Business Context and Reporting Period
Company: ProFrac Holding Corp. (PFHC)
Filing Type: Form 8-K (Current Report)
Date of Report: June 21, 2022
Event: Entry into a Material Definitive Agreement (Merger Agreement) with U.S. Well Services, Inc. (USWS).
On June 21, 2022, ProFrac Holding Corp. entered into an Agreement and Plan of Merger to acquire USWS. Under the agreement, a ProFrac subsidiary will merge with and into USWS, with USWS surviving as an indirect subsidiary of ProFrac. The transaction was unanimously approved by the boards of both companies.
Key Financial Metrics and Transaction Terms
Transaction Valuation:
- Aggregate Stock Consideration: Approximately $93 million (based on PFHC closing price of $21.49 on June 21, 2022).
- Consideration Per USWS Share: $1.21.
- Total Consideration (Including Conversions): Approximately $270 million (includes conversions of USWS Series A Preferred Stock and Equity Linked Convertible Notes).
Exchange Ratio: Each share of USWS Class A Common Stock converts into 0.0561 shares of PFHC Class A Common Stock.
Related Agreements:
- Warrant Purchase Agreement: ProFrac will purchase certain Term C Loan Warrants for an aggregate price of approximately $2.64 million.
- Termination Fee: USWS may be required to pay ProFrac a termination fee of $8 million or reimburse expenses up to $3 million depending on the termination event.
Financial Statements: This filing does not provide specific revenue, profit, cash flow, or debt metrics for ProFrac or USWS. It references the Merger Agreement for terms regarding the repayment of USWS indebtedness.
Material Changes and Related Party Transactions
Related Party Interest: Dan Wilks and Farris Wilks (the "Wilks Parties") hold a controlling interest in ProFrac and own securities in USWS. Upon consummation, the Wilks Parties are expected to receive approximately 4.11 million shares of PFHC Common Stock, valued at approximately $88.4 million based on the June 21, 2022 closing price.
Supporting Stockholders: Certain USWS stockholders holding approximately 44% of outstanding USWS Common Stock have entered into a Voting Agreement to support the merger.
Outlook, Risks, and Contingencies
Conditions to Closing: The merger is subject to customary conditions, including:
- Approval by USWS stockholders.
- Expiration of the HSR Act waiting period and absence of regulatory prohibitions.
- Effectiveness of the Registration Statement and Nasdaq listing approval.
- ProFrac's ability to obtain financing to fund the repayment of certain USWS indebtedness.
Management Commentary and Risks:
- Expected Benefits: ProFrac anticipates synergies, an expanded active and electric fleet portfolio, cost savings (including fuel), and access to acquired intellectual property.
- Forward-Looking Risks: Risks include failure to obtain financing, inability to secure regulatory or stockholder approval, disruption of business operations, employee retention issues, and integration challenges.
- Financing Contingency: ProFrac has covenanted to use commercially reasonable efforts to obtain financing to repay USWS debt following the closing.
Investor Verification Checklist
- Verify the final terms of the Merger Agreement in the upcoming Proxy Statement (Form S-4).
- Confirm ProFrac's ability to secure the financing required to repay USWS indebtedness.
- Monitor the outcome of the USWS stockholder vote and regulatory approvals (HSR Act).
- Review the detailed risk factors in the ProFrac Final Prospectus and upcoming Proxy Materials.
- Assess the impact of the $88.4 million related-party transaction involving the Wilks Parties.