ARKO Corp. Form 8-K Summary
Reporting event: Filed December 30, 2020, reporting events occurring primarily on December 22, 2020. ARKO Corp. completed its business combination with Haymaker Acquisition Corp. II and ARKO Holdings Ltd. The combined company became the parent of the surviving Haymaker and Arko entities and ceased to be a shell company.
Business Context and Transaction
- Haymaker merged with a New Parent subsidiary, followed by the merger of another New Parent subsidiary with Arko Holdings Ltd.
- Following closing, the company operated through ARKO and GPM Investments, LLC, with convenience-store and fuel-distribution operations. The filing incorporates prior disclosures for the businesses and risks.
- ARKO common stock and warrants began trading on Nasdaq on December 23, 2020 under the symbols ARKO and ARKOW.
- GPM's October 2020 acquisition of Empire Petroleum Partners included 84 convenience stores and fuel supply relationships with 1,453 independently operated fueling stations in 30 states and the District of Columbia. Consideration consisted of $353 million in cash at closing, $20 million payable over five years, and potential contingent consideration of up to $45 million.
Key Financial Metrics and Capitalization
| Metric | Reported value or disclosure |
|---|---|
| New Parent common shares outstanding at closing | 124,131,655 |
| Series A convertible preferred shares outstanding | 1,000,000 shares issued at $100 per share, for $100 million of stated issuance proceeds |
| Arko holders' stock consideration | 65,208,698 New Parent common shares |
| Arko holders' cash consideration | Approximately $55.4 million, plus approximately $58.7 million, or $0.0706 per Arko share, in lieu of an authorized dividend |
| Haymaker equity holders' stock consideration | 25,150,297 New Parent common shares |
| New Ares warrants | Warrants to purchase 1.1 million shares at $10.00 per share, exercisable through the fifth anniversary of closing |
| Empire acquisition consideration | $353 million paid at closing, $20 million in deferred installments, and potential contingent amounts up to $45 million |
| Revenue, profit, cash flow, margins, debt and liquidity | The filing text does not provide clear consolidated values for these metrics; it refers investors to Exhibits 99.1 through 99.6 and incorporated financial statements and MD&A. |
Material Changes Versus the Prior Comparable Period
- The business combination materially changed the registrant's corporate structure, ownership, capitalization and management.
- Haymaker's outstanding Class A common stock converted one-for-one into New Parent common stock, and its warrants became exercisable for New Parent common stock on substantially the same terms.
- The sponsor forfeited 1,000,000 common shares and 2,000,000 warrants. An additional 4,200,000 sponsor shares were deferred and may be issued if specified stock-price or change-of-control triggers occur.
- GPM acquired additional interests in GPMP: approximately 14.52% of GPMP through 3.5 million Class A units for approximately $70 million of distribution-related consideration, 843,750 Class AQ units for approximately $17 million, and 243,800 Class X units for approximately $10.7 million.
- The company adopted a new certificate of incorporation, bylaws, registration rights and lock-up arrangements, warrant amendments, indemnification agreements and the 2020 Incentive Compensation Plan.
- Marcum LLP was dismissed as Haymaker's auditor and Grant Thornton LLP was engaged as New Parent's auditor. The filing reports no disagreements or reportable events associated with Marcum.
Guidance, Outlook, Risks and Unusual Items
- No quantitative revenue, earnings, cash-flow or operating guidance is provided in the filing.
- Management's forward-looking statements address post-combination performance, integration of Empire, expansion opportunities, strategy, market conditions and future operations, but are expressly subject to significant uncertainty.
- Identified risks include integration and transaction costs, COVID-19 effects on capital markets and operations, economic conditions, changes in laws and regulations, environmental matters, litigation and regulatory proceedings, and changes in competitive markets.
- The Series A preferred stock carries a 5.75% cumulative dividend rate, which may increase if dividends are not paid in cash, subject to stated maximum rates. It is convertible at a $12.00 conversion price, subject to automatic conversion triggers, redemption provisions and change-of-control protections.
- Preferred stockholders have priority liquidation and change-of-control rights, and New Parent is restricted from incurring debt that would cause the specified total leverage ratio to exceed 7.00:1.00.
- New Parent has not paid common-stock dividends and does not expect to pay them in the foreseeable future, intending to reinvest earnings and fund operations.
- The filing states that the New Parent has no direct operations and would depend on distributions from subsidiaries to fund dividends. Potential Israeli tax and withholding obligations could reduce distributable amounts.
Most Important Facts to Verify
- Review Exhibits 99.1 through 99.6 for historical and pro forma revenue, earnings, cash flow, debt, liquidity and margin information, which is not clearly stated in the filing text.
- Verify the final accounting treatment and purchase-price allocation for the business combination and Empire acquisition.
- Assess dilution from the Series A preferred stock, public and private warrants, the 2020 incentive plan, deferred sponsor shares and other equity issuances.
- Review the preferred-stock dividend, conversion, redemption, liquidation and leverage protections for potential cash requirements and ownership dilution.
- Monitor Empire integration, contingent acquisition payments and the Ares put right, which may require cash or additional shares after February 28, 2023.
- Confirm the effect of the sponsor's deferred shares and the $13.00 and $15.00 stock-price triggers on future share count.
- Review the incorporated proxy statement risk factors and the registration rights and 180-day lock-up provisions for potential selling pressure and governance effects.