Business Context and Reporting Period
This Form 8-K filing by Barnes & Noble Education, Inc. (BNED) reports events occurring on February 27, 2017. The filing details the completion of a material acquisition and a concurrent amendment to the company's credit facilities.
Key Financial Metrics and Transaction Details
- Acquisition Cost: BNED acquired 100% of the equity interests of MBS Textbook Exchange, LLC (MBS) for cash consideration of $174.2 million.
- Funding Sources: The transaction was funded using cash on-hand and proceeds from the company's existing credit agreement.
- Debt Facility Amendment: BNED entered into a First Amendment to its Credit Agreement to add a new $100 million incremental "first in, last out" (FILO) seasonal loan facility.
- FILO Facility Terms:
- Interest Rate: LIBOR plus 3.00%.
- Availability: April 1 through July 31 annually.
- Commitment Fee: 0.375% on the daily unused portion.
- Step-down Schedule: Commitments decrease to $75 million in 2018, $50 million in 2019, and $25 million in 2020.
Material Changes and Strategic Rationale
The primary material change is the acquisition of MBS, the largest contract operator of virtual bookstores for the institutional client market and a major used textbook wholesaler. Key operational metrics for MBS include:
- Services over 700 virtual bookstores via MBS Direct.
- Sources and sells textbooks to over 3,700 physical college bookstores (including BNED's 770 campus locations).
- Provides inventory management and software to approximately 485 college bookstores.
- Operates the e-commerce site textbooks.com.
The transaction was approved unanimously by a Special Committee of independent directors and the full Board of Directors.
Related Party Transactions and Risks
Related Party Aspect: Prior to the transaction, MBS was majority-owned by Leonard Riggio, who also owns approximately 16% of BNED's outstanding shares. The filing incorporates by reference Note 11 from the 2016 Form 10-K regarding related party transactions.
Risks and Contingencies:
- Financial Statements: Pro forma financial information and financial statements of the acquired business are not included in this filing and will be filed by amendment within 71 days.
- Contractual Limitations: Representations and warranties in the Purchase Agreement and Credit Amendment are made solely for the benefit of the contracting parties and may not reflect the actual state of facts for investors.
- Debt Obligations: The new FILO facility requires mandatory borrowing of 100% of commitments on April 1 of each year, with full repayment required by July 31.
Investor Verification Checklist
- Verify the pro forma financial impact of the $174.2 million acquisition once filed within 71 days.
- Review the full text of the Purchase Agreement (Exhibit 2.1) for specific indemnification and non-compete terms.
- Assess the impact of the mandatory $100 million seasonal borrowing requirement on future liquidity and interest expense.
- Confirm the integration strategy for MBS's 700+ virtual bookstores and 3,700+ physical bookstore relationships.
- Examine the related party transaction disclosures in the 2016 Form 10-K (Note 11) for historical context on the relationship with Leonard Riggio.