Business Context and Reporting Period
Company: GrafTech International Ltd.
Filing Type: Form 8-K (Current Report)
Date of Report: May 17, 2015
Event: Entry into a Material Definitive Agreement (Merger Agreement) with BCP IV GrafTech Holdings LP ("Parent"), an indirect wholly owned subsidiary of Brookfield Capital Partners Ltd. ("Brookfield").
Key Financial Metrics and Transaction Terms
Offer Price: $5.05 per share in cash.
Offer Commencement: Expected May 26, 2015.
Offer Expiration: July 7, 2015 (unless extended).
Minimum Condition: Tender of shares representing at least 30% of outstanding shares (including shares owned by Brookfield and issuable upon conversion of Preferred Stock). As of the filing date, this requires approximately 15% of currently outstanding shares to be tendered.
Merger Condition: Tender of shares representing at least 80% of outstanding shares. As of the filing date, this requires approximately 75% of currently outstanding shares to be tendered.
Financing: No financing condition to the obligations to consummate the Offer.
Termination Fees: $7.5 million if terminated during the 35-day "Go-Shop" period; $20 million if terminated after the Go-Shop period to enter into a Superior Proposal.
Equity Awards: Outstanding stock options and restricted stock units will be cancelled and converted into cash equal to the Offer Price (less exercise price for options).
Material Changes and Agreements
- Merger Structure: If the Merger Condition is met, Acquisition Sub will merge with GrafTech, and the Company will become a wholly owned subsidiary of Parent. No stockholder vote is required under Section 251(h) of the Delaware General Corporation Law.
- Stockholder Rights: An Amended and Restated Stockholder Rights Agreement provides Parent with board designation rights (up to two directors) and preemptive rights if they hold a majority of Series A Convertible Preferred Stock.
- Standstill Provisions: Parent and affiliates are subject to a standstill prohibiting the acquisition of additional shares beyond 45% beneficial ownership for 90 days following the tender offer closing, and generally prohibiting proxy solicitations or asset acquisitions without Board approval.
- Support Agreement: Nathan Milikowsky, a Board member and stockholder, agreed to tender all his shares and support the Merger.
- Guarantee: Brookfield Capital Partners IV L.P. provided a limited guarantee of Parent's and Acquisition Sub's obligations under the Merger Agreement.
Guidance, Outlook, and Risks
Management Commentary: The filing does not contain specific operational guidance or financial outlook for the Company's ongoing business, as the primary focus is the proposed transaction. The Board has recommended the Offer and Merger.
Risks and Contingencies:
- Regulatory Approval: The Offer is subject to antitrust and other regulatory approvals.
- Conditions Precedent: Failure to meet the Minimum Condition or Merger Condition will result in the termination of the Offer or Merger.
- Superior Proposals: The Company has a 35-day Go-Shop period to solicit alternative proposals. The Board may terminate the agreement for a Superior Proposal, subject to payment of termination fees.
- Forward-Looking Statements: The filing includes standard disclaimers regarding risks such as failure to satisfy transaction conditions, litigation, credit agreement defaults, market conditions, and operational uncertainties.
Important Facts for Investor Verification
- Verify the final terms of the tender offer in the Schedule TO and the Company's recommendation in the Schedule 14D-9, which are expected to be filed with the SEC.
- Confirm whether the Minimum Condition (30% ownership threshold) and Merger Condition (80% ownership threshold) are met by the expiration date of July 7, 2015.
- Review the Amended and Restated Stockholder Rights Agreement to understand the extent of Brookfield's board control and voting rights post-transaction.
- Monitor for any Superior Proposals during the Go-Shop period that could alter the transaction terms or result in a termination fee.
- Check for updates on regulatory approvals required to consummate the transaction.