Business Context and Reporting Period
This Form 8-K, dated November 6, 2020, is filed by Fortress Value Acquisition Corp. (FVAC) regarding its proposed business combination with MP Materials Corp. The filing serves as a supplement to the definitive proxy statement/consent solicitation/prospectus to address allegations in a shareholder lawsuit (Figueredo v. Fortress Value Acquisition Corp.) concerning omitted material information. The special meeting of FVAC stockholders to vote on the transaction is scheduled for November 13, 2020.
Key Financial Metrics and Valuation
The filing does not provide historical revenue, profit, cash flow, or debt figures for MP Materials or FVAC. However, it discloses valuation metrics used to determine the fairness of the transaction price:
- Transaction Price: $10.00 per share of FVAC stock to be issued.
- Implied Enterprise Value: $1.0 billion for MP Materials.
- Implied Multiples: 12.2x 2021 projected EBITDA and 5.8x 2022 projected EBITDA.
- Valuation Range: A discounted cash flow analysis by Murray Devine yielded a value range of $8.56 to $12.76 per share.
- Discount Rate: Weighted average cost of capital ranging from 10.5% to 16.5%.
Material Changes and Disclosures
The filing amends and supplements the proxy statement with the following material details:
- Target Search Process: FVAC evaluated over 175 potential targets; 17 progressed to structural evaluation, and 4 to discussions. FVAC entered into non-disclosure agreements with MP Materials and one other target.
- Role of Morgan Stanley: Morgan Stanley acted in three capacities: (1) Financial advisor to MP Materials (MP Advisory Role) since December 2019; (2) Placement agent for FVAC's private placement (PIPE); and (3) Underwriter for FVAC's IPO. A conflicts waiver was executed on June 16, 2020.
- Management Continuity: Employment agreements were finalized for MP Materials executives Michael Rosenthal, Ryan Corbett, Sheila Bangalore, and James Litinsky between July and August 2020. FVAC CEO Andrew A. McKnight is expected to serve as a director of the combined company.
- Legal Contingency: A shareholder lawsuit alleges violations of federal securities laws due to omitted information regarding the business combination. FVAC denies these allegations but provides this supplement to moot the claims.
Guidance, Outlook, and Risks
The filing contains forward-looking statements regarding the transaction's completion and future performance, which are subject to significant risks:
- Transaction Risks: Failure to obtain shareholder approval, regulatory approvals, or satisfy closing conditions.
- Financial Risks: Uncertainty of projected financial information and the ability to issue equity or equity-linked securities.
- Operational Risks: Risks related to MP Materials' arrangements with Shenghe, competition, and the rollout of business strategy.
- External Risks: Impact of the global COVID-19 pandemic, political uncertainty, and redemption requests by FVAC public stockholders.
Investor Verification Checklist
- Verify the final vote results of the FVAC special meeting scheduled for November 13, 2020.
- Confirm the status of the Figueredo shareholder lawsuit and any potential impact on the transaction timeline.
- Review the definitive proxy statement for detailed financial projections and the full list of guideline public companies used in the valuation.
- Monitor regulatory approval status, particularly regarding national security reviews for rare earth assets.
- Assess the extent of redemption requests by FVAC public stockholders, which could affect the combined company's liquidity.