Business Context and Reporting Period
On June 5, 2017, SYNNEX Corporation (now TD SYNNEX Corp) filed a Form 8-K to announce the entry into a Material Definitive Agreement. The company entered into a Share Purchase Agreement with Datatec Limited and Datatec PLC to acquire the North America and Latin American distribution business of the Seller Entities.
Key Financial Metrics and Transaction Structure
The transaction involves the purchase of 100% of the shares of Westcon Group, Inc., and 10% of the shares of Westcon Emerging Markets Group (Pty) Limited and Westcon Group European Holdings, Limited. The aggregate consideration structure is as follows:
- Base Consideration: $130 million in cash and $500 million in SYNNEX common stock.
- Cash Election: If SYNNEX's stock price increases by 3.75% or more relative to the agreement date, SYNNEX may elect to pay $630 million in cash instead of issuing stock.
- Earnout: A potential additional payment of up to $200 million contingent on gross profit measures achieved by Westcon during the twelve-month period ending February 28, 2018.
- Termination Fees: Seller Entities must pay $24.9 million if they breach non-solicit obligations or accept a superior proposal; $3.0 million if shareholder or lender consents are not obtained. SYNNEX must pay $3.0 million if the Cash Election is made and lender consents are not obtained.
This filing does not provide SYNNEX's current revenue, profit, cash flow, margins, debt, or liquidity metrics; it focuses solely on the terms of the acquisition agreement.
Material Changes and Strategic Impact
The primary material change is the strategic expansion into the North American and Latin American markets through the acquisition of Westcon. Prior to closing, the Seller Entities will reorganize to ensure Westcon and its subsidiaries hold only assets used primarily for the benefit of the business in these regions. Additionally, SYNNEX will receive an option for 12 months post-closing to purchase additional shares in the South African and UK entities to increase its ownership to 20% in each.
Guidance, Outlook, and Risks
Management Commentary: The Board of Directors unanimously approved the agreement, deeming it advisable, fair, and in the best interest of SYNNEX and its stockholders. If no Cash Election is made, the UK Parent Subsidiary will receive the right to nominate one person to SYNNEX's board of directors.
Conditions Precedent: Completion is subject to customary closing conditions, including Parent shareholder approval, expiration of the Hart-Scott-Rodino waiting period, antitrust approvals in other jurisdictions, and approval from the South African Reserve Bank.
Risks and Contingencies: The filing highlights risks regarding the failure to consummate the transaction, regulatory approval failures, integration challenges, diversion of management attention, retention of key employees, and risks associated with international operations.
Investor Verification Checklist
- Verify the status of regulatory approvals, specifically from the South African Reserve Bank and antitrust authorities.
- Monitor SYNNEX's stock price to determine if the "Cash Election" threshold (3.75% increase) is met, which would alter the deal's cash impact.
- Review the full text of the Share Purchase Agreement (Exhibit 2.1) for specific representations, warranties, and disclosure letter exceptions.
- Assess the potential dilution impact of issuing $500 million in common stock if the Cash Election is not exercised.
- Track the gross profit performance of Westcon through February 28, 2018, to evaluate the likelihood of the $200 million earnout payment.