- On April 12, 2018, Genuine Parts (GPC) and Essendant (ESND) announced that the companies had entered into a definitive agreement to combine ESND and GPC’s S.P. Richards (SPR) business.
- On April 19, 2018, GPC reported Q1 results which reflected double digit sales growth but income before taxes experienced some challenges.
- Management has maintained its sales and earnings guidance provided at the time Q4 2017 results were released. Sales are expected to increase 12% - 13% from FY2017 and adjusted diluted EPS, excluding any Q1 and future transaction-related costs, are still expected to be $5.60 - $5.75.
In my February 21, 2018 post I touched upon GPC’s FCF, Valuation, various Dividend Metrics, and Share Repurchase history. Given that I wrote a relatively recent post on this subject matter, I will provide very limited coverage on these metrics and will focus more on:
- my opinion on GPC’s and Essendant’s (NASDAQ: ESND) recent announcement regarding a definitive agreement to combine SPR with ESND;
- GPC’s valuation.
Proposed Combination of SPR with ESND
In my February 21, 2018 post I wrote:
‘While the Automotive and Industrial segments of GPC generated Operating Profit growth, the smaller Business Products (SPR) group is challenged in that it continues to experience pressures from traditional office supplies competitors. Results reflect the continuation of challenging trends and the changing landscape of the office products industry and GPC is continuing to evaluate the long-term outlook for this business.’
On April 12, 2018, GPC announced the proposed combination of SPR and ESND.
‘The transaction combining ESND and SPR is structured as a Reverse Morris Trust, in which GPC will separate SPR into a standalone company and spin off that standalone company to GPC shareholders, immediately followed by the merger of ESND and the spun-off company. The transaction implies a valuation of SPR of approximately $680 million, reflecting the value of the ESND shares to be issued at closing plus one-time cash payments to GPC of approximately $347 million, subject to adjustments at closing. Upon closing, GPC shareholders will own approximately 51% and ESND shareholders will own approximately 49% of the combined company on a diluted basis, with approximately 80 million diluted shares expected to be outstanding. The transaction is expected to be tax-free to ESND and GPC shareholders.’
This Reverse Morris Trust structure is exactly how the Altra Industrial Motion Corp. and Fortive Corporation transaction about which I recently wrote is to be structured.
Please click here to read my Genuine Parts stock analysis.
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