TD SYNNEX Corp), addresses "Other Events" related to the proposed acquisition of Convergys Corporation. The filing provides supplemental disclosures to the joint proxy statement/prospectus in response to two shareholder lawsuits filed on September 10, 2018, challenging the fairness of the merger process and alleging breaches of fiduciary duty.
Key Financial Metrics and Projections
The filing does not report historical revenue, profit, or cash flow for SYNNEX. Instead, it discloses forward-looking financial projections for Convergys and projected cost savings for the combined entity used in the financial advisor's valuation analysis.
| Convergys Projection (FY) | 2018E | 2019E | 2020E | 2021E | 2022E |
|---|---|---|---|---|---|
| Revenue ($ millions) | 2,690 | 2,717 | 2,785 | 2,854 | 2,926 |
| Adjusted EBITDA ($ millions) | 340 | 349 | 363 | 372 | 381 |
| Adjusted Levered Free Cash Flow ($ millions) | 185 | 215 | 210 | 217 | 224 |
Projected Cost Savings: SYNNEX projected cost savings of $50 million in fiscal year 2019, $100 million in 2020, and $150 million in 2021. These figures were incorporated into the financial advisor's analysis.
Director Compensation: Upon completion of the merger, Convergys' eight non-employee directors are estimated to receive an aggregate of $1,009,454 in cash payments for unvested RSU awards.
Material Changes and Litigation
The primary material event is the initiation of two shareholder lawsuits in the Ohio Court of Common Pleas, Hamilton County:
- Franchi v. Ayers, et al.: A putative class action and derivative lawsuit alleging breach of fiduciary duty, an unfair sales process, and failure to disclose material information. It seeks to enjoin the merger or award rescissory damages.
- Zalvin v. Ayers, et al.: A putative class action lawsuit with similar allegations. A motion for a preliminary injunction was filed on September 20, 2018, with a hearing scheduled for September 26, 2018.
SYNNEX and Convergys deny the allegations, stating the actions are without merit. However, to avoid litigation delays, the companies are providing supplemental disclosures regarding confidentiality agreements, standstill provisions, and financial advisory engagement terms.
Guidance, Outlook, and Risks
Management Commentary: SYNNEX's board continues to unanimously recommend that stockholders vote FOR the issuance of shares in connection with the merger. The supplemental disclosures clarify that Centerview (Convergys' financial advisor) did not include expected synergies in its Discounted Cash Flow analysis of Convergys but did incorporate SYNNEX's projected cost savings in other analyses.
Risks and Contingencies:
- Legal Risk: The lawsuits seek to enjoin the merger, which could delay or prevent closing.
- Integration Risk: Risks related to the ability to realize anticipated benefits, including cost savings, and the successful integration of the businesses.
- Regulatory Risk: Failure to obtain necessary regulatory and shareholder approvals.
- Forward-Looking Statements: The filing contains forward-looking statements regarding future financial results and transaction benefits, which are subject to substantial uncertainties.
Investor Verification Checklist
- Verify the status of the preliminary injunction hearing in the Zalvin action scheduled for September 26, 2018.
- Review the full joint proxy statement/prospectus (File No. 333-226708) for complete details on the merger terms and valuation.
- Confirm the specific terms of the confidentiality and standstill agreements with "Party B," "Party D," and activist shareholder Elliott.
- Assess the validity of the projected cost savings ($50M-$150M) and the timeline for their realization.
- Monitor for any updates regarding the satisfaction of closing conditions, including shareholder approval.