Business Context and Reporting Period
Company: Dana Incorporated (Dana)
Filing Type: Form 8-K (Current Report)
Date of Report: March 9, 2018
Event: Entry into a Material Definitive Agreement with GKN plc.
On March 9, 2018, Dana and GKN plc entered into a Separation Agreement and an Agreement and Plan of Merger. Under these agreements, GKN will separate its Driveline and Off-Highway Powertrain businesses (the "Driveline Business") into a new entity ("SpinCo"). SpinCo will then merge with Dana, with Dana continuing as the surviving company and a wholly-owned subsidiary of SpinCo.
Key Financial Metrics and Transaction Terms
Transaction Structure:
- Exchange Ratio: Each outstanding share of Dana Common Stock will convert into one SpinCo Ordinary Share.
- Ownership Post-Merger: Former Dana shareholders will own approximately 52.75% of SpinCo; GKN shareholders will own approximately 47.25% (on a fully diluted basis).
- Cash Consideration: SpinCo will purchase the Driveline Business from GKN for approximately $1,721 million (subject to adjustments, estimated at ~$1.6 billion). Dana has agreed to guarantee SpinCo's obligation to pay this cash consideration.
- Financing: Dana entered into a commitment letter with Citigroup, Barclays, and Credit Suisse for debt financing to support the transactions.
Termination Fees:
- GKN to Dana: $54 million in specific breach or recommendation change scenarios; $40 million if the Melrose Industries offer becomes unconditional without a prior recommendation change.
- Dana to GKN: $54 million for breach or failure to obtain shareholder approval; $150 million if Dana's board changes its recommendation adversely to GKN.
Financial Performance: The filing text does not provide specific revenue, profit, cash flow, margin, or debt figures for Dana or GKN. It references the 2017 Form 10-K for historical financial data.
Material Changes and Conditions
The filing announces a material change in corporate structure via a proposed merger. The consummation of the Merger is subject to several conditions, including:
- Shareholder approvals from both GKN and Dana.
- Regulatory approvals (U.S. Hart-Scott Rodino, European Commission, and other foreign jurisdictions).
- Effectiveness of the SEC registration statement.
- Listing approval by the New York Stock Exchange (NYSE).
- The lapse or failure of the Melrose Industries PLC offer for GKN shares to become wholly unconditional.
- Absence of a "Material Adverse Effect" on either party.
Outside Date: The Merger must be consummated by March 9, 2019, unless extended.
Outlook, Risks, and Management Commentary
Management Commentary: The transaction is structured to combine Dana with GKN's Driveline Business. Post-merger, the SpinCo board will consist of current Dana directors plus two individuals designated by GKN. SpinCo officers will be the same as current Dana officers.
Risks and Contingencies:
- Integration Risk: Potential difficulties in integrating the businesses, which could be more costly or time-consuming than expected.
- Regulatory Risk: Failure to obtain necessary antitrust or regulatory approvals.
- Competitive Offer: The transaction is contingent on the Melrose Industries offer for GKN lapsing or failing to become unconditional.
- Forward-Looking Statements: Actual results may differ materially from projections due to unforeseen liabilities, capital expenditure requirements, and market conditions.
Investor Verification Checklist
- Verify the status of the Melrose Industries PLC offer for GKN shares and whether it has become unconditional.
- Review the definitive proxy statement/prospectus (to be filed by SpinCo and Dana) for detailed financial projections and risk factors.
- Confirm the receipt of all required regulatory approvals, specifically from the European Commission and U.S. antitrust authorities.
- Monitor the shareholder voting process for both Dana and GKN to ensure requisite approval thresholds are met.
- Assess the final adjusted cash consideration for the Driveline Business purchase, which may differ from the initial $1.721 billion estimate.