Business Context and Reporting Period
Company: GrafTech International Ltd.
Filing Type: Form 8-K (Current Report)
Date of Report: April 29, 2015
Event: Entry into Material Definitive Agreements (Letters of Intent) with Brookfield Capital Partners Ltd. regarding a potential capital raise and tender offer.
Key Financial Metrics and Transaction Terms
This filing details proposed transactions rather than historical financial performance. Key financial terms include:
- Proposed Preferred Stock Sale: Aggregate purchase price of $150,000,000 for 150,000 shares of 7% convertible preferred stock.
- Dividend Rate: 7.0% annual dividend, cumulative and payable quarterly in arrears.
- Liquidation Preference: Greater of $1,000 per share plus accrued dividends or the conversion value.
- Proposed Tender Offer Price: $5.05 per share for outstanding common stock.
- Conversion Price (Preferred to Common): $5.00 per common share.
- Termination Fees: $7.5 million if the Company breaches no-shop obligations during the LOI period; $7.5 million or $20 million (depending on timing) if a fiduciary out is exercised during the Go-Shop Period.
- Expense Reimbursement: Up to $500,000 for Brookfield's out-of-pocket fees and expenses.
Material Changes and Strategic Intent
The filing represents a significant strategic shift involving potential changes in capital structure and ownership:
- Debt Repayment Plan: Proceeds from the preferred stock sale, combined with existing credit facilities and cash resources, are intended to repay senior subordinated notes maturing in November 2015.
- Ownership Structure: The preferred stock issuance would allow Brookfield to convert into up to 19.9% of outstanding common stock immediately, with an additional 2% contingent on shareholder approval.
- Board Representation: Brookfield would have the right to designate two board members while owning 75% of the preferred stock, and one member while owning 25%.
- Control Rights: Holders of the preferred stock would have veto rights over senior security issuances, charter changes adverse to the stock, and board size increases beyond eleven members.
Guidance, Outlook, and Risks
Outlook and Process:
- Go-Shop Period: The Company has 35 days from the public announcement of a definitive agreement to solicit alternative proposals.
- Transaction Conditions: The tender offer requires at least approximately 15% of outstanding shares to be tendered. If more than 75% are tendered, a merger transaction would be used to acquire remaining shares.
- Regulatory Approval: Transactions are subject to the expiration of waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act (HSR Act).
- Uncertainty of Closing: There is no assurance that definitive agreements will be executed or that either transaction will be consummated.
- Standstill Provisions: Brookfield is subject to voting restrictions and related party transaction restrictions.
- Registration Limitations: The convertible preferred stock is sold without registration; Brookfield cannot sell it absent registration or an exemption (e.g., Rule 144).
The filing does not contain specific management commentary beyond the description of the letters of intent and the press release reference.
Investor Verification Checklist
- Verify the execution of definitive agreements for both the preferred stock sale and the tender offer.
- Monitor the outcome of the 35-day "Go-Shop Period" for alternative proposals.
- Confirm the status of HSR Act waiting periods and other regulatory approvals.
- Assess the Company's ability to repay November 2015 senior subordinated notes if the preferred stock transaction fails to close.
- Review the final terms of the "fiduciary out" and associated termination fees in the definitive agreement.