Knowles Corp (KN) - Form 8-K Summary
Business Context and Reporting Period
Date of Report: April 29, 2015
Company: Knowles Corporation (Knowles)
Event: Entry into a Material Definitive Agreement to acquire Audience, Inc. (Audience).
On April 29, 2015, Knowles, its wholly-owned subsidiary Orange Subsidiary, Inc. (Merger Sub), and Audience entered into an Agreement and Plan of Merger. The transaction is structured as a two-step process: a cash and stock exchange offer for all outstanding Audience shares, followed by a merger of Merger Sub with and into Audience.
Key Financial Metrics and Transaction Terms
Consideration Structure:
- Cash Component: $2.50 per share of Audience common stock.
- Stock Component: Knowles common stock calculated by dividing $2.50 by the volume-weighted average price of Knowles stock over the 10 trading days ending two days prior to the Offer expiration.
- Price Collar: The value of the Closing Date Average Price for the stock calculation is capped between $18.16 and $23.35.
Termination Fees and Expenses:
- Termination Fee: Audience is obligated to pay Knowles $5,000,000 if the agreement is terminated under specific circumstances (e.g., superior proposal or change in recommendation).
- Expense Reimbursement: Audience may be required to reimburse Knowles up to $3,000,000 under certain termination scenarios involving superior proposals.
Debt Facility Amendment:
On April 17, 2015, Knowles entered into a First Amendment to its Credit Agreement to facilitate the Merger. This amendment adjusts the definition of Consolidated EBITDA and provides that pro forma calculations for the Merger will disregard Audience's EBITDA prior to the first fiscal quarter following the Merger. The amendment is conditioned on the closing of the Merger.
Financial Performance Data: The filing text does not provide specific revenue, profit, cash flow, or margin figures for Knowles or Audience. It references the Company's 2014 Form 10-K for historical financial data.
Material Changes and Conditions
Minimum Tender Condition: The obligation to accept shares is subject to receiving valid tenders representing at least a majority of Audience's outstanding common stock (including restricted stock units and exercised options), excluding shares tendered via guaranteed delivery procedures.
Key Employee Retention: Closing is conditioned on five of six specified key employees having employment arrangements in full force and effect.
Deadlines: The Offer must be consummated on or before July 31, 2015, subject to an extension until September 1, 2015, to obtain regulatory approvals.
Support Agreements: Audience directors, senior management, and affiliates of Tallwood Venture Capital have signed Tender and Support Agreements to tender their shares and vote in favor of the Merger.
Guidance, Outlook, and Risks
Management Commentary: The Audience Board of Directors has agreed to recommend that stockholders tender all outstanding shares into the Offer and vote in favor of the Merger.
Risks and Contingencies:
- Regulatory Approval: Risk that governmental entities may prohibit, delay, or refuse approval.
- Operational Disruption: Potential difficulty in maintaining relationships with employees, partners, and customers during the transaction process.
- Legal Proceedings: Possibility of litigation following the announcement.
- Forward-Looking Statements: Actual results may differ materially from projections due to economic conditions, transaction costs, and other uncertainties.
Investor Verification Checklist
- Offer Documents: Review the prospectus and solicitation/recommendation statement once filed with the SEC for detailed terms and risk factors.
- Stock Price Volatility: Monitor Knowles' stock price, as the final stock consideration ratio depends on the 10-day volume-weighted average price prior to the Offer expiration.
- Regulatory Status: Track the status of regulatory approvals required to meet the July 31 or September 1, 2015 deadlines.
- Employee Retention: Verify if the condition regarding the five of six key employees is satisfied prior to closing.
- Debt Covenants: Review the First Amendment to the Credit Agreement to understand how the Merger impacts Knowles' leverage ratios and EBITDA calculations.