Toggle SGML Header (+)


Section 1: S-4/A (S-4/A)

S-4/A
Table of Contents

As filed with the Securities and Exchange Commission on August 1, 2018

Registration No. 333-225511

 

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

AMENDMENT NO. 2

TO

FORM S-4

REGISTRATION STATEMENT

UNDER

THE SECURITIES ACT OF 1933

 

 

ESSENDANT INC.

(Exact Name of Registrant as Specified in Its Charter)

 

 

 

Delaware   5112   36-3141189
(State of Incorporation)   (Primary Standard Industrial Classification Code Number)  

(IRS Employer

Identification No.)

One Parkway North Blvd.

Suite 100

Deerfield, Illinois 60015

(847) 627-7000

(Address, including zip code, and telephone number, including area code, of registrant’s principal executive offices)

 

 

Brendan J. McKeough

Senior Vice President, General Counsel and Secretary

Essendant Inc.

One Parkway North Blvd.

Suite 100

Deerfield, Illinois 60015

(847) 627-7000

(Name, address, including zip code, and telephone number, including area code, of agent for service)

 

 

With a copy to:

 

Charles W. Mulaney, Jr.

Skadden, Arps, Slate,

Meagher & Flom LLP

155 North Wacker Drive

Chicago, Illinois 60606

(312) 407-0700

 

Richard C. Witzel, Jr.

Skadden, Arps, Slate,

Meagher & Flom LLP

155 North Wacker Drive

Chicago, Illinois 60606

(312) 407-0700

 

Scott Smith

Senior Vice President and

General Counsel

Genuine Parts Company

2999 Wildwood Parkway

Atlanta, Georgia 30339

(678) 934-5000

 

John H. Butler

Davis Polk & Wardwell LLP

450 Lexington Avenue

New York, New York 10017

(212) 450-4000

 

 

Approximate date of commencement of proposed sale of the securities to the public: As soon as practicable after the effective date of this registration statement and the satisfaction or waiver of all other conditions to the closing of the merger described herein.

If the securities being registered on this form are being offered in connection with the formation of a holding company and there is compliance with General Instruction G, please check the following box.  ☐


Table of Contents

If this form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

If this form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.  ☐

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer,” “smaller reporting company,” and “emerging growth company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer      Accelerated filer  
Non-accelerated filer   ☐  (Do not check if a smaller reporting company)    Smaller reporting company  
     Emerging growth company  

If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 7(a)(2)(B) of the Securities Act.  ☐

If applicable, place an X in the box to designate the appropriate rule provision relied upon in conducting this transaction:

Exchange Act Rule 13e-4(i) (Cross-Border Issuer Tender Offer)  ☐

Exchange Act Rule 14d-1(d) (Cross-Border Third-Party Tender Offer)  ☐

 

 

The registrant hereby amends this registration statement on such date or dates as may be necessary to delay its effective date until the registrant shall file a further amendment which specifically states that this registration statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act or until the registration statement shall become effective on such date as the U.S. Securities and Exchange Commission, acting pursuant to said Section 8(a), may determine.

 

 

 


Table of Contents

EXPLANATORY NOTE

Essendant Inc. (“Essendant”) is filing this registration statement on Form S-4 (Reg. No. 333-225511) to register shares of its common stock, par value $0.10 per share (“Essendant common stock”), that will be issued upon completion of the merger of Elephant Merger Sub Corp. (“Merger Sub”) with and into Rhino SpinCo, Inc. (“SpinCo”), which is currently a wholly owned subsidiary of Genuine Parts Company (“GPC”) but which will be spun off to GPC shareholders immediately prior to the merger, pursuant to the Agreement and Plan of Merger, dated as of April 12, 2018 among GPC, SpinCo, Essendant and Merger Sub. Pursuant to the instructions of Form S-4, the proxy statement/prospectus which forms a part of this registration statement is also deemed filed pursuant to Essendant’s obligations under Regulation 14A in connection with Essendant’s special meeting of Essendant stockholders to approve the issuance of Essendant common stock in connection with the merger. The proxy statement/prospectus also constitutes an information statement of SpinCo, and we refer to it herein as the proxy statement/prospectus-information statement. In addition, SpinCo has filed a registration statement on Form 10 to register shares of SpinCo common stock which will be distributed to GPC shareholders pursuant to the spin-off immediately prior to the merger. Upon such distribution, the outstanding shares of SpinCo common stock will be immediately converted into the right to receive shares of Essendant common stock in connection with the merger.


Table of Contents

The information in this proxy statement/prospectus-information statement is not complete and may be changed. We may not issue these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This proxy statement/prospectus-information statement is not an offer to sell or exchange securities and is not soliciting an offer to buy or exchange securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY COPY

SUBJECT TO COMPLETION, DATED AUGUST 1, 2018

 

 

LOGO

[●], 2018

Dear Stockholders:

As previously announced, Essendant Inc. (“Essendant”), and Genuine Parts Company (“GPC”) have entered into an Agreement and Plan of Merger, dated as of April 12, 2018, as may be amended from time to time (the “Merger Agreement”), under which Essendant will combine with GPC’s S.P. Richards Company business (the “SPR Business”). The SPR Business is a leading business products distributor throughout the United States and Canada.

As a stockholder of Essendant, we wanted to provide you with information about the proposed transactions and ask you to vote on certain related matters at the special meeting of Essendant stockholders. The principal transactions described in this document include the following:

 

    Separation—The transfer by GPC of the SPR Business to GPC’s wholly owned subsidiary Rhino SpinCo, Inc. (“SpinCo”).

 

    Distribution—The distribution by GPC of all of the outstanding shares of SpinCo common stock to GPC shareholders on a pro rata basis.

 

    Merger—The merger of Elephant Merger Sub Corp., a newly-formed, wholly owned subsidiary of Essendant (“Merger Sub”), with and into SpinCo. SpinCo will survive the Merger as a wholly owned subsidiary of Essendant.

In connection with the Merger, GPC shareholders will receive Essendant common stock in exchange for the shares of SpinCo common stock to which they are entitled in the Distribution. Essendant currently expects to issue an aggregate of approximately 40,191,482 shares of Essendant common stock to shareholders of GPC in connection with the Merger. Immediately following the Merger, GPC shareholders are expected to own approximately 51% of Essendant’s issued and outstanding common stock on a fully diluted basis, and existing Essendant stockholders are expected to own the remaining 49% of the issued and outstanding common stock of Essendant on a fully diluted basis. Essendant common stock is traded on the Nasdaq Global Select Market under the ticker symbol “ESND.” On [●], 2018, the closing price of Essendant common stock was $[●] per share.

After consideration, the board of directors of Essendant (the “Essendant Board”), has unanimously determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including the issuance of Essendant common stock in connection therewith (the “Share Issuance”) are advisable and in the best interests of Essendant and its stockholders and has approved the Merger Agreement and the transactions contemplated thereby. In order to complete the Merger, Essendant must obtain the requisite approval of its stockholders for the Share Issuance. At a special meeting of Essendant stockholders to be held at Essendant’s offices located at One Parkway North Boulevard, Deerfield, Illinois, on [●], 2018 at [●] p.m., Central time, you will be asked to vote on proposals to:

 

    approve the Share Issuance;

 

    approve the adjournment of the special meeting, if necessary, to solicit additional proxies in the event that there are not sufficient votes at the time of the special meeting to approve the Share Issuance (the “meeting adjournment proposal”); and

 

    approve by a non-binding, advisory vote certain compensation arrangements that may be paid or become payable to Essendant’s named executive officers in connection with the Merger (the “advisory merger-related executive compensation proposal”).

The Essendant Board unanimously recommends that you vote “FOR” the proposal to approve the Share Issuance, “FOR” the meeting adjournment proposal and “FOR” the advisory merger-related executive compensation proposal.


Table of Contents

Your vote is very important, regardless of the number of shares you own. We cannot complete the Merger unless the Share Issuance is approved by our stockholders at the special meeting. Only stockholders who owned shares of Essendant common stock at the close of business on [●], 2018 will be entitled to vote at the special meeting. Whether or not you plan to attend the special meeting, we encourage you to read the accompanying proxy statement/prospectus-information statement and vote promptly. To ensure that your shares are represented at the meeting, we recommend that you submit a proxy to vote your shares through the Internet by following the instructions set forth on your proxy card. You may also vote by telephone or by mail, following the proxy card instructions included in the proxy materials. This way, your shares will be voted even if you are unable to attend the special meeting. This will not, of course, limit your right to attend the special meeting or prevent you from voting in person at the meeting if you wish to do so. If you hold your shares in “street name” through a broker, bank, custodian, fiduciary or other nominee, you should review the separate notice supplied by that firm to determine whether and how you may vote by mail, telephone or through the Internet. To vote these shares, you must use the appropriate voting instruction form or toll-free telephone number or website address specified on that firm’s voting instruction form for beneficial owners.

This proxy statement/prospectus-information statement explains the Merger Agreement, the Merger, the Share Issuance and the transactions contemplated thereby and provides specific information concerning the special meeting. Please review this document carefully. You should carefully consider, before voting, the matters discussed under the heading “Risk Factors” beginning on page 47.

On behalf of Essendant, I thank you for your support and appreciate your consideration of this matter. Your Directors and management look forward to personally meeting those of you who are able to attend the special meeting.

Sincerely yours,

Richard D. Phillips

President and Chief Executive Officer

Neither the U.S. Securities and Exchange Commission nor any state securities regulator has approved or disapproved the transactions described in this proxy statement/prospectus-information statement, including the Merger and the Share Issuance, or determined if this proxy statement/prospectus-information statement is accurate or adequate. Any representation to the contrary is a criminal offense.

Approximate Date of Mailing of Proxy Materials:

[], 2018


Table of Contents

The information in this proxy statement/prospectus-information statement is not complete and may be changed. We may not issue these securities until the registration statement filed with the U.S. Securities and Exchange Commission is effective. This proxy statement/prospectus-information statement is not an offer to sell or exchange securities and is not soliciting an offer to buy or exchange securities in any jurisdiction where the offer or sale is not permitted.

 

PRELIMINARY COPY

SUBJECT TO COMPLETION, DATED AUGUST 1, 2018

 

 

LOGO

[●], 2018

To the Shareholders of Genuine Parts Company:

On April 12, 2018, we announced that Genuine Parts Company (“GPC”), entered into definitive agreements to spin off its S.P. Richards Company business (the “SPR Business”), and then combine the SPR Business with Essendant Inc. (“Essendant”). As a GPC shareholder, you are receiving this document as an information statement from GPC to inform you of the spin-off and as a prospectus from Essendant for the issuance of Essendant common stock in the proposed transactions.

The principal transactions described in this document include the following:

 

    Separation—The transfer by GPC of the SPR Business to GPC’s wholly owned subsidiary Rhino SpinCo, Inc. (“SpinCo”).

 

    Distribution—The distribution by GPC of all of the outstanding shares of SpinCo common stock to GPC shareholders on a pro rata basis as a dividend.

 

    Merger—The merger of SpinCo with an Essendant subsidiary immediately following the Distribution, with SpinCo continuing as a wholly owned subsidiary of Essendant.

As a result of the Merger, each share of SpinCo common stock will be converted into the right to receive one share of Essendant common stock, and Essendant will continue as a publicly-traded company, owning both its current business and the SPR Business.

GPC shareholders are expected to own approximately 51% of the outstanding shares of Essendant common stock on a fully diluted basis immediately following the Merger, and Essendant’s existing stockholders are expected to continue to hold the remaining approximately 49%. We currently expect that approximately 40,191,482 shares of SpinCo common stock will be distributed to GPC shareholders in the Distribution. As a result, and based on the number of shares of GPC common stock outstanding on [●], 2018, you would receive approximately [●] shares of Essendant common stock for each share of GPC common stock that you hold on the record date for the Distribution. The actual number of shares of Essendant common stock that you will receive with respect to each share of GPC common stock will be determined based on the number of outstanding shares of GPC common stock on the record date. GPC shareholders will retain all of their shares of GPC common stock and will not be required to pay for any shares of Essendant common stock they receive.

Essendant common stock is currently traded on the Nasdaq Global Select Market under the ticker symbol “ESND.” On [●], 2018, the closing price of Essendant common stock was $[●] per share.

The Boards of Directors of each of Essendant and GPC have unanimously approved the proposed transactions. GPC shareholders are not required to vote on the proposed transactions. GPC is not asking its shareholders for a proxy, and you are requested not to send a proxy to GPC.

This document explains the proposed transactions, and provides specific information about Essendant, SpinCo and the SPR Business. Please review this document carefully, particularly the matters discussed under the heading “Risk Factors” beginning on page 47.


Table of Contents

We look forward to completing the proposed transactions and to the exciting opportunities they present for our shareholders.

Sincerely,

Paul D. Donahue

President and Chief Executive Officer

Neither the U.S. Securities and Exchange Commission nor any state securities regulator has approved or disapproved the Merger described in this proxy statement/prospectus-information statement or the Essendant common stock to be issued pursuant to the Merger Agreement, or determined if this proxy statement/prospectus-information statement is accurate or adequate. Any representation to the contrary is a criminal offense.

The date of this proxy statement/prospectus-information statement is [], 2018.


Table of Contents

LOGO

ESSENDANT INC.

One Parkway North Boulevard

Deerfield, Illinois 60015

NOTICE OF SPECIAL MEETING OF STOCKHOLDERS

To Be Held on [], 2018

To the Stockholders of Essendant Inc.:

Notice is hereby given of a special meeting of stockholders of Essendant Inc., a Delaware corporation (“Essendant”), which will be held at Essendant’s offices located at One Parkway North Boulevard, Deerfield, Illinois, on [●], 2018 at [●] p.m., Central time.

 

Date:

   [●], at [●] p.m. Central Time

Location:

   Company’s offices located at One Parkway North Boulevard, Deerfield, Illinois

Items of Business:

  

1.  To vote on a proposal to approve the issuance of Essendant common stock in connection with the Agreement and Plan of Merger (the “Merger Agreement”), dated as of April 12, 2018, as it may be amended from time to time, among Essendant, Elephant Merger Sub Corp., Genuine Parts Company and Rhino SpinCo, Inc. (the “Share Issuance”);

  

2.  to vote on a proposal to approve the adjournment of the special meeting, if necessary, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to approve the Share Issuance (the “meeting adjournment proposal”); and

  

3.  to vote on a proposal to approve by a non-binding, advisory vote certain compensation arrangements that may be paid or become payable to Essendant’s named executive officers in connection with the Merger (the “advisory merger-related executive compensation proposal”).

The approval of the proposal set forth in item 1 above is the only approval of Essendant stockholders required for completion of the transactions contemplated by the Merger Agreement. Essendant will transact no other business at the special meeting except such business as may properly be brought before the special meeting or any adjournment or postponement thereof.

THE ESSENDANT BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE MERGER AND THE SHARE ISSUANCE AND UNANIMOUSLY RECOMMENDS THAT ESSENDANT STOCKHOLDERS VOTE “FOR” THE SHARE ISSUANCE, “FOR” THE MEETING ADJOURNMENT PROPOSAL AND “FOR” THE ADVISORY MERGER-RELATED EXECUTIVE COMPENSATION PROPOSAL.


Table of Contents

The record date for the special meeting is the close of business on [●], 2018. Only stockholders of record as of that time and date are entitled to notice of, and to vote at, the meeting. Record holders of Essendant’s common stock as of the record date may submit their proxies by following the voting instructions set forth in the proxy card.

 

By Order of the Board of Directors,

 

LOGO

Brendan J. McKeough

Secretary

IMPORTANT NOTICE REGARDING THE AVAILABILITY OF PROXY MATERIALS

FOR THE STOCKHOLDER MEETING TO BE HELD ON [], 2018

The proxy statement and Form 10-K are available at

essendant.com/proxymaterials


Table of Contents

WHERE YOU CAN FIND ADDITIONAL INFORMATION

This proxy statement/prospectus-information statement incorporates important business and financial information about Essendant from documents filed with the U.S. Securities and Exchange Commission (the “SEC”) that have been included herein and delivered herewith as annexes. In addition to the documents included herein, Essendant files reports (including annual, quarterly and current reports which may contain audited financial statements), proxy statements and other information with the SEC. Copies of Essendant’s filings with the SEC are available to investors without charge by request made to Essendant in writing, by telephone or by email with the following contact information:

Essendant Inc.

Attention: Investor Relations

One Parkway North Blvd.

Suite 100

Deerfield, Illinois 60015

Telephone: (847) 627-2900

Email: [email protected]

In order to receive timely delivery of these materials, you must make your requests no later than [], 2018, which date is five business days before the date of the special meeting.

You may also obtain Essendant’s SEC reports at http://investors.essendant.com/docs or GPC’s SEC reports at http://genuineparts.investorroom.com/sec-filings. Essendant’s filings with the SEC and GPC’s filings with the SEC are available to the public over the Internet at the SEC’s website at www.sec.gov, or at the SEC’s Public Reference Room at 100 F Street, NE, Washington, D.C. 20549. Please call (800) 732-0330 for further information on the public reference facilities.

This proxy statement/prospectus-information statement includes as annexes documents that Essendant has previously filed with the SEC under Section 13(a), 13(c), 14 or 15(d) of the Securities Exchange Act of 1934, as amended (the “Exchange Act”) as set forth below. Any statement contained in such a document shall be deemed to be modified or superseded for purposes of this proxy statement/prospectus-information statement to the extent that a statement contained in this proxy statement/prospectus-information statement or in an annex hereto consisting of a document filed with the SEC subsequently to such document modifies or replaces such statement. The information included in the annexes hereto is incorporated into this proxy statement/prospectus-information statement except to the extent so modified or superseded.

Set forth below is a list of the documents Essendant previously filed with the SEC under the Exchange Act that are included as annexes to this proxy statement/prospectus-information statement.

 

    Essendant’s Annual Report on Form 10-K for the year ended December 31, 2017, filed with the SEC on February 21, 2018;

 

    Essendant’s Definitive Proxy Statement on Schedule 14A filed with the SEC on April 13, 2018;

 

    Essendant’s Quarterly Report on Form 10-Q for the quarter ended March 31, 2018, filed with the SEC on April 25, 2018;

 

    Essendant’s Current Report on Form 8-K filed with the SEC on May 31, 2018;

 

    Essendant’s certificate of incorporation;

 

    Essendant’s bylaws; and

 

    the description of Essendant’s common stock contained in Amendment No. 2 to Essendant’s Registration Statement on Form S-3 (File No. 333-52223) filed with the SEC on June 9, 1998, and any amendments or reports filed for the purpose of updating such description.


Table of Contents

GPC’s certificate of incorporation and bylaws are also included as annexes to this proxy statement/prospectus-information statement.

If you are an Essendant stockholder and you have any questions about the proposed transactions, please contact Essendant’s Investor Relations Department at (847) 627-2900.

If you are a GPC shareholder and you have any questions about the proposed transactions, please contact GPC’s Investor Relations Department at (678) 934-5000.

Essendant, SpinCo and GPC have not authorized anyone to give any information or make any representation about the proposed transactions that is different from, or in addition to, that contained in this document. Therefore, if anyone does give you information of this sort, you should not rely on it. If you are in a jurisdiction where offers to exchange or sell, or solicitations of offers to exchange or purchase, the securities offered by this document are unlawful, or if you are a person to whom it is unlawful to direct these types of activities, then the offer presented in this document does not extend to you. The information contained in this document speaks only as of the date of this document unless the information specifically indicates that another date applies.


Table of Contents

ABOUT THIS DOCUMENT

GPC has supplied all information contained in this proxy statement/prospectus-information statement relating to GPC and SpinCo. Essendant has supplied all information contained in this proxy statement/prospectus-information statement relating to Essendant and Merger Sub and has utilized certain purchase accounting adjustments for the SPR Business. GPC and Essendant have both contributed information to this proxy statement/prospectus-information statement relating to the proposed transactions.

This proxy statement/prospectus-information statement forms a part of a registration statement on Form S-4 (Registration No. 333-225511) filed by Essendant with the SEC to register with the SEC the issuance of Essendant common stock pursuant to the Merger Agreement. It constitutes a prospectus of Essendant under Section 5 of the Securities Act of 1933, as amended, together with the rules and regulations promulgated thereunder (“Securities Act”), with respect to the shares of Essendant common stock to be issued to GPC shareholders in exchange for the shares of SpinCo common stock to which they are entitled in the distribution of all of the shares of common stock, par value $0.01 per share, of SpinCo to the holders of the shares of common stock of GPC, on a pro rata basis by way of a pro rata dividend (the “Distribution”). It also constitutes a proxy statement under Section 14(a) of the Exchange Act and a notice of meeting and action to be taken with respect to the Essendant special meeting of stockholders at which Essendant stockholders will consider and vote on the proposal to approve the issuance of Essendant common stock in connection with the Merger Agreement and certain other matters described herein. In addition, it constitutes an information statement relating to the proposed separation of GPC’s S.P. Richards Company business from the other businesses of GPC and the Distribution.

Statements contained in this document as to the contents of any contract or other document referred to within this document are not necessarily complete and, in each instance, reference is made to the copy of the applicable contract or other document filed as an exhibit to the registration statement or otherwise filed with the SEC. Each statement contained in this document is qualified in its entirety by reference to the underlying documents. We encourage you to read the registration statement. You may obtain copies of the Form S-4 (and any amendments to those documents) by following the instructions under “Where You Can Find Additional Information.”


Table of Contents

TABLE OF CONTENTS

 

QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS

     1  

QUESTIONS AND ANSWERS FOR ESSENDANT STOCKHOLDERS

     7  

QUESTIONS AND ANSWERS FOR GPC SHAREHOLDERS

     12  

SUMMARY

     15  

The Companies

     15  

The Transactions

     16  

Overview

     17  

The Separation and the Distribution

     20  

Conditions to the Separation and the Distribution

     20  

The Merger; Merger Consideration

     20  

Conditions to the Merger

     21  

Voting by Essendant Directors and Executive Officers

     23  

Opinion of Essendant’s Financial Advisor

     23  

Debt Financing

     23  

Board of Directors and Management of Essendant After the Merger

     23  

Interests of Certain Persons in the Merger

     24  

Risk Factors

     25  

Regulatory Approvals

     25  

Termination

     25  

Termination Fee and Expenses Payable in Certain Circumstances

     27  

No Dissenters’ or Appraisal Rights

     28  

U.S. Federal Income Tax Consequences of the Distribution and the Merger

     28  

Accounting Treatment of the Merger

     28  

Summary Historical Combined Financial Data of the SPR Business

     29  

Summary Historical Consolidated Financial Data of Essendant

     29  

Summary Unaudited Pro Forma Combined Financial Data of Essendant and the SPR Business

     31  

Summary Historical and Pro Forma Per Share Data

     36  

Historical Market Price and Dividend Information of Essendant Common Stock

     38  

RISK FACTORS

     47  

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

     58  

THE ESSENDANT SPECIAL MEETING

     59  

General

     59  

Date, Time and Place

     59  

Matters for Consideration

     59  

Record Date; Voting Information

     59  

Quorum

     59  

Required Vote

     60  

Notice of Internet Availability of Proxy Materials

     60  

Voting by Proxy

     61  

Revocation of Proxies

     62  

Voting by Essendant Directors and Executive Officers

     62  

Solicitation of Proxies

     62  

Other Matters

     63  

Assistance

     63  

THE TRANSACTIONS

     64  

General

     64  

Transaction Sequence

     64  

The Separation and The Distribution

     67  

The Merger

     67  

Calculation of Merger Consideration

     68  

 

i


Table of Contents

Anticipated Costs of the Transactions

     68  

Trading Markets

     69  

Background of the Merger

     69  

Essendant’s Reasons for the Merger

     76  

GPC’s Reasons for the Separation, the Distribution and the Merger

     79  

Estimated Run-Rate Cost Synergies from the Transactions

     81  

Opinion of Essendant’s Financial Advisor

     82  

Certain Projections

     89  

Ownership of Essendant Following the Merger

     91  

Board of Directors and Executive Officers of Essendant Following the Merger; Operations Following the Merger

     91  

Interests of Certain Persons in the Merger

     92  

Regulatory Approvals

     101  

Listing

     102  

Federal Securities Law Consequences; Resale Restrictions

     102  

Accounting Treatment of the Merger

     102  

Rights of Appraisal

     103  

U.S. FEDERAL INCOME TAX CONSEQUENCES OF THE DISTRIBUTION AND THE MERGER

     104  

THE MERGER AGREEMENT

     107  

The Merger

     107  

Closing; Effective Time

     107  

Merger Consideration

     108  

Distribution of Per Share Merger Consideration

     108  

Treatment of GPC Equity Awards

     109  

Distributions With Respect to Shares of Essendant Common Stock After the Effective Time

     109  

Termination of Exchange Fund; No Liability

     109  

Withholding Rights

     110  

Stock Transfer Books; No Appraisal Rights

     110  

Post-Closing Essendant Board and Committees

     110  

Post-Closing Essendant Management

     111  

Post-Closing Essendant Headquarters

     111  

Stockholders’ Meeting

     111  

Representations and Warranties

     111  

Conduct of Business Pending the Merger

     113  

Tax Matters

     117  

SEC Filings

     117  

Regulatory Matters

     118  

No Solicitation of Transactions

     119  

Board Recommendation

     121  

Financing

     122  

Employee Benefits Matters

     123  

Covenant Not to Compete

     124  

Certain Other Covenants and Agreements

     124  

Conditions to the Merger

     125  

Termination

     126  

Termination Fee and Expenses Payable in Certain Circumstances

     127  

Specific Performance

     128  

Amendments

     129  

THE SEPARATION AGREEMENT

     130  

Overview

     130  

Separation of the SPR Business

     130  

 

ii


Table of Contents

Issuance of SpinCo Common Stock

     131  

Incurrence of Debt; SpinCo Special Cash Payment

     131  

Distribution

     132  

Conditions to the Distribution

     132  

Mutual Releases; Indemnification

     132  

Certain Additional Covenants

     133  

Termination

     134  

Assignment; Amendment and Waiver

     134  

ADDITIONAL AGREEMENTS RELATED TO THE SEPARATION, THE DISTRIBUTION AND THE MERGER

     135  

Debt Financing

     135  

Tax Matters Agreement

     138  

Transition Services Agreement

     139  

Supply Chain Transition Services Agreement

     139  

INFORMATION ABOUT MERGER SUB AND ESSENDANT

     140  

Information About Merger Sub

     140  

Information about Essendant

     140  

INFORMATION ABOUT GPC

     142  

INFORMATION ABOUT THE SPR BUSINESS

     143  

MANAGEMENT’S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS OF THE SPR BUSINESS

     146  

SELECTED HISTORICAL COMBINED FINANCIAL DATA OF THE SPR BUSINESS

     156  

SELECTED HISTORICAL CONSOLIDATED FINANCIAL DATA OF ESSENDANT

     157  

UNAUDITED PRO FORMA COMBINED FINANCIAL INFORMATION

     159  

Notes to the Pro Forma Financial Statements

     164  

HISTORICAL PER SHARE DATA, MARKET PRICE AND DIVIDEND DATA

     179  

Historical and Pro Forma Per Share Data

     179  

Historical Market Price and Dividend Information of Essendant Common Stock

     180  

SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS, DIRECTORS AND EXECUTIVE OFFICERS OF ESSENDANT

     181  

DESCRIPTION OF CAPITAL STOCK OF ESSENDANT BEFORE AND AFTER THE MERGER

     184  

Description of Capital Stock of Essendant

     184  

Certain Provisions in the Certificate of Incorporation and Bylaws of Essendant

     186  

Limitation of Liability of Directors of Essendant; Indemnification of Directors of Essendant

     187  

Exclusive Forum

     188  

Amendments to the Certificate of Incorporation and Bylaws

     188  

Transfer Agent

     189  

DESCRIPTION OF SPINCO CAPITAL STOCK

     190  

COMPARISON OF THE RIGHTS OF STOCKHOLDERS BEFORE AND AFTER THE TRANSACTIONS

     191  

CERTAIN ANTI-TAKEOVER EFFECTS OF VARIOUS PROVISIONS OF DELAWARE LAW AND ESSENDANT’S CERTIFICATE OF INCORPORATION AND BYLAWS

     203  

Delaware Anti-Takeover Statute

     203  

No Cumulative Voting

     203  

Size of Board of Directors and Vacancies

     203  

Staggered, Classified Board of Directors

     203  

Removal for Cause

     203  

Blank Check Preferred Stock

     203  

Stockholder Action by Written Consent

     204  

Calling of Annual Meetings

     204  

Calling of Special Meetings of Essendant Stockholders

     204  

 

iii


Table of Contents

Advance Notice Requirements

     204  

Amendments to the Bylaws

     205  

Authorized but Unissued Shares

     205  

Limited Liability of Directors and Officers

     205  

Stockholder Rights Plan

     205  

CERTAIN RELATIONSHIPS AND RELATED PARTY TRANSACTIONS

     209  

Ancillary Agreements

     209  

Code of Business Conduct

     209  

Policies and Procedures for Transactions with Related Persons

     209  

LEGAL MATTERS

     211  

EXPERTS

     212  

SUBMISSION OF FUTURE STOCKHOLDER PROPOSALS

     213  

HOUSEHOLDING

     214  

PROPOSAL 1

     215  

PROPOSAL 2

     216  

PROPOSAL 3

     217  

INDEX TO FINANCIAL STATEMENTS

     218  

ANNEX A OPINION OF CITIGROUP GLOBAL MARKETS INC.

     A-1  

ANNEX B ESSENDANT’S ANNUAL REPORT ON FORM 10-K FOR THE YEAR ENDED DECEMBER 31, 2017, FILED WITH THE SEC ON FEBRUARY 21, 2018

     B-1  

ANNEX C ESSENDANT’S DEFINITIVE PROXY STATEMENT ON SCHEDULE 14A FILED WITH THE SEC ON APRIL 13, 2018

     C-1  

ANNEX D ESSENDANT’S QUARTERLY REPORT ON FORM 10-Q FILED WITH THE SEC ON APRIL 25, 2018

     D-1  

ANNEX E ESSENDANT’S CURRENT REPORT ON FORM 8-K FILED WITH THE SEC ON MAY 31, 2018

     E-1  

ANNEX F THE DESCRIPTION OF ESSENDANT’S COMMON STOCK CONTAINED IN AMENDMENT NO. 2 TO ESSENDANT’S REGISTRATION STATEMENT ON FORM S-3 (FILE NO. 333-52223) FILED WITH THE SEC ON JUNE 9, 1998, AND ANY AMENDMENTS OR REPORTS FILED FOR THE PURPOSE OF UPDATING SUCH DESCRIPTION

     F-1  

ANNEX G ESSENDANT’S CERTIFICATE OF INCORPORATION

     G-1  

ANNEX H ESSENDANT’S BYLAWS

     H-1  

ANNEX I GPC’S CERTIFICATE OF INCORPORATION

     I-1  

ANNEX J GPC’S BYLAWS

     J-1  

PART II INFORMATION NOT REQUIRED IN PROSPECTUS

     II-1  

EXHIBIT INDEX

     II-4  

 

iv


Table of Contents

QUESTIONS AND ANSWERS ABOUT THE TRANSACTIONS

The following are brief answers to some of the common questions that stockholders of Essendant Inc. (“Essendant”) and shareholders of Genuine Parts Company (“GPC”) may have regarding the transactions contemplated by the Merger Agreement (as defined below) and the Separation Agreement (as defined below), which provide for, among other things, the Separation, the Distribution and the Merger (each as defined below). For more detailed information about the matters discussed in these questions and answers, see “The Transactions” beginning on page 64, “The Merger Agreement” beginning on page 107 and “The Separation Agreement” beginning on page 130. These questions and answers are not meant to be a substitute for the information contained in the remainder of this proxy statement/prospectus-information statement, and this information is qualified in its entirety by the more detailed descriptions and explanations contained elsewhere in this proxy statement/prospectus-information statement. Stockholders of Essendant and shareholders of GPC are urged to read this proxy statement/prospectus-information statement in its entirety. Additional important information is also contained in the annexes to this proxy statement/prospectus-information statement. You should pay special attention to the “Risk Factors” beginning on page 47 and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 58.

 

Q:

What are the transactions described in this proxy statement/prospectus-information statement?

 

A:

References to the “Transactions” mean the transactions contemplated by the Agreement and Plan of Merger among GPC, Rhino SpinCo, Inc. (“SpinCo”), Essendant and Merger Sub dated as of April 12, 2018, as amended on June 7, 2018 and as otherwise may be amended from time to time (the “Merger Agreement”), and the Separation Agreement by and between GPC and SpinCo dated as of April 12, 2018, as may be amended from time to time (the “Separation Agreement”). These agreements provide for, among other things:

 

   

the separation of GPC’s S.P. Richards Company business (the “SPR Business”) from the other businesses of GPC (the “Separation”);

 

   

the distribution of all of the shares of common stock, par value $0.01 per share, of SpinCo (“SpinCo common stock”), to the holders of the shares of common stock, par value $1.00 per share, of GPC (“GPC common stock”), on a pro rata basis by way of a pro rata dividend (the “Distribution”); and

 

   

the merger of Merger Sub with and into SpinCo (the “Merger”), with SpinCo continuing as the surviving company and as a wholly owned subsidiary of Essendant, as contemplated by the Merger Agreement.

The Separation, the Distribution and the Merger are described in more detail in “The Transactions” and elsewhere in this proxy statement/prospectus-information statement.

 

Q:

What will happen in the Separation?

 

A:

Pursuant to the Separation Agreement, in an internal reorganization as described further in the Separation Agreement (the “Internal Reorganization”), GPC and certain of its subsidiaries will engage in a series of transactions in which all of the wholly owned subsidiaries of GPC engaged in the SPR Business (the “SPR Entities”), will become direct or indirect subsidiaries of the subsidiary of GPC created pursuant to the Internal Reorganization (“SPR HoldCo”), with certain of the SPR Entities and certain other assets being contributed by GPC to SPR HoldCo, in exchange for common stock and preferred stock of SPR HoldCo. Pursuant to a pre-existing binding commitment entered into prior to this exchange, the preferred stock of SPR HoldCo (the “SPR HoldCo Preferred Stock”), will be sold by GPC to a third party prior to the completion of the Distribution. The Separation Agreement provides that the aggregate principal amount of the SPR HoldCo Preferred Stock shall not exceed $5,000,000 and the SPR HoldCo Preferred Stock shall have no voting rights except for limited customary protective voting rights with respect to (i) changes to the terms of the SPR HoldCo Preferred Stock and (ii) authorization or issuance of securities by SPR HoldCo that are senior to the SPR HoldCo Preferred Stock with respect to dividend rights on liquidation. The purpose of these transactions is to separate the SPR Business from GPC’s other businesses. On or prior to

 

1


Table of Contents
  the date of the Distribution, the common stock of SPR HoldCo will be contributed to SpinCo by GPC and SpinCo will issue and deliver to GPC additional shares of SpinCo common stock which, along with the 100 shares of SpinCo common stock then owned by GPC, will constitute all of the outstanding stock of SpinCo and will equal the number of shares of Essendant common stock to be issued to SpinCo stockholders in the Merger.

 

Q:

What will happen in the Distribution?

 

A:

Pursuant to the Separation Agreement, after the Separation and immediately prior to the Merger, GPC will distribute all of the outstanding shares of SpinCo common stock on a pro rata basis to GPC’s shareholders as of the record date of the Distribution.

 

Q:

What will happen in the Merger?

 

A:

Pursuant to the Merger Agreement, in the Merger, Merger Sub will merge with SpinCo and SpinCo will survive the Merger as a wholly owned subsidiary of Essendant. Following completion of the Merger, Essendant will continue to be a separately traded public company and will own and operate the combined businesses of Essendant and the SPR Business. At the effective time of the Merger, each issued and outstanding share of SpinCo common stock will be automatically converted into the right to receive one share of Essendant common stock. As a result, immediately following the effective time of the Merger, GPC shareholders are expected to own approximately 51% of Essendant common stock on a fully diluted basis, and current Essendant stockholders are expected to own approximately 49% of Essendant common stock on a fully diluted basis. Essendant currently expects to issue approximately 40,191,482 shares of Essendant common stock to GPC shareholders in connection with the Merger.

 

Q:

What will happen to the SPR HoldCo Preferred Stock in the Merger?

 

A:

At the time of the Merger, the SPR HoldCo Preferred Stock will represent equity interests in SPR HoldCo. SPR HoldCo will be a subsidiary of SpinCo and will not be party to the Merger. Therefore, the SPR HoldCo Preferred Stock will not be impacted by, and will remain outstanding immediately following the consummation of, the Merger.

 

Q:

Will the Distribution and the Merger occur on the same day?

 

A:

Yes. The Merger will occur immediately after the Distribution.

 

Q:

Why are the Transactions structured as a Reverse Morris Trust transaction?

 

A:

The transaction structure was negotiated by the parties. GPC believes the tax-efficient Reverse Morris Trust structure optimizes the value of the transaction to GPC and its shareholders because, subject to the discussion below under “U.S. Federal Income Tax Consequences of the Distribution and the Merger,” GPC shareholders are generally not expected to recognize any gain or loss as a result of the Transactions for U.S. federal income tax purposes, except for any gain or loss attributable to the receipt of cash in lieu of a fractional share of Essendant common stock.

 

Q:

Who will serve on the Essendant Board following completion of the Transactions?

 

A:

Immediately following the Merger, the board of directors of Essendant (the “Essendant Board”) will consist of twelve members: four directors designated by Essendant, four directors designated by GPC and four directors mutually agreed between Essendant and GPC. At least two of the directors designated by Essendant, two of the directors designated by GPC and two of the directors to be mutually agreed must qualify as an “independent director” of Essendant, as such term is defined in Nasdaq Marketplace Rule 5605(a)(2). One of Essendant’s designees shall be the Chairman of the Essendant Board following the completion of the Transactions. See “The Transactions—Board of Directors and Executive Officers of Essendant Following the Merger; Operations Following the Merger.”

 

2


Table of Contents
Q:

Who will manage the business of Essendant after the Transactions?

 

A:

Essendant’s current President and Chief Executive Officer, Richard D. Phillips, and current Chief Financial Officer, Janet H. Zelenka, will continue in their roles. The current President and Chief Executive Officer of the SPR Business, Rick Toppin, will become Essendant’s Chief Operating Officer. Additional leadership roles will be mutually agreed by Essendant and GPC. See “The Transactions—Board of Directors and Executive Officers of Essendant Following the Merger; Operations Following the Merger.”

 

Q:

What is the estimated total value of the consideration to be paid by Essendant in the Merger?

 

A:

Essendant expects to issue approximately 40,191,482 shares of Essendant common stock in connection with the Merger. See “The Merger Agreement—Merger Consideration.”

Based upon the reported closing price for Essendant common stock on the Nasdaq Global Select Market (“Nasdaq”) of $8.47 per share on April 11, 2018, the last trading day before the announcement of the signing of the Merger Agreement, the estimated total value of the shares to be issued by Essendant to GPC shareholders in the Merger would have been approximately $340,421,852.54. Based upon the reported closing price for Essendant common stock on Nasdaq of $[●] per share on [●], 2018, the estimated total value of the shares to be issued by Essendant to GPC shareholders pursuant to the Merger would have been approximately $[●] million. The actual total value of the consideration to be paid by Essendant in connection with the Merger will depend on the market price of shares of Essendant common stock at the time of the closing of the Merger.

 

Q:

What will GPC receive in the Transactions?

 

A:

The Separation Agreement provides that, prior to the Merger, SpinCo will enter into a senior secured asset-based term loan credit facility in a principal amount of up to $400,000,000 (the “SpinCo Term Loan Facility”). Immediately thereafter, and prior to the Distribution Effective Time (as defined in the Separation Agreement), SpinCo will draw on such credit facilities in an amount sufficient for it and/or its subsidiaries to make special cash payments to GPC of approximately $347 million (the “SpinCo Special Cash Payment”), subject to adjustments outlined in the Separation Agreement. See “The Separation Agreement—Incurrence of Debt; SpinCo Special Cash Payment.”

 

Q:

What will GPC shareholders receive in the Transactions?

 

A:

Prior to the Distribution, SpinCo will amend its certificate of incorporation to increase the number of authorized shares of SpinCo common stock so that it exceeds the number of shares to be distributed to GPC shareholders in connection with the Distribution. SpinCo will distribute all of the outstanding shares of SpinCo common stock pro rata to GPC’s shareholders on the record date of the Distribution. In the Merger, each issued and outstanding share of SpinCo common stock will be converted into the right to receive one share of Essendant common stock and cash in lieu of fractional shares, if any. Approximately 40,191,482 shares of Essendant common stock will be issued in connection with the Merger.

 

Q:

Will Essendant or SpinCo incur indebtedness in connection with the Separation, the Distribution and the Merger?

 

A:

Yes. SpinCo will enter into the SpinCo Term Loan Facility. Essendant will enter into the following credit facilities, which refinance Essendant’s Fifth Amended and Restated Credit Agreement, dated as of February 22, 2017, by and among Essendant, the other loan parties party thereto, the financial institutions party thereto as lenders and JPMorgan Chase Bank N.A., as administrative agent (the “Existing Credit Agreement”): (x) a senior secured asset-based revolving credit facility in an aggregate principal amount not to exceed $1,200,000,000 less the aggregate principal amount drawn under the SpinCo Term Loan Facility, (y) a senior secured first-in, last-out revolving credit facility in an aggregate principal amount of up to $125,000,000 and (z) a senior secured term loan credit facility in an aggregate principal amount of up to $75,000,000 (together the “Essendant Credit Facilities”; the Essendant Credit Facilities together with the

 

3


Table of Contents
  SpinCo Term Loan Facility, the “Credit Facilities”). On April 12, 2018, Essendant entered into a commitment letter with JPMorgan Chase Bank, N.A. and Citibank, N.A. (collectively, together with all additional commitment parties added to the commitment letters from time to time, the “Commitment Parties”) (together with any amendments, supplements and joinders thereto, the “Essendant Commitment Letter”) pursuant to which the Commitment Parties have agreed to provide credit facilities to Essendant, the proceeds of which will be used for general corporate purposes, to make any true-up payments required to be made by SpinCo pursuant to the Separation Agreement, to pay certain other fees and expenses and to refinance certain existing indebtedness of Essendant. Also on April 12, 2018, SpinCo entered into a commitment letter with the Commitment Parties (together with any amendments, supplements and joinders thereto the “SpinCo Commitment Letter”; the SpinCo Commitment Letter and the Essendant Commitment Letter are referred to herein collectively as the “Commitment Letters”), pursuant to which the Commitment Parties have agreed to provide a term loan credit facility to SpinCo, the proceeds of which will finance the Internal Reorganization Cash Payments and certain fees and expenses related to the Transactions. The Credit Facilities will be evidenced by a credit agreement to be entered into on the closing date of the Merger (the “Credit Agreement”) by and among JPMorgan Chase Bank, N.A., as administrative agent, the Commitment Parties, as lenders, the other lenders party thereto, SpinCo and its subsidiaries party thereto and, upon or immediately after the consummation of the Merger, Essendant and its subsidiaries party thereto, and by related documentation to be mutually agreed between Essendant, SpinCo and the agents and lenders thereunder. See “Debt Financing” for further information.

 

Q:

Will fractional shares of Essendant stock be distributed?

 

A:

All fractional shares of Essendant common stock that any holder of SpinCo common stock otherwise would be entitled to receive as a result of the Merger will be aggregated by the exchange agent. The exchange agent will cause the whole shares obtained thereby to be sold on behalf of the SpinCo stockholders that otherwise would be entitled to receive such fractional shares, at then-prevailing market prices, in no case later than five business days after the Merger. The exchange agent will then make available the net proceeds of the sale, after deducting any brokerage charges, commissions and transfer taxes (estimated, in the aggregate, at $0.05 per share), on a pro rata basis, without interest, as soon as practicable to the SpinCo stockholders that otherwise would be entitled to receive such fractional shares of Essendant common stock in the Merger.

 

Q:

What will Essendant stockholders receive in the Transactions?

 

A:

Essendant stockholders will not receive separate merger consideration as part of the Merger and no additional shares of Essendant common stock will be issued to Essendant stockholders pursuant to the Merger. Essendant stockholders will receive the commercial benefit of owning an equity interest in SpinCo, which will include the SPR Business as it exists following consummation of the transactions contemplated by the Separation Agreement with GPC and payment of the SpinCo Special Cash Payment to GPC. See “The Transactions—Essendant’s Reasons for the Merger.”

 

Q:

How will the Transactions impact the future liquidity and capital resources of Essendant?

 

A:

SpinCo will enter into SpinCo Term Loan Facility. Essendant will enter into the Essendant Credit Facilities. The SpinCo Term Loan Facility and the Essendant Credit Facilities will be evidenced by the Credit Agreement, and by related documentation to be mutually agreed between Essendant, SpinCo and the agents and lenders thereunder. See “Debt Financing” for further information.

 

Q:

How will the rights of shareholders of GPC and of Essendant change after the Merger?

 

A:

The rights of shareholders of GPC will remain the same as prior to the Merger, except that shareholders of GPC entitled to shares of SpinCo common stock in the Distribution will receive shares of Essendant

 

4


Table of Contents
  common stock and cash paid in lieu of fractional shares in connection with the Merger. GPC shareholders will retain all of their shares of GPC common stock and will not be required to pay for any shares of Essendant common stock they receive in the Merger. See “Description of Capital Stock of Essendant Before and After the Merger—Description of Capital Stock of Essendant” and “Comparison of the Rights of Stockholders Before and After the Transactions.”

The rights of stockholders of Essendant will not change as a result of the Merger.

 

Q: What are the material tax consequences to GPC shareholders resulting from the Distribution and the Merger?

 

A: GPC received an opinion from Davis Polk & Wardwell LLP dated April 12, 2018, and expects to receive an opinion from Davis Polk & Wardwell LLP dated as of the closing date of the Merger, to the effect that the Distribution should qualify as a distribution to GPC shareholders under Section 355(a) of the Internal Revenue Code (the “Code”) and the Merger should qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Assuming the Distribution and the Merger so qualify, GPC shareholders will generally not recognize any gain or loss as a result of the Transactions for U.S. federal income tax purposes, except for any gain or loss attributable to the receipt of cash in lieu of a fractional share of Essendant common stock. The United States (“U.S.”) federal income tax consequences of the Distribution and the Merger are described in more detail under “U.S. Federal Income Tax Consequences of the Distribution and the Merger” beginning on page 104.

 

Q: Does Essendant have to pay a termination fee to GPC or reimburse GPC’s expenses if the Share Issuance is not approved by the Essendant stockholders or if the Merger Agreement is otherwise terminated?

 

A: If Essendant stockholders do not approve the Share Issuance at the Essendant special meeting of stockholders and the Merger Agreement is terminated, Essendant is required to reimburse GPC’s out-of-pocket fees and expenses in connection with the Transactions in an amount up to $3 million.

In specified circumstances, depending on the reasons for termination of the Merger Agreement, Essendant may be required to pay GPC a termination fee of $12 million, which would be reduced by any expense reimbursement described above. For a discussion of the circumstances under which the termination fee is payable by Essendant or the requirement to reimburse expenses applies, see “The Merger Agreement—Termination Fee and Expenses Payable in Certain Circumstances.”

 

Q: Does GPC have to pay a termination fee to Essendant or reimburse Essendant’s expenses if the Merger Agreement is terminated?

 

A: GPC does not have to pay a termination fee to Essendant if the Merger Agreement is terminated.

The Merger Agreement generally provides that all out-of-pocket expenses incurred in connection with the Merger Agreement and the Transactions will be paid by the party incurring the expenses. However, if the Transactions are consummated, certain specified expenses are to be treated as an adjustment to the SpinCo Special Cash Payment. If the Transactions are not consummated, those expenses are to be borne in equal amounts by GPC and Essendant, which may result in one party reimbursing the other. See “The Merger Agreement—Termination Fee and Expenses Payable in Certain Circumstances.”

 

Q: Are there risks associated with the Transactions?

 

A: Yes. Essendant and SpinCo may not realize the expected benefits of the Transactions because of the risks and uncertainties discussed in the section entitled “Risk Factors” beginning on page 47 and the section entitled “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 58. These risks include, among others, risks relating to the uncertainty that the Transactions will close, the uncertainty that Essendant will be able to integrate the SPR Business successfully, and uncertainties relating to the performance of Essendant after the Transactions.

 

5


Table of Contents
Q:

Can Essendant, SpinCo or GPC shareholders demand appraisal of their shares?

 

A:

No. Essendant and SpinCo stockholders and GPC shareholders do not have appraisal rights under Delaware or Georgia law in connection with the Separation, the Distribution or the Merger.

 

Q:

Are there any conditions to the consummation of the Transactions?

 

A:

Yes. The obligations of Essendant, GPC, Merger Sub and SpinCo to consummate the Transactions are subject to a number of conditions, including:

 

   

the consummation of the Internal Reorganization in all material respects in accordance with the Separation Agreement and the Distribution;

 

   

the effectiveness of the registration statement of Essendant and the registration statement of SpinCo and the absence of any stop order issued by the Securities and Exchange Commission (“SEC”) or any pending proceeding before the SEC seeking a stop order with respect thereto;

 

   

the approval for listing on Nasdaq of the shares of Essendant common stock to be issued in the Merger;

 

   

the approval by Essendant stockholders of the Share Issuance;

 

   

the termination or expiration of the waiting period under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended (the “HSR Act”);

 

   

the absence of any law or orders of any governmental authorities of a competent jurisdiction that enjoins or makes illegal the consummation of the Internal Reorganization, the Distribution or the Merger; and

 

   

other customary conditions.

To the extent permitted by applicable law, GPC and SpinCo, on the one hand, and Essendant and Merger Sub, on the other hand, may waive the satisfaction of the conditions to their respective obligations to consummate the Transactions. See “The Merger Agreement—Conditions to the Merger.”

 

Q:

When will the Transactions be completed?

 

A:

The Transactions are expected to be completed [during the fourth quarter of 2018], subject to receipt of Essendant stockholder approval, applicable antitrust and other regulatory approvals, and satisfaction of other customary closing conditions.

 

Q:

Where will the Essendant shares to be issued in the Merger be listed?

 

A:

Essendant common stock is listed on Nasdaq under the symbol “ESND.” After the consummation of the Transactions, all shares of Essendant common stock issued in the Merger, and all other outstanding shares of Essendant common stock, will continue to be listed on Nasdaq and trade under the same symbol.

 

6


Table of Contents

QUESTIONS AND ANSWERS FOR ESSENDANT STOCKHOLDERS

The following are some of the questions that stockholders of Essendant may have regarding the Essendant special meeting of stockholders, and brief answers to those questions. For more detailed information about the matters discussed in these questions and answers, see “The Essendant Special Meeting” beginning on page 59. These questions and answers are not meant to be a substitute for the information contained in the remainder of this proxy statement/prospectus-information statement, and this information is qualified in its entirety by the more detailed descriptions and explanations contained elsewhere in this proxy statement/prospectus-information statement. Essendant urges its stockholders to read this proxy statement/prospectus-information statement in its entirety prior to making any decision.

 

Q:

What are Essendant stockholders being asked to vote on at the special meeting?

 

A:

Essendant stockholders are being asked to approve the issuance of Essendant common stock in connection with the Merger (the “Share Issuance”). Essendant stockholder approval of the Share Issuance is required under the Nasdaq Marketplace Rules and is a condition to the completion of the Distribution and the Merger.

Essendant stockholders are also being asked to approve the adjournment of the special meeting, if necessary, to solicit additional proxies in the event there are not sufficient votes at the time of the special meeting to approve the Share Issuance (the “meeting adjournment proposal”). The approval by Essendant stockholders of the meeting adjournment proposal is not a condition to the completion of the Distribution or the Merger.

Essendant stockholders are also being asked to approve by a non-binding, advisory vote certain compensation arrangements that may be paid or become payable to Essendant’s named executive officers in connection with the Merger (the “advisory merger-related executive compensation proposal”). The approval by Essendant stockholders of the advisory merger-related executive compensation proposal is not a condition to the completion of the Distribution or the Merger.

 

Q:

When and where is the special meeting of Essendant stockholders?

 

A:

The Essendant special meeting of stockholders will be held at Essendant’s offices located at One Parkway North Boulevard, Deerfield, Illinois, on [●], 2018 at [●] p.m., Central time.

 

Q:

Will I receive a Notice of Internet Availability of Proxy Materials?

 

A:

Under SEC rules, we furnish annual proxy materials to our stockholders on the Internet. However, because these proxy materials are with respect to a business combination, we will be mailing printed copies to our stockholders. Whether or not you received a Notice of Internet Availability of Proxy Materials by mail for the annual meeting, you will receive a printed copy of the proxy materials for the special meeting. Additionally, the printed proxy materials and the proxy card will instruct you as to how you may access and review the proxy materials on the Internet as well as vote your shares online. You may also vote by telephone or by mail, following the proxy card instructions included in the proxy materials. We expect to commence mailing the proxy materials to our stockholders on or about [●], 2018.

 

Q:

Who can vote at the Essendant special meeting of stockholders?

 

A:

Only stockholders who own Essendant common stock at the close of business on [●], 2018 are entitled to vote at the special meeting. Each holder of Essendant common stock is entitled to one vote per share. There were [●] shares of Essendant common stock outstanding on the record date.

 

7


Table of Contents
Q:

How does the Essendant Board recommend that Essendant stockholders vote?

 

A:

The Essendant Board has unanimously determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including the Share Issuance, are advisable and in the best interests of Essendant and its stockholders and has approved the Merger Agreement and the transactions contemplated thereby. The Essendant Board unanimously recommends that Essendant stockholders vote “FOR” the proposal to approve the Share Issuance, “FOR” the meeting adjournment proposal and “FOR” the advisory merger-related executive compensation proposal.

 

Q:

Do any of Essendant’s directors or executive officers have interests in the Merger or the other transactions contemplated by the Merger Agreement that may differ from those of Essendant stockholders?

 

A:

Essendant’s directors and executive officers have certain interests in the Merger that may be different from, or in addition to, the interests of Essendant stockholders generally. The Essendant Board was aware of and considered these interests, among other matters, in evaluating the Merger Agreement and the Merger and in recommending that the stockholders vote “FOR” the proposal to approve the Share Issuance, “FOR” the meeting adjournment proposal and “FOR” the advisory merger-related executive compensation proposal. For more information regarding these interests, see the section entitled “Interests of Certain Persons in the Merger.”

 

Q:

Why are Essendant stockholders being asked to approve, by a non-binding, advisory vote, certain compensation arrangements that may be paid or become payable to Essendant’s named executive officers in connection with the Merger?

 

A:

Rule 14a-21(c) promulgated by the SEC under Section 14A of the Exchange Act requires Essendant to seek a non-binding, advisory vote with respect to certain compensation arrangements that may be paid or become payable to Essendant’s named executive officers in connection with the Merger. For more information regarding such payments, see the section entitled “Interests of Certain Persons in the Merger.”

 

Q:

What vote is required to approve each proposal at the Essendant special meeting of stockholders?

 

A:

In accordance with Nasdaq Marketplace Rules, the Delaware General Corporation Law (the “DGCL”), and Essendant’s organizational documents, the approval of the Share Issuance requires the affirmative vote of a majority of the votes cast by the holders of the shares of Essendant common stock present in person or represented by proxy at the special meeting at which a quorum is present. This means the number of shares voted “FOR” the Share Issuance must exceed the number of shares voted “AGAINST” the Share Issuance. Abstentions and broker non-votes are not considered votes cast for the foregoing purpose, and will have no effect on the vote for the Share Issuance.

In accordance with the DGCL and Essendant’s organizational documents, the approval of the meeting adjournment proposal requires the affirmative vote of a majority of the votes cast by the holders of the shares of Essendant common stock present in person or represented by proxy at the special meeting. This means the number of shares voted “FOR” the meeting adjournment must exceed the number of shares voted “AGAINST” the meeting adjournment proposal. Abstentions and broker non-votes are not considered votes cast for the foregoing purpose, and will have no effect on the vote for the meeting adjournment proposal.

In accordance with the DGCL and Essendant’s organizational documents, approval of the advisory merger-related executive compensation proposal requires the affirmative vote of a majority of the votes cast by the holders of all of the shares of Essendant common stock present in person or represented by proxy at the special meeting at which a quorum is present. This means the number of shares voted “FOR” the advisory merger-related executive compensation proposal must exceed the number of shares voted “AGAINST” the advisory merger-related executive compensation proposal. Abstentions and broker non-votes are not considered votes cast for the foregoing purpose, and will have no effect on the vote for this proposal.

 

8


Table of Contents
Q:

What is a quorum?

 

A:

In order for business to be conducted at the Essendant special meeting of stockholders, the DGCL and Essendant’s amended and restated bylaws (“Essendant’s bylaws”) require that a quorum must be present. The holders of a majority of the issued and outstanding common stock of Essendant present either in person or by proxy at the special meeting will constitute a quorum. Under Delaware law and Essendant’s bylaws, we count instructions to withhold voting authority, any abstentions and broker non-votes as present at meetings of stockholders for the purpose of determining the presence of a quorum.

If a quorum is not present, the special meeting may be adjourned until a quorum is obtained by the chairman of the meeting or the stockholders.

 

Q:

What should Essendant stockholders do now in order to vote on the proposals being considered at the Essendant special meeting?

 

A:

Essendant stockholders may submit a proxy by mail, telephone or internet by following the instructions on the proxy card using any of the following methods:

 

   

Online: Go to the website http://www.proxyvote.com and follow the instructions on the proxy card to view the proxy materials online and vote your shares through the Internet.

 

   

By Telephone:

 

   

Please review your proxy card, which will include instructions on how to vote by telephone.

 

   

By Mail:

 

   

Please review your proxy card, which will include instructions on how to vote by mail.

If you choose to submit your proxy with voting instructions by telephone or through the Internet, you will be required to provide your assigned control number shown on the proxy card before your proxy and voting instructions will be accepted. Once you have indicated how you want to vote in accordance with those instructions, you will receive confirmation that your proxy has been submitted successfully by telephone or through the Internet.

If you hold your shares of Essendant common stock in “street name” through a broker, bank, custodian, fiduciary or other nominee, you should review the separate notice supplied by that firm to determine whether and how you may vote by mail, telephone or through the Internet. To vote these shares, you must use the appropriate voting instruction form or toll-free telephone number or website address specified on that firm’s voting instruction form for beneficial owners.

 

Q:

How do proxies work?

 

A:

Giving your proxy means that you authorize the persons named as proxies to vote your shares at the special meeting in the manner you direct. If you hold any shares in the Company’s Employee Stock Purchase Plan (“ESPP”), your proxy (whether given by mailing the proxy card or voting by telephone or through the Internet) will also serve as voting instructions to Computershare Trust Company, as nominee holder under the ESPP, with respect to the shares allocated to your account in the ESPP.

If you sign and return a proxy card, or use telephone or Internet voting, but do not specify how you want to vote your shares, the proxies will vote your shares “FOR” the proposal to approve the Share Issuance, “FOR” the meeting adjournment proposal and “FOR” the advisory merger-related executive compensation proposal. If you specify how you want to vote your shares on one matter but not the other, the proxies will vote your shares as directed on the matter that you specify and as indicated above on the other matter described in this proxy statement. However, if you hold shares in the ESPP, Computershare Trust Company, as nominee holder under the ESPP, will not vote shares allocated to your ESPP account unless you indicate your voting instructions. The proxies will also vote your shares in their discretion on any other business that may properly come before the meeting.

 

9


Table of Contents
Q:

If an Essendant stockholder is not going to attend the special meeting, should the stockholder return his, her or its proxy card or otherwise vote his, her or its shares?

 

A:

Yes. Submitting a proxy by mail, telephone or internet by following the instructions on the proxy card ensures that the stockholder’s shares will be represented and voted at the special meeting, even if the stockholder is unable to or does not attend.

WHETHER OR NOT YOU PLAN TO ATTEND THE SPECIAL MEETING, YOU ARE ENCOURAGED TO SUBMIT YOUR PROXY AS DESCRIBED IN THIS PROXY STATEMENT/PROSPECTUS-INFORMATION STATEMENT.

 

Q:

If an Essendant stockholder’s shares are held in “street name” by his, her or its broker, will the broker vote the shares for the stockholder?

 

A:

If you hold Essendant common stock in “street name” through a broker, bank, custodian, fiduciary or other nominee, you should review the separate notice supplied by that firm to determine whether and how you may vote by mail, telephone or through the Internet. To vote these shares, you must use the appropriate voting instruction form or toll-free telephone number or website address specified on that firm’s voting instruction form for beneficial owners. If an Essendant stockholder has not received such voting instructions or requires further information regarding such voting instructions, the Essendant stockholder should contact his, her or its bank, broker or other nominee. Brokers, banks or other nominees who hold shares of Essendant common stock for a beneficial owner of those shares typically have the authority to vote in their discretion on “routine” proposals when they have not received instructions from beneficial owners. However, brokers, banks and other nominees are not allowed to exercise their voting discretion with respect to the approval of matters that are “non-routine” without specific instructions from the beneficial owner. All proposals for the Essendant special meeting are non-routine and non-discretionary. Broker non-votes are shares held by a broker, bank or other nominee that are represented at the meeting but with respect to which the broker, bank or other nominee is not instructed by the beneficial owner of such shares to vote on the particular proposal, and the broker, bank or other nominee does not have discretionary voting power on such proposal. If an Essendant stockholder’s broker, bank or other nominee holds the Essendant stockholder’s shares of Essendant common stock in “street name,” the Essendant stockholder’s bank, broker or other nominee will vote the Essendant stockholder’s shares only if the Essendant stockholder provides instructions on how to vote by filling out the voter instruction form sent to him or her by his, her or its bank, broker or other nominee with this proxy statement/prospectus-information statement.

 

Q:

Can Essendant stockholders change their vote?

 

A:

Yes. If you are the record holder of Essendant common stock, you can change your vote or revoke your proxy at any time before your proxy is voted at the special meeting. You can do this by:

 

   

requesting and submitting a new proxy card that is properly signed with a later date;

 

   

voting again at a later date by telephone or through the Internet—your latest voting instructions received before the deadline for telephone or Internet voting, 11:59 p.m. Eastern Time on [●], 2018, will be counted and your earlier instructions revoked;

 

   

sending a properly signed written notice of your revocation to the Secretary of Essendant at Essendant Inc., One Parkway North Blvd., Suite 100, Deerfield, Illinois 60015-2559; or

 

   

voting in person at the special meeting. Attendance at the special meeting will not itself revoke an earlier submitted proxy.

A proxy card with a later date or written notice of revocation shall not constitute a revocation of a previously submitted proxy unless it is received by the Secretary of Essendant before the previously submitted proxy is exercised at the special meeting.

 

10


Table of Contents
Q:

What will happen if an Essendant stockholder abstains from voting, fails to vote or does not direct how to vote on their proxy?

 

A:

If an Essendant stockholder abstains from voting, it will have no effect on the vote for the Share Issuance, meeting adjournment or advisory merger-related executive compensation proposals.

If an Essendant stockholder fails to vote (or fails to instruct his, her or its broker, bank or nominee to vote if his, her or its shares are held in “street name,” which will result in a broker non-vote), it will have no effect on the vote for the Share Issuance, meeting adjournment or advisory merger-related executive compensation proposals. The failure to vote (or failure to give instructions to vote) may have the effect of Essendant failing to have a quorum at the special meeting. See “Q: What vote is required to approve each proposal at the Essendant special meeting of stockholders?” and “Q: What is a quorum?”

Giving your proxy means that you authorize the persons named as proxies to vote your shares at the special meeting in the manner you direct. If you hold any shares in the ESPP, your proxy (whether given by mailing the proxy card or voting by telephone or through the Internet) will also serve as voting instructions to Computershare Trust Company, as nominee holder under the ESPP, with respect to the shares allocated to your account in the ESPP.

If you sign and return a proxy card, or use telephone or Internet voting, but do not specify how you want to vote your shares, the proxies will vote your shares “FOR” the proposal to approve the Share Issuance, “FOR” the meeting adjournment proposal and “FOR” the advisory merger-related executive compensation proposal. If you specify how you want to vote your shares on one matter but not the other, the proxies will vote your shares as directed on the matter that you specify and as indicated above on the other matter described in this proxy statement. However, if you hold shares in the ESPP, Computershare Trust Company, as nominee holder under the ESPP, will not vote shares allocated to your ESPP account unless you indicate your voting instructions. The proxies will also vote your shares in their discretion on any other business that may properly come before the meeting.

 

11


Table of Contents

QUESTIONS AND ANSWERS FOR GPC SHAREHOLDERS

The following are some of the questions that the shareholders of GPC may have regarding the Transactions, and brief answers to those questions. For more detailed information about the matters discussed in these questions and answers, see “The Transactions” beginning on page 64. These questions and answers, as well as the following summary, are not meant to be a substitute for the information contained in the remainder of this proxy statement/prospectus-information statement, and this information is qualified in its entirety by the more detailed descriptions and explanations contained elsewhere in this proxy statement/prospectus-information statement. GPC’s shareholders are urged to read this proxy statement/prospectus-information statement in its entirety. You should pay special attention to the “Risk Factors” beginning on page 47 and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 58.

 

Q:

What will GPC shareholders be entitled to receive pursuant to the Distribution and the Merger?

 

A:

It is currently expected that approximately 40,191,482 shares of SpinCo common stock will be distributed to GPC shareholders in connection with the Distribution, and each share of SpinCo common stock will be converted into the right to receive one share of Essendant common stock pursuant to the Merger. As a result, it is currently estimated that, based on the number of shares of GPC common stock outstanding on [●], 2018, GPC shareholders will receive approximately [●] shares of Essendant common stock pursuant to the Merger for each share of GPC common stock that they hold on the record date for the Distribution. The actual number of shares of Essendant common stock that GPC shareholders will receive with respect to each share of GPC common stock will be determined based on the number of shares of GPC common stock outstanding on the record date. Therefore, the actual number of shares of Essendant common stock that GPC shareholders will be entitled to receive in the Merger may be higher or lower if the number of outstanding shares of GPC common stock changes for any reason.

Based on the closing price of Essendant common stock of $[●] on [●], 2018, as reported by Nasdaq, and the assumptions described above, the approximate value of the consideration GPC shareholders will receive in the Merger will equal $[●] million in the aggregate and $[●] per share of GPC common stock they own on the record date for the Distribution. However, any change in the market value of Essendant common stock at the effective time of the Merger or the number of shares of GPC common stock outstanding and entitled to receive SpinCo common stock in the Distribution will cause the estimated per share value GPC shareholders receive in the Merger to change. Also, those GPC shareholders who would otherwise receive a fractional share of Essendant common stock pursuant to the Merger may receive a different per share value with respect to fractional shares when those fractional shares are liquidated by the exchange agent. See “The Merger Agreement—Merger Consideration.”

 

Q:

Has GPC set a record date for the Distribution?

 

A:

No. GPC will publicly announce the record date for the Distribution when the record date has been determined. This announcement will be made prior to the completion of the Distribution and the Merger.

 

Q:

What will happen to the shares of GPC common stock owned by GPC shareholders?

 

A:

Holders of GPC common stock will retain all of their shares of GPC common stock. The Distribution will not affect the number of outstanding shares of GPC common stock or any rights of GPC shareholders.

 

Q:

How will shares of Essendant common stock be distributed to GPC shareholders?

 

A:

Holders of GPC common stock on the record date for the Distribution will receive shares of Essendant common stock in book-entry form. Stockholders of record will receive additional information from the exchange agent shortly after the Distribution. Beneficial holders will receive information from their brokerage firms or other nominees.

 

12


Table of Contents
Q:

Will GPC shareholders who sell their shares of GPC common stock shortly before the completion of the Distribution and the Merger still be entitled to receive shares of Essendant common stock with respect to the shares of GPC common stock that were sold?

 

A:

It is currently expected that beginning two business days before the record date to be established for the Distribution, and continuing through the closing date of the Merger (or the previous business day, if the Merger closes before the opening of trading in GPC common stock on the New York Stock Exchange (the “NYSE”) and Essendant common stock on Nasdaq on the closing date), there will be two markets in GPC common stock on the NYSE: a “regular way” market and an “ex-distribution” market.

If a GPC shareholder sells shares of GPC common stock in the “regular way” market under the ticker symbol “GPC” during this time period, that GPC shareholder will be selling both his shares of GPC common stock and the right (represented by a “due-bill”) to receive shares of SpinCo common stock in the Distribution that will be converted into the right to receive shares of Essendant common stock, and cash in lieu of fractional shares (if any), at the closing of the Merger. GPC shareholders should consult their brokers before selling their shares of GPC common stock in the “regular way” market during this time period to be sure they understand the effect of the NYSE’s “due-bill” procedures. The “due-bill” process is not managed, operated or controlled by GPC or Essendant.

If a GPC shareholder sells shares of GPC common stock in the “ex-distribution” market during this time period, that GPC shareholder will be selling only his shares of GPC common stock, and will retain the right to receive shares of SpinCo common stock in the Distribution that will be converted into the right to receive shares of Essendant common stock, and cash in lieu of fractional shares (if any), at the closing of the Merger. It is currently expected that “ex-distribution” trades of GPC common stock will settle within three business days after the closing date of the Merger and that if the Merger is not completed all trades in this “ex-distribution” market will be cancelled.

After the closing date of the Merger, shares of GPC common stock will no longer trade in this “ex-distribution” market, and shares of GPC common stock that are sold in the “regular way” market will no longer reflect the right to receive shares of SpinCo common stock in the Distribution that will be converted into the right to receive shares of Essendant common stock, and cash in lieu of fractional shares (if any), at the closing of the Merger.

 

Q:

May GPC shareholders sell the shares of Essendant common stock which they are entitled to receive in the Merger prior to receiving those shares of Essendant common stock?

 

A:

It is currently expected that beginning two business days before the record date to be established for the Distribution, and continuing through the closing date of the Merger (or the previous business day, if the Merger closes before the opening of trading in GPC common stock on the NYSE and Essendant common stock on Nasdaq on the closing date), there will be two markets in Essendant common stock on Nasdaq: a “regular way” market and a “when issued” market.

The “regular way” market will be the regular trading market for issued shares of Essendant common stock under the ticker symbol “ESND.”

The “when issued” market will be a market for the shares of Essendant common stock that will be issued to GPC shareholders at the closing of the Merger. If a GPC shareholder sells shares of Essendant common stock in the “when issued” market during this time period, that GPC shareholder will be selling his right to receive shares of SpinCo common stock in the Distribution that will be converted into the right to receive shares of Essendant common stock, and cash in lieu of fractional shares (if any), at the closing of the Merger. It is currently expected that “when issued” trades of Essendant common stock will settle within three business days after the closing date of the Merger and that if the Merger is not completed, all trades in this “when issued” market will be cancelled. After the closing date of the Merger, shares of Essendant common stock will no longer trade in this “when issued” market.

 

13


Table of Contents
Q:

Are GPC shareholders required to do anything?

 

A:

GPC shareholders are not required to take any action to approve the Separation, the Distribution or the Merger. GPC is not asking its stockholders for a proxy, and GPC shareholders are requested not to send a proxy to GPC. However, GPC shareholders should carefully read this proxy statement/prospectus-information statement, which contains important information about the Separation, the Distribution, the Merger, the SPR Business and Essendant. After the Merger, Essendant will mail to holders of GPC common stock who are entitled to receive shares of Essendant common stock pursuant to the Merger book-entry statements evidencing their ownership of Essendant common stock, cash payments in lieu of fractional shares (if any) and related tax information and other information regarding their receipt of shares of Essendant common stock.

GPC SHAREHOLDERS WILL NOT BE REQUIRED TO SURRENDER THEIR SHARES OF GPC COMMON STOCK IN THE DISTRIBUTION OR THE MERGER AND THEY SHOULD NOT RETURN THEIR GPC STOCK CERTIFICATES. THE TRANSACTIONS WILL NOT RESULT IN ANY CHANGE IN GPC SHAREHOLDERS’ OWNERSHIP OF GPC COMMON STOCK FOLLOWING THE MERGER.

 

14


Table of Contents

SUMMARY

This summary, together with the sections titled “Questions and Answers About the Transactions,” “Questions and Answers for Essendant Stockholders” and “Questions and Answers for GPC Shareholders” immediately preceding this summary, provide a summary of the material terms of the Separation, the Distribution and the Merger. These sections highlight selected information contained in this proxy statement/prospectus-information statement and may not include all the information that is important to you. To better understand the proposed Separation, Distribution and Merger, and the risks related to the Transactions, and for a more complete description of the legal terms of the Separation, the Distribution and the Merger, you should read this entire proxy statement/prospectus-information statement carefully, including the annexes, as well as those additional documents to which we refer you. The page references have been included in this summary to direct you to a more complete description of the topics presented below. See also “Where You Can Find Additional Information.”

The Companies (page 140)

Essendant Inc.

One Parkway North Blvd.

Suite 100

Deerfield, Illinois 60015

Telephone: (781) 638-9050

Essendant is a leading national distributor of workplace items including janitorial, foodservice and breakroom supplies, technology products, traditional office products, industrial supplies, cut sheet paper products, automotive products and office furniture. Essendant serves a diverse group of approximately 29,000 reseller customers. They include resellers in the independent reseller channel, including: office and workplace, facilities and maintenance, technology, military, automotive aftermarket, healthcare, other vertical suppliers and industrial resellers; the national reseller channel; and the e-commerce channel. The parent holding company, Essendant Inc. was incorporated in 1981 in Delaware. Essendant’s only direct wholly owned subsidiary and principal operating company is Essendant Co. (ECO), incorporated in 1922 in Illinois. Essendant has one reportable segment and operates principally within the United States, with additional operations in Canada, the United Arab Emirates and Hong Kong.

Elephant Merger Sub Corp.

c/o Essendant Inc.

One Parkway North Blvd.

Suite 100

Deerfield, Illinois 60015

Telephone: (781) 638-9050

Merger Sub, a wholly owned subsidiary of Essendant, was organized in the State of Delaware on April 10, 2018 for the purposes of merging with and into SpinCo in the Merger. Merger Sub has not carried on any activities other than in connection with the Merger Agreement. For more information on Merger Sub, see “Information About Merger Sub and Essendant.”

Genuine Parts Company

2999 Wildwood Parkway

Atlanta, Georgia 30339

Telephone: (678) 934-5000



 

15


Table of Contents

Genuine Parts Company, a Georgia corporation incorporated on May 7, 1928, is a service organization engaged in the distribution of automotive replacement parts, industrial parts and materials and business products, each described in more detail below. In 2017, business was conducted from more than 3,100 locations throughout the United States, Canada, Mexico, Australia, New Zealand and Europe. In November 2017, the Company expanded its operations into France, the U.K., Germany and Poland. As of December 31, 2017, the Company employed approximately 48,000 persons. For more information on GPC, see “Information About GPC.”

Rhino SpinCo, Inc.

c/o Genuine Parts Company

2999 Wildwood Parkway

Atlanta, Georgia 30339

Telephone: (678) 934-5000

SpinCo, a Delaware Corporation, was formed on April 11, 2018 to own and operate GPC’s SPR Business. In connection with the Transactions, GPC will cause specified assets and liabilities used in the SPR Business to be conveyed to SpinCo and then distribute pro rata all of the shares of SpinCo common stock to GPC shareholders. Each share of SpinCo common stock will be converted into the right to receive one share of Essendant common stock pursuant to the Merger. For more information on the SPR Business, see “Information About the SPR Business.”

The Transactions (page 56)

On April 12, 2018, Essendant and GPC announced that they had entered into the Merger Agreement, pursuant to which Essendant will combine with GPC’s SPR Business through the Merger on the terms and conditions set forth therein. As a result of and immediately following the transactions contemplated by the Merger Agreement, GPC shareholders as of the record date of the Distribution are expected to own approximately 51% of Essendant common stock after the Merger, and current Essendant stockholders are expected to own approximately 49% of Essendant common stock after the Merger, in each case, on a fully diluted basis. GPC shareholders will retain the shares of GPC common stock that they held prior to the Merger.

In connection with the Transactions, GPC and SpinCo have entered into the Separation Agreement to effect the Separation and the Distribution and Essendant, GPC and SpinCo have entered or will enter into several other agreements to provide a framework for their relationship after the Distribution and the Merger. The Separation Agreement provides for the allocation between GPC, on the one hand, and SpinCo, on the other hand, of certain assets, liabilities and obligations related to the SPR Business and will govern the relationship between GPC and SpinCo after the Distribution and the Merger. In connection with the transactions contemplated by the Separation Agreement:

 

   

SpinCo and GPC will enter into a transition services agreement (the “Transition Services Agreement”) and a supply chain transition services agreement (the “Supply Chain Transition Services Agreement”), pursuant to which each party will, on a transitional basis, provide the other party with certain support services and other assistance after the Distribution and the Merger; and

 

   

Essendant, SpinCo and GPC have entered into a tax matters agreement (the “Tax Matters Agreement”), providing for, among other things, the allocation between GPC, on the one hand, and SpinCo and Essendant, on the other hand, of certain tax obligations.

In addition, on the closing date of the Merger, SpinCo and, immediately upon or after the consummation of the Merger, Essendant, will enter into the Credit Agreement and related documentation evidencing (a) the SpinCo Term Loan Facility and (b) immediately upon or after the consummation of the Merger, the Essendant Credit Facilities. For more information on the Credit Agreement, see “Debt Financing.”



 

16


Table of Contents

For a more complete discussion of the agreements related to the Transactions, see “The Merger Agreement,” “The Separation Agreement” and “Additional Agreements Related to the Separation, the Distribution and the Merger.”

Overview (page 56)

Below is a step-by-step list illustrating the sequence of material events relating to the Separation, the Distribution and the Merger. Each of these events is discussed in more detail elsewhere in this proxy statement/prospectus-information statement. Essendant and GPC anticipate that the Separation, the Distribution and the Merger will occur in the following order:

Step 1: Pursuant to the Internal Reorganization (as currently contemplated), prior to the Distribution Date (as defined in the Separation Agreement), all of the SPR Entities will become direct or indirect subsidiaries of SpinCo, with certain of the SPR Entities and certain other assets being contributed by GPC to its subsidiary, SPR HoldCo, in exchange for common stock and preferred stock of SPR HoldCo. Pursuant to a pre-existing binding commitment entered into prior to this exchange, the SPR HoldCo Preferred Stock will be sold by GPC to a third party prior to the completion of the Distribution. The Separation Agreement provides that the aggregate principal amount of the SPR HoldCo Preferred Stock shall not exceed $5,000,000 and the SPR HoldCo Preferred Stock shall have no voting rights except for limited customary protective voting rights with respect to (i) changes to the terms of the SPR HoldCo Preferred Stock and (ii) authorization or issuance of securities by SPR HoldCo that are senior to the SPR HoldCo Preferred Stock with respect to dividend rights on liquidation.

Step 2: On or before the Distribution Date, SpinCo will enter into a definitive agreement or agreements providing for indebtedness in an aggregate principal amount of up to $400,000,000 in the form of borrowings under credit facilities, as more fully described in “Debt Financing”. Immediately thereafter, and prior to the Distribution Effective Time, SpinCo will draw on such credit facilities in an amount sufficient for it and its subsidiaries to make certain payments in connection with the Internal Reorganization, as described further in the Separation Agreement (the “Internal Reorganization Cash Payments”), including the SpinCo Special Cash Payment, which will be subject to adjustment as described in “The Separation Agreement—Incurrence of Debt; SpinCo Special Cash Payment.”

Step 3: Prior to the Distribution Effective Time, GPC shall contribute all of the common stock of SPR HoldCo to SpinCo and SpinCo shall issue and deliver to GPC a number of shares equal to the difference of (i) 40,191,482, minus (ii) the number of shares of SpinCo Common Stock held by GPC immediately prior to such issuance. Additionally, prior to the Distribution Effective Time, SpinCo will deliver to GPC the SpinCo Special Cash Payment.

Step 4: At the Distribution Effective Time, GPC shall distribute, without consideration, all of the then outstanding shares of capital stock of SpinCo to GPC’s shareholders by way of the Distribution.

Step 5: Immediately following the Distribution, Merger Sub will merge with and into SpinCo, with SpinCo being the surviving corporation of the Merger as a wholly owned subsidiary of Essendant. In the Merger, each share of SpinCo common stock held by GPC shareholders will be automatically converted into the right to receive one share of Essendant common stock as described in “The Merger Agreement—Merger Consideration.” Immediately after the consummation of the Merger, GPC shareholders are expected to collectively own approximately 51% of the shares of Essendant common stock on a fully diluted basis, and Essendant stockholders immediately prior to the Merger are expected to collectively own approximately 49% of the shares of Essendant common stock on a fully diluted basis.

Step 6: The exchange agent will distribute to GPC shareholders entitled to shares of SpinCo common stock in the Distribution shares of Essendant common stock in the form of a book-entry authorization and cash in lieu of fractional shares (if any) in accordance with the terms of the Merger Agreement.



 

17


Table of Contents

Set forth below are diagrams that graphically illustrate, in simplified form, the existing corporate structure of the parties to the Transactions, the corporate structure of the parties immediately following the Separation and the Distribution but before the Merger, and the final corporate structure immediately following the consummation of the Merger.

Existing Structure

 

 

LOGO



 

18


Table of Contents

Structure Following the Separation and the Distribution but Before the Merger

 

 

LOGO

Structure Following the Merger

 

 

LOGO



 

19


Table of Contents

The Separation and the Distribution (page 67)

As part of the Separation and immediately prior to the Distribution, GPC and SpinCo will take steps to effect the Internal Reorganization, pursuant to which, among other things, all of the SPR Entities will become direct or indirect subsidiaries of SpinCo.

In addition, GPC has agreed to transfer any assets that are exclusively used in the SPR Business to an SPR Entity to the extent not held by an SPR Entity as of the date of the Distribution.

Pursuant to the Internal Reorganization (as currently contemplated), prior to the Distribution, GPC will form a new subsidiary and cause such subsidiary to issue the SPR HoldCo Preferred Stock. Pursuant to a pre-existing binding commitment entered into prior to this exchange, GPC will sell the SPR HoldCo Preferred Stock to a third party unaffiliated with either GPC or Essendant prior to the completion of the Distribution. The Separation Agreement provides that the aggregate principal amount of the SPR HoldCo Preferred Stock shall not exceed $5,000,000 and the SPR HoldCo Preferred Stock shall have no voting rights except for limited customary protective voting rights with respect to (i) changes to the terms of the SPR HoldCo Preferred Stock and (ii) authorization or issuance of securities by SPR HoldCo that are senior to the SPR HoldCo Preferred Stock with respect to dividend rights on liquidation.

In connection with the transfer of assets and subsidiaries under the Separation Agreement, on or prior to the date of the Distribution, SpinCo will issue and deliver to GPC additional shares of SpinCo common stock which, along with the 100 shares of SpinCo common stock then owned by GPC, will constitute all of the outstanding stock of SpinCo and will equal the number of shares of Essendant common stock to be issued to SpinCo stockholders in the Merger.

In the Distribution, GPC will distribute all of the outstanding shares of SpinCo common stock to the GPC shareholders by way of a pro rata dividend. GPC will effect the Distribution by delivering the shares of SpinCo common stock to the exchange agent. The exchange agent will hold such shares for the benefit of GPC shareholders that are entitled to shares of SpinCo common stock pending the effective time of the Merger and the automatic conversion of such shares of SpinCo common stock into the right to receive shares of Essendant common stock. After the Distribution, GPC will not own any shares of SpinCo common stock.

Conditions to the Separation and the Distribution (page 132)

The obligation of GPC to complete the Distribution is subject to the satisfaction or waiver by GPC (subject to the limitation that any waiver shall also be subject to the prior written consent of Essendant) of the following conditions:

 

   

execution and delivery of the Separation Agreement, the Merger Agreement, the Tax Matters Agreement, the Transition Services Agreement, the Supply Chain Transition Services Agreement, the leases of specific premises to be leased to the SpinCo Companies by GPC as outlined in the Separation Agreement, and any other written agreement signed by GPC and SpinCo that is expressly identified as a “Transaction Document,” and any exhibits or attachments to any of the foregoing (the “Transaction Documents”) to the extent not already executed by each party thereto; and

 

   

each of the conditions to the obligations of the parties to the Merger Agreement to consummate the Merger and complete the other transactions contemplated by the Merger Agreement shall have been satisfied or waived by the party entitled to the benefit thereof (other than those conditions that by their nature are to be satisfied contemporaneously with or immediately following the Distribution).

The Merger; Merger Consideration (page 67)

Immediately after the Distribution, pursuant to and in accordance with the terms and conditions of the Merger Agreement and in accordance with the DGCL, at the effective time of the Merger, Merger Sub will merge with



 

20


Table of Contents

and into SpinCo whereby the separate corporate existence of Merger Sub will cease and SpinCo will survive the Merger as a wholly owned subsidiary of Essendant. After the Merger, Essendant will continue its existence as a separately traded public company, owning the combined businesses of Essendant and SpinCo. In accordance with the DGCL, SpinCo will succeed to and assume all the rights, powers and privileges and be subject to all of the obligations of Merger Sub. The certificate of incorporation and bylaws of SpinCo in effect immediately prior to the Merger will be the certificate of incorporation and bylaws of SpinCo following completion of the Merger.

In the Merger, each share of SpinCo common stock will be automatically converted into the right to receive one share of Essendant common stock, as described below under “—Calculation of Merger Consideration.” After giving effect to the issuance of SpinCo shares to GPC under the Separation Agreement and the distribution of SpinCo shares to the shareholders of GPC in the Distribution, it is expected that shareholders of GPC following the Distribution will collectively hold approximately 51% of the shares of Essendant common stock on a fully diluted basis immediately following the Merger. Following the Merger, an exchange agent will distribute to each GPC shareholder entitled to shares of SpinCo common stock in the Distribution book-entry authorizations representing the number of whole shares of Essendant common stock that such shareholder is entitled to receive in the Merger. The exchange agent will also distribute to each GPC shareholder entitled to shares of SpinCo common stock in the Distribution cash in lieu of fractional shares of Essendant common stock, if any. GPC shareholders entitled to shares of SpinCo common stock in the Distribution will not be required to pay for the shares of Essendant common stock that they will receive in the Merger, and they will also retain all of their shares of GPC common stock that they held prior to the Merger.

No fractional shares of Essendant common stock will be issued pursuant to the Merger. All fractional shares of Essendant common stock that a GPC shareholder entitled to shares of SpinCo common stock in the Distribution would otherwise be entitled to receive as a result of the Merger will be aggregated by an exchange agent, and the exchange agent will cause the whole shares obtained by such aggregation to be sold in the open market or otherwise at then-prevailing market prices no later than five business days after the Distribution. The exchange agent will then make available the net proceeds of the sale, after deducting any brokerage charges, commissions and transfer taxes (estimated, in the aggregate, at $0.05 per share), on a pro rata basis, without interest, as soon as practicable to the GPC shareholders entitled to shares of SpinCo common stock in the Distribution that otherwise would be entitled to receive such fractional shares of Essendant common stock in the Merger.

Conditions to the Merger (page 125)

As more fully described in this proxy statement/prospectus-information statement and in the Merger Agreement, each of Essendant’s, Merger Sub’s, GPC’s and SpinCo’s obligations to effect the Merger are subject to the satisfaction, or to the extent permitted by law, waiver, of the following conditions (the “Joint Conditions to the Merger”):

 

   

the consummation of the Internal Reorganization in all material respects in accordance with the Separation Agreement;

 

   

the effectiveness of the registration statement of Essendant and the registration statement of SpinCo and the absence of any stop order issued by the SEC or any pending proceeding before the SEC seeking a stop order with respect thereto;

 

   

the approval for listing on Nasdaq of the shares of Essendant common stock to be issued in the Merger;

 

   

the approval by Essendant stockholders of the Share Issuance;

 

   

the expiration or termination of any applicable waiting period under the HSR Act; and

 

   

the absence of any law or orders of any governmental authorities of a competent jurisdiction that enjoins or makes illegal the consummation of the Internal Reorganization, the Distribution or the Merger.



 

21


Table of Contents

Essendant’s and Merger Sub’s obligations to effect the Merger are subject to the satisfaction or, if permitted by applicable law, written waiver of the following additional conditions:

 

   

the truth and correctness of GPC’s representations and warranties with respect to capital structure, except for de minimis inaccuracies;

 

   

the truth and correctness in all material respects of GPC’s representations and warranties with respect to corporate existence and power, corporate authorization, ownership of equity interests in SpinCo’s subsidiaries, absence of certain conflicts, required board and stockholder approvals and broker fees as of the closing date of the Merger;

 

   

the truth and correctness of GPC’s other representations and warranties as of the closing date of the Merger, except where a failure to be true and correct would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on SpinCo;

 

   

the compliance in all material respects by GPC and SpinCo of all covenants and agreements required to be complied with by them on or prior to the effective time of the Merger under the Merger Agreement, the Separation Agreement and each other Transaction Document executed contemporaneously with the Merger Agreement; and

 

   

the receipt by Essendant of a certificate, dated as of the closing date of the Merger, of an authorized representative of GPC certifying the satisfaction by, as applicable, GPC and SpinCo of the conditions described in the preceding four bullet points.

We refer to the first four conditions listed above as the “Additional Conditions to the Merger for Essendant’s Benefit.”

GPC’s and SpinCo’s obligations to effect the Merger are subject to the satisfaction or, if permitted by applicable law, waiver of the following additional conditions:

 

   

the truth and correctness of Essendant’s and Merger Sub’s representations and warranties with respect to capital structure, except for de minimis inaccuracies;

 

   

the truth and correctness in all material respects of Essendant’s and Merger Sub’s representations and warranties with respect to corporate existence and power, corporate authorization, absence of certain conflicts, required board and stockholder approvals and broker fees as of the closing date of the Merger;

 

   

the truth and correctness of Essendant’s and Merger Sub’s other representations and warranties as of the closing date of the Merger, except where a failure to be true and correct would not, individually or in the aggregate, reasonably be expected to have a material adverse effect on Essendant;

 

   

the compliance in all material respects by Essendant and Merger Sub of all covenants and agreements required to be complied with by them on or prior to the effective time of the Merger under the Merger Agreement, the Separation Agreement and each other Transaction Document executed contemporaneously with the Merger Agreement; and

 

   

the receipt by GPC of a certificate, dated as of the closing date of the Merger, of an authorized representative of Essendant certifying the satisfaction by Essendant and Merger Sub of the conditions described in the preceding four bullet points.

We refer to the first four conditions listed above as the “Additional Conditions to the Merger for GPC’s Benefit.”

To the extent permitted by applicable law, GPC and SpinCo, on the one hand, and Essendant and Merger Sub, on the other hand, may waive the satisfaction of the conditions to their respective obligations to consummate the Transactions.



 

22


Table of Contents

Voting by Essendant Directors and Executive Officers (page 62)

At the close of business on the record date for Essendant’s special meeting, Essendant directors and executive officers and their affiliates were entitled to vote approximately [●]% of the shares of Essendant common stock outstanding on the record date. Essendant currently expects that all Essendant directors and executive officers will vote their shares in favor of the Share Issuance, the meeting adjournment and the advisory merger-related executive compensation proposals.

No vote of GPC shareholders is required in connection with the Transactions, and the only vote required with respect to SpinCo is by GPC as its sole stockholder, which stockholder approval has been obtained. No directors, executive officers or affiliates of SpinCo or GPC will have voting rights in connection with the Transactions with respect to their ownership of any GPC common stock or SpinCo common stock.

Opinion of Essendant’s Financial Advisor (page 82)

In connection with the proposed Merger, Essendant’s financial advisor, Citigroup Global Markets Inc. (“Citi”), delivered a written opinion, dated April 11, 2018, to the Essendant Board as to the fairness, from a financial point of view and as of the date of the opinion, to Essendant of the aggregate merger consideration provided for pursuant to the Merger Agreement. The full text of Citi’s written opinion, dated April 11, 2018, to the Essendant Board, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, is attached as Annex A to this document and is incorporated herein by reference. The description of Citi’s opinion set forth below is qualified in its entirety by reference to the full text of Citi’s opinion. Citi’s opinion was provided for the information of the Essendant Board (in its capacity as such) in connection with its evaluation of the aggregate merger consideration from a financial point of view to Essendant and did not address any other terms, aspects or implications of the Merger or related transactions. Citi expressed no view as to, and its opinion did not address, the underlying business decision of Essendant to effect or enter into the Merger or any related transactions, the relative merits of the Merger or any related transactions as compared to any alternative business strategies that might exist for Essendant or the effect of any other transaction which Essendant might engage in or consider. Citi’s opinion is not intended to be and does not constitute a recommendation to any securityholder as to how such securityholder should vote or act on any matters relating to the proposed Merger, any related transaction or otherwise.

Debt Financing (page 135)

On April 12, 2018, simultaneously with their entry into the Merger Agreement, Essendant and SpinCo each entered into separate commitment letters with JPMorgan Chase Bank, N.A. and Citibank, N.A. (collectively, together with all additional commitment parties added to the commitment letters from time to time, the “Commitment Parties”) pursuant to which the Commitment Parties agreed to provide debt financing for the Transactions. Pursuant to, and subject to the terms and conditions of, such commitment letters, the Commitment Parties will provide (a) the SpinCo Term Loan Facility and (b) the Essendant Credit Facilities. See “Debt Financing” for further information.

Board of Directors and Management of Essendant After the Merger (page 91)

The Merger Agreement provides that the Essendant Board will take all actions necessary to cause, effective as of immediately following the effective time of the Merger, the number of directors comprising the Essendant Board to consist of twelve directors, comprised of:

 

   

four directors designated by Essendant (the “Essendant Board Designees”), of whom (i) two shall be Class I directors and two shall be Class II directors, (ii) at least two shall qualify as an “independent director,” as such term is defined in Nasdaq Marketplace Rule 5605(a)(2), (iii) at least one shall meet



 

23


Table of Contents
 

the minimum requirements to serve on the Audit Committee of the Essendant Board under the Nasdaq Marketplace Rules and (iv) one shall be the Chairman of the Essendant Board;

 

   

four directors designated by GPC (the “GPC Board Designees”), of whom (i) two shall be Class I directors and two shall be Class II directors, (ii) at least two shall qualify as an “independent director,” as such term is defined in Nasdaq Marketplace Rule 5605(a)(2) and (iii) at least one shall meet the minimum requirements to serve on the Audit Committee of the Essendant Board under the Nasdaq Marketplace Rules; and

 

   

four directors mutually agreed between Essendant and GPC (the “Joint Board Designees”), of whom (i) four shall be Class III directors, (ii) at least two shall qualify as an “independent director,” as such term is defined in Nasdaq Marketplace Rule 5605(a)(2) and (iii) at least one shall meet the minimum requirements to serve on the Audit Committee of the Essendant Board under the Nasdaq Marketplace Rules.

The Essendant Board shall take all such action as may be necessary to ensure that at least one each of such Essendant Board Designee, GPC Board Designee and Joint Board Designee is appointed to serve on each committee of the Essendant Board, subject in all events to the requirements of the SEC, Nasdaq and all other Applicable Laws (as defined in the Merger Agreement). The Essendant Board Designees, GPC Board Designees and Joint Board Designees have not yet been determined by Essendant and/or GPC.

Essendant’s current President and Chief Executive Officer, Richard D. Phillips, and current Chief Financial Officer, Janet H. Zelenka, will continue in their roles following the completion of the Transactions. The current President and Chief Executive Officer of the SPR Business, Rick Toppin, will become Essendant’s Chief Operating Officer following the completion of the Transactions. Additional leadership roles identified prior to the consummation of the Transactions will be mutually agreed by Essendant and GPC.

Until the completion of the Transactions, Essendant and GPC shall consult from time to time regarding the roles and responsibilities of other members of Essendant’s management following completion of the Transactions, and such roles and responsibilities shall be mutually agreed between Essendant and GPC.

Interests of Certain Persons in the Merger (page 92)

Certain of Essendant’s directors and executive officers have financial interests in the Transactions that may be different from, or in addition to, the interests of Essendant’s stockholders generally. The members of the Essendant Board were aware of and considered these interests, among other matters, in reaching the determination to approve the terms of the Transactions, including the Share Issuance and the Merger, and in recommending to Essendant’s stockholders that they vote to approve the Share Issuance. As of July 13, 2018, Essendant’s directors and executive officers beneficially owned approximately 2.2% of the outstanding shares of Essendant’s common stock.

The Human Resources Committee of the Essendant Board will continue to oversee Essendant’s executive compensation program and approve all executive compensation decisions after the Merger. Essendant’s Human Resources Committee is expected to review its executive compensation program with respect to the executive officers of Essendant after the Merger but has not yet made any determinations with respect to the compensation of those officers following the Merger. Essendant expects that the executive compensation program will be substantially similar to the current executive compensation programs and does not intend to enter into new employment agreements with the executive officers of Essendant in connection with the Transactions.

As with all GPC shareholders, if a director or executive officer of SpinCo owns shares of GPC common stock on the record date for the Distribution, such person will participate in the Distribution and the Merger on the same terms as other GPC shareholders. All of SpinCo’s outstanding common stock is currently owned directly by GPC. GPC and SpinCo have entered into a subsidiary change in control agreement with Rick Toppin (President



 

24


Table of Contents

and Chief Executive Officer of the SPR Business). SpinCo has entered into retention agreements with certain of SpinCo’s other executive officers.

Risk Factors (page 47)

Essendant stockholders and GPC shareholders should carefully consider the matters described in the section “Risk Factors,” as well as other information included in this proxy statement/prospectus-information statement and the other documents to which they have been referred.

Regulatory Approvals (page 101)

Under the HSR Act and related rules, the Merger may not be completed until the parties have filed notification and report forms with the U.S. Federal Trade Commission (“FTC”) and observed a specified statutory waiting period. The parties made their respective filings with the FTC under the HSR Act on May 2, 2018. On June 1, 2018, the FTC extended the waiting period by requesting additional information or documentary material from the parties (a “Second Request”). The effect of the Second Request is to extend the waiting period imposed by the HSR Act until 11:59 p.m. (Eastern Time in the U.S.) on the 30th day after certification of substantial compliance by the parties with such request unless that period is extended voluntarily by the parties or terminated sooner by the FTC. See “The Transactions—Regulatory Approvals.”

Termination (page 126)

The Merger Agreement may be terminated and the Transactions may be abandoned at any time prior to the consummation of the Merger by the written consent of GPC, Essendant, SpinCo and Merger Sub. Also, subject to specified qualifications and exceptions, either GPC or Essendant may terminate the Merger Agreement and abandon the Transactions at any time prior to the consummation of the Merger if:

 

   

the Merger has not been consummated by 11:59 p.m. New York City time on April 12, 2019 (such date and time, the “Termination Date”), except that if on such date all conditions to the closing of the Merger, other than the expiration or termination of any applicable waiting period under the HSR Act or the absence of any law or orders of any governmental authorities of a competent jurisdiction that enjoins or makes illegal the consummation of the Internal Reorganization, the Distribution or the Merger, have been satisfied or waived, then either Essendant or GPC may, if such party has a reasonable good faith belief based on the advice of its antitrust counsel that such unsatisfied conditions are reasonably capable of being satisfied by July 12, 2019, extend the Termination Date to 11:59 p.m. New York City time on July 12, 2019;

 

   

any governmental authority in a competent jurisdiction has issued a final and non-appealable order that permanently enjoins the consummation of the Merger; or

 

   

Essendant stockholders fail to approve the Share Issuance at the meeting of Essendant stockholders (including any adjournment, continuation or postponement thereof).

In addition, subject to specified qualifications and exceptions, GPC may terminate the Merger Agreement and abandon the Transactions if:

 

   

Essendant has breached any representation, warranty, covenant or agreement in the Merger Agreement (including an obligation to consummate the Merger) that would, if occurring or continuing on the closing date of the Merger, cause the Joint Conditions to the Merger or Additional Conditions to the Merger for GPC’s Benefit not to be satisfied, and the breach is not cured, or cannot be cured, upon the earlier of (i) 30 days following GPC’s written notice to Essendant of such breach and GPC’s intent to terminate the Merger Agreement, (ii) with respect to a breach of an obligation to consummate the Merger, five business days following GPC’s written notice to Essendant of such breach and GPC’s intent to terminate the Merger Agreement, or (iii) the Termination Date (a termination pursuant to this provision, a “Termination for Essendant’s Material Breach”);



 

25


Table of Contents
   

Essendant has failed to include the recommendation that Essendant stockholders vote in favor of the Share Issuance (the “Essendant Recommendation”) in the Essendant proxy statement;

 

   

the Essendant Board or any committee thereof withdraws, qualifies, modifies, amends or fails to make, or publicly proposes to withdraw, qualify, modify or amend, the Essendant Recommendation, or makes any public statement or takes any action inconsistent with the Essendant Recommendation, or approves, adopts, or recommends the approval or adoption of, or publicly proposes to approve or adopt, a Competing Essendant Transaction (as defined below) (each action constituting a “Change in Recommendation”) has occurred; or

 

   

Essendant has materially breached its obligations under the Merger Agreement relating to the meeting of Essendant stockholders or the non-solicitation of alternative transactions.

The Merger Agreement provides that the term “Competing Essendant Transaction” means any transaction or series of related transactions (other than the Merger) that constitutes:

 

   

any merger, consolidation, share exchange, business combination, recapitalization, liquidation, dissolution or other similar transaction involving Essendant or any of its subsidiaries, the assets of which represent over 20 percent of the total revenue or fair market value of the assets of Essendant and its subsidiaries, taken as a whole;

 

   

any sale, lease, license, exchange, transfer or other disposition of, or joint venture involving, assets or businesses that represent over 20 percent of the total revenue or fair market value of the assets of Essendant and its subsidiaries, taken as a whole;

 

   

any sale, exchange, transfer or other disposition of more than 20 percent of any class of equity securities, or securities convertible into or exchangeable for equity securities, of Essendant;

 

   

any tender offer or exchange offer that, if consummated, would result in any person or entity becoming the beneficial owner of more than 20 percent of any class of equity securities of Essendant;

 

   

any other transaction the consummation of which would reasonably be likely to materially impede, interfere with, prevent or delay the Merger; or

 

   

any combination of the foregoing.

In addition, subject to specified qualifications and exceptions, Essendant may terminate the Merger Agreement if:

 

   

GPC or SpinCo has breached any representation, warranty, covenant or agreement in the Merger Agreement or the Separation Agreement (including an obligation to consummate the Merger) that would, if occurring or continuing on the closing date of the Merger, cause the Joint Conditions to the Merger or Additional Conditions to the Merger for Essendant’s Benefit not to be satisfied, and the breach is not cured, or cannot be cured, upon the earlier of (i) 30 days following Essendant’s written notice to GPC and SpinCo of such breach and Essendant’s intent to terminate the Merger Agreement, (ii) with respect to a breach of an obligation to consummate the Merger, five business days following Essendant’s written notice to GPC and SpinCo of such breach and Essendant’s intent to terminate the Merger Agreement, or (iii) the Termination Date; or

 

   

prior to approval of the Share Issuance by Essendant’s stockholders, to enter into a definitive agreement with respect to a Superior Proposal (as defined below), to the extent permitted by, and subject to the conditions described below in “—Board Recommendation.”

The Merger Agreement provides that the term “Superior Proposal” means a written bona fide offer or proposal made by a third party with respect to a Competing Essendant Transaction (provided that such Competing



 

26


Table of Contents

Essendant Transaction must involve more than 50 percent of the total revenue or fair market value of the assets of Essendant and its subsidiaries, taken as a whole), on terms and conditions that the Essendant Board determines, in its good faith judgment, after consulting with a financial advisor of internationally recognized reputation and external legal counsel, and taking into account all legal, financial and regulatory and other aspects of the proposal (including availability of financing, and any changes to the terms of the Merger Agreement proposed by GPC in response to such offer or proposal, or otherwise) to be (1) more favorable from a financial point of view to the stockholders of Essendant than the Merger, and (2) reasonably expected to be consummated.

If the Merger Agreement is validly terminated, the Merger Agreement will terminate without any liability on the part of any party or their respective representatives except as described below in “—Termination Fee and Expenses Payable in Certain Circumstances”; provided that nothing in the Merger Agreement will relieve any party from liability for fraud committed prior to such termination or for any willful breach prior to such termination of any of its covenants or agreements set forth in the Separation Agreement, the Merger Agreement or the Tax Matters Agreement and any exhibits or attachments to any of the foregoing; provided, further, that provisions of the Merger Agreement relating to confidentiality, the effect of termination of the Merger Agreement, fees and expenses and all of the general provisions of the Merger Agreement will survive any termination and remain in full force and effect.

Termination Fee and Expenses Payable in Certain Circumstances (page 127)

The Merger Agreement provides that, upon termination of the Merger Agreement under specified circumstances, a termination fee of $12,000,000 is payable by or on behalf of Essendant to GPC. The circumstances under which this termination fee is payable include:

 

   

if GPC terminates the Merger Agreement due to (1) a Change in Recommendation, (2) Essendant’s failure to include the Essendant Recommendation in the Essendant proxy statement, or (3) Essendant’s failure to comply with its obligations under the Merger Agreement relating to the meeting of Essendant stockholders and the non-solicitation of alternative transactions; or

 

   

prior to or substantially concurrently with termination, if Essendant terminates the Merger Agreement in order to enter into a definitive agreement with respect to a Superior Proposal in accordance with the non-solicitation provisions in the Merger Agreement.

In addition, if the Merger Agreement is terminated under any of the circumstances listed below, (1) prior to the termination of the Merger Agreement, a Competing Essendant Transaction is publicly announced or otherwise communicated to the Essendant Board or management and not withdrawn and (2) on or prior to the date that is 12 months after the date of termination, Essendant enters into a Competing Essendant Transaction or consummates a Competing Essendant Transaction (whether or not the applicable Competing Essendant Transaction is the same as the original Competing Essendant Transaction publicly announced or publicly known), provided that solely for purpose of this provision, references to “20 percent” in the definition of Competing Essendant Transaction will be deemed to refer to “50 percent,” then Essendant must pay GPC the Termination Fee, less any expenses previously reimbursed by Essendant:

 

   

if the Merger Agreement is terminated by GPC or Essendant because the transactions contemplated by the Merger Agreement have not been consummated prior to the Termination Date;

 

   

if the Merger Agreement is terminated by either GPC or Essendant after the failure to obtain approval from Essendant stockholders of the Share Issuance at the special meeting of Essendant’s stockholders; or

 

   

if the Merger Agreement is terminated by GPC because there is a Termination for Essendant’s Material Breach.



 

27


Table of Contents

If the Merger Agreement is terminated because Essendant stockholders fail to approve the Share Issuance at the meeting of Essendant stockholders, Essendant will be required to reimburse GPC in cash for all out-of-pocket fees and expenses actually incurred or accrued by GPC and its affiliates in connection with the Transactions, up to a maximum of $3,000,000 in the aggregate. Payment of the expense reimbursements by Essendant does not affect GPC’s right to receive any applicable termination fee, but does reduce on a dollar-for-dollar basis any termination fee that becomes payable.

Except as described in “The Merger Agreement—Termination Fee and Expenses Payable in Certain Circumstances” and subject to certain exceptions, the Merger Agreement provides that all out-of-pocket expenses incurred in connection with the Merger Agreement and the Transactions are to be paid by the party incurring the expenses. Notwithstanding the foregoing, however, with respect to expenses relating to printing, filing and mailing the Essendant and SpinCo registration statements and the Essendant proxy statement, all SEC and other regulatory filing fees incurred in connection with the registration statements and the proxy statement, obtaining the prepaid directors’ and officers’ liability insurance policy or policies required by the Merger Agreement and the SpinCo Commitment Letter, the Essendant Commitment Letter (each as defined herein) and the related financings, if (1) the Transactions are consummated, then the such expenses shall be treated as an adjustment to the SpinCo Special Cash Payment as set forth in the Separation Agreement and as described below in “The Separation Agreement—Incurrence of Debt; SpinCo Special Cash Payment” or (2) the Transactions are not consummated and the Merger Agreement is terminated, then, promptly after such termination, GPC shall reimburse Essendant, or Essendant shall reimburse GPC, in either case as necessary to ensure that GPC and Essendant each bear one-half of such expenses.

If Essendant fails to pay the $12,000,000 termination fee described above when due, the amount of such payment will be increased to include the costs of all expenses incurred or accrued by GPC and SpinCo (including fees and expenses of counsel) in connection with the collection under and enforcement of the terms of the Merger Agreement, together with interest on the unpaid termination fee. Payment of the fees and expenses described in this section will not be in lieu of any damages incurred in the event of breach of the Merger Agreement.

No Dissenters’ or Appraisal Rights (page 103)

Essendant and SpinCo stockholders and GPC shareholders do not have appraisal rights under Delaware or Georgia law in connection with the Separation, the Distribution or the Merger. See “The Transactions—Rights of Appraisal.”

U.S. Federal Income Tax Consequences of the Distribution and the Merger (page 104)

GPC received an opinion from Davis Polk & Wardwell LLP dated April 12, 2018, and expects to receive an opinion from Davis Polk & Wardwell LLP dated as of the closing date of the Merger, to the effect that the Distribution should qualify as a distribution to GPC shareholders under Section 355(a) of the Code and GPC expects the Merger should qualify as a “reorganization” within the meaning of Section 368(a) of the Code. Assuming the Distribution and the Merger so qualify, GPC shareholders will generally not recognize any gain or loss as a result of the Transactions for U.S. federal income tax purposes, except for any gain or loss attributable to the receipt of cash in lieu of a fractional share of Essendant common stock pursuant to the Merger.

The tax consequences to a GPC shareholder of the Distribution and Merger will depend on such shareholder’s particular circumstances. GPC shareholders should read the discussion in the section of this document entitled “U.S. Federal Income Tax Consequences of the Distribution and the Merger” and consult their own tax advisors for a full understanding of the tax consequences to them of the Distribution and Merger. See “U.S. Federal Income Tax Consequences of the Distribution and the Merger.”

Accounting Treatment of the Merger (page 102)

Accounting Standards Codification Topic 805, Business Combinations, or ASC 805, requires the use of the acquisition method of accounting for business combinations. In applying the acquisition method, it is necessary



 

28


Table of Contents

to identify both the accounting acquiree and the accounting acquirer. In a business combination effected through an exchange of equity interests, such as the Merger, the entity that issues the interests (Essendant in this case) is generally the accounting acquirer; however, all pertinent facts and circumstances must be considered.

Essendant’s management has determined that Essendant represents the accounting acquirer in this combination based on an analysis of the criteria outlined in ASC 805 and the facts and circumstances specific to this transaction. As a result, Essendant will record the business combination in its financial statements and will apply the acquisition method to account for the acquired assets and assumed liabilities of the SPR Business upon consummation of the Merger. Applying the acquisition method includes recording the identifiable assets acquired and liabilities assumed at their fair values, and recording goodwill for the excess of the purchase price over the aggregate fair value of the identifiable assets acquired and liabilities assumed.

Summary Historical Combined Financial Data of the SPR Business

The following tables set forth summary historical combined financial data of the SPR Business. The historical combined financial statements of the SPR Business reflect the business as it was operated within GPC. The historical results of the SPR Business are not necessarily indicative of results that should be expected in the future, and the results for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year ending December 31, 2018. Because the SPR Business is wholly owned by GPC and shares of the SPR Business’s common stock do not trade separately from shares of GPC common stock, per share values for the SPR Business are not provided. This information is only a summary, and you should read it in conjunction with the combined financial statements of the SPR Business and related notes included elsewhere in this proxy statement/prospectus-information statement and “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the SPR Business” and “Selected Historical Combined Financial Data of the SPR Business.”

 

    Three months ended
March 31,
    Year ended December 31,  
(Dollars in thousands)   2018     2017     2017     2016     2015     2014     2013  

Net sales

  $ 475,230     $ 498,726     $ 1,923,504     $ 1,900,562     $ 1,875,378     $ 1,751,278     $ 1,604,128  

Cost of goods sold

    356,256       370,883       1,444,929       1,415,472       1,404,320       1,311,496       1,199,968  

Operating and non-operating expenses, net

    105,740       104,404       421,789       402,656       363,071       331,015       307,431  

Income before income taxes

    13,234       23,439       56,786       82,434       107,987       108,767       96,729  

Income taxes

    2,719       8,129       19,343       29,830       41,088       40,847       36,416  

Net income

  $ 10,515     $ 15,310     $ 37,443     $ 52,604     $ 66,899     $ 67,920     $ 60,313  

Total debt

    371,010       370,806       371,161       370,770       372,590       374,900       287,708  

Net parent investment

    439,055       438,033       428,628       422,671       282,065       237,394       213,847  

Total assets

  $ 1,020,645     $ 1,060,362     $ 1,023,390     $ 1,063,441     $ 911,838     $ 881,462     $ 666,574  

Summary Historical Consolidated Financial Data of Essendant

The following table sets forth summary historical consolidated financial data of Essendant. The summary consolidated statement of operations, balance sheet and statement of cash flows data as of December 31, 2017 and 2016 and for the years ended December 31, 2017, 2016, and 2015 have been derived from Essendant’s audited consolidated financial statements and related notes included in Essendant’s Current Report on Form 8-K filed on May 31, 2018, which is attached as Annex E and incorporated herein. The summary consolidated financial information as of December 31, 2015, 2014 and 2013 and for the years ended December 31, 2014 and 2013 has been derived from Essendant’s audited consolidated financial statements and related notes for such years, which have not been incorporated by reference with this proxy statement/prospectus-information statement. The summary consolidated financial statements for the three months ended March 31, 2018 and 2017 have been derived from the unaudited condensed consolidated financial statements of Essendant included in



 

29


Table of Contents

Essendant’s most recent Quarterly Report on Form 10-Q, which is attached as Annex D and incorporated herein. The unaudited condensed consolidated financial statements of Essendant have been prepared on the same basis as the audited financial statements of Essendant, except for the January 1, 2018 adoption of Accounting Standards Codification Topic 606, Revenue from Contracts with Customers, or ASC 606. In the opinion of Essendant management, the unaudited condensed consolidated interim financial information reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information in those statements. The historical results of Essendant are not necessarily indicative of results that should be expected in the future, and the results for the three months ended March 31, 2018 are not necessarily indicative of the results to be expected for the full year ending December 31, 2018. This information is only a summary, and you should read it in conjunction with Essendant’s consolidated financial statements and related notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section included in Essendant’s Current Report on Form 8-K filed on May 31, 2018 and most recent Quarterly Report on Form 10-Q, each of which is incorporated herein. See also “Where You Can Find Additional Information.”

 

    Three months ended
March 31,
    Year ended December 31,  
(Dollars in thousands, except per share
data)
  2018     2017     2017     2016     2015     2014     2013  
    (Unaudited)                    

Statement of Operations Data:

             

Net sales

    1,240,155       1,269,383       5,037,327       5,369,022       5,363,046       5,327,205       5,085,293  

Cost of goods sold

    1,118,979       1,083,715       4,331,273       4,609,161       4,526,551       4,524,676       4,297,952  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit(1)

    121,176       185,668       706,054       759,861       836,495       802,529       787,341  

Operating expenses(2)

             

Warehousing, marketing and administrative expenses

    165,544       172,298       661,386       626,117       671,972       593,141       575,984  

Restructuring charges

    14,061       —         —         —         —         —         —    

Impairments of goodwill and intangible assets

    —         198,828       285,166       —         129,338       9,034       1,183  

Loss (gain) on disposition of business

    —         —         —         —         1,461       (800     —    
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Operating (loss) income

    (58,429     (185,458     (240,498     133,744       33,724       201,154       210,174  

Interest expense

    7,535       6,925       26,696       24,143       20,580       16,234       12,233  

Interest income

    (221     (186     (1,078     (1,272     (996     (500     (593

Pension expense

    908       724       2,894       16,218       3,941       2,532       2,974  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other expense, net

    8,222       7,463       28,512       39,089       23,525       18,266       14,614  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

    (66,651     (192,921     (269,010     94,655       10,199       182,888       195,560  

Income tax (benefit) expense(3)

    (15,211     (4,328     (2,029     30,803       54,541       70,773       73,507  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

  $ (51,440   $ (188,593   $ (266,981   $ 63,852     $ (44,342   $ 112,115     $ 122,053  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income per share:

             

Net (loss) income per common share—basic

  $ (1.40   $ (5.15   $ (7.27   $ 1.75     $ (1.18   $ 2.90     $ 3.08  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income per common share—diluted

  $ (1.40   $ (5.15   $ (7.27   $ 1.73     $ (1.18   $ 2.87     $ 3.03  
 

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends declared per share

    0.14       0.14       0.56       0.56       0.56       0.56       0.56  

Balance Sheet Data:

             

Working capital

  $ 759,915     $ 872,481     $ 793,128     $ 904,715     $ 956,588     $ 968,894     $ 829,917  

Total assets

    1,712,059       1,920,217       1,774,250       2,163,506       2,262,859       2,347,368       2,104,019  

Total debt(4)

    536,427       571,474       498,123       608,969       716,315       710,768       530,306  

Total stockholders’ equity

    441,351       590,611       494,914       781,106       723,734       843,667       820,146  


 

30


Table of Contents
    Three months ended
March 31,
    Year ended December 31,  
(Dollars in thousands, except per share
data)
  2018     2017     2017     2016     2015     2014     2013  
    (Unaudited)                    

Statement of Cash Flows Data:

             

Net cash (used in) provided by operating activities

  $ (21,425   $ 53,025     $ 185,543     $ 130,942     $ 162,734     $ 77,133     $ 74,737  

Net cash used in investing activities

    (7,792     (8,312     (38,455     (3,769     (67,929     (183,633     (30,273

Net cash provided by (used in) financing activities

    31,560       (43,443     (140,001     (135,964     (84,990     105,968       (53,060

 

(1)

Q1 2018—Includes $42.8 million charge related to product assortment refinements.

2015—Includes $4.9 million related to Industrial obsolescence reserve.

 

(2)

Q1 2018—Includes $14.1 million charge related to workforce reductions and facility consolidations and $4.2 million of transformational expenses, partially offset by a $0.1 million gain reflecting recovery of notes receivable in 2015.

Q1 2017—Includes $198.8 million of charges related to goodwill impairment, $6.0 million charge related to a litigation reserve and $3.0 million of transformational expenses.

2017—Includes $285.2 million of charges related to goodwill impairment, $19.7 million of transformational expenses, $9.0 million of charges related to litigation reserves, partially offset by a $0.3 million gain reflecting recovery of notes receivable reserved in 2015.

2016—Includes $20.5 million gain on sale of City of Industry facility, $4.0 million charge related to a litigation reserve, $1.2 million charge related to severance costs for operating leadership, $0.9 million reversal of 2015 restructuring expenses partially offset by 2016 facility charges.

2015—$115.8 million charge related to Industrial impairment of goodwill and intangible assets, $18.6 million charge related to workforce reductions and facility consolidations, a $17.0 million loss on sale and related costs of Essendant’s Mexican subsidiary, $12.0 million intangible asset impairment charge related to rebranding and accelerated amortization related to rebranding efforts, and $10.7 million impairment of seller notes receivable related to Essendant’s prior year sale of a software service provider.

2014—$8.2 million loss on disposition of a software service provider.

2013—$13.0 million charge for a workforce reduction and facility closures and a $1.2 million asset impairment charge.

 

(3)

Includes $2.6 million related to the one-time impact of the passage of the Tax Cuts and Jobs Act in 2017; $1.7 million related to tax effect of a dividend from a foreign subsidiary and a $0.4 million change in reserve related to uncertain tax positions taken in the prior year in 2016; and the tax effects for items noted above for each respective year.

 

(4)

Total debt includes current maturities where applicable.

Summary Unaudited Pro Forma Combined Financial Data of Essendant and the SPR Business

The following unaudited pro forma combined condensed consolidated financial statements of Essendant (the “pro forma financial statements”) include the unaudited pro forma combined condensed consolidated balance sheet (the “pro forma balance sheet”) as of March 31, 2018, and the unaudited pro forma combined condensed consolidated statement of operations for the three months ended March 31, 2018 (the “interim pro forma statement of operations”) and for the year ended December 31, 2017, after giving effect to the Merger and other Transactions.

The unaudited pro forma combined condensed consolidated statements of operations for the three months ended March 31, 2018 and for the year ended December 31, 2017 combines the historical condensed consolidated statements of operations of Essendant and the historical condensed consolidated statements of operations for the SPR Business, giving effect to the Merger and other Transactions as if they had been consummated on January 1,



 

31


Table of Contents

2017. The unaudited pro forma combined condensed consolidated balance sheet combines the historical condensed consolidated balance sheet of Essendant as of March 31, 2018 and the historical condensed consolidated balance sheet of the SPR Business as of March 31, 2018, giving effect to the Merger and other Transactions as if they had been consummated on March 31, 2018.

The historical combined financial statements of the SPR Business have been “carved-out” from GPC’s consolidated financial statements and reflect assumptions and allocations made by GPC. SPR Business’s historical combined financial statements include assets and liabilities specifically attributable to the SPR Business, and certain assets and liabilities that are held by GPC that are specifically identifiable or otherwise attributable to the SPR Business. SPR Business’s historical combined financial statements include all revenues and costs directly attributable to the SPR Business and an allocation of corporate expenses from GPC. Such corporate expenses include, but are not limited to, centralized GPC support functions including executive management services, finance, legal and professional, information technology, human resources, sales and marketing, shared services, insurance, and general corporate expenses as well as stock-based compensation. These expenses are not based on actual costs for service provided and instead are allocated to the SPR Business based on an intercompany formula which is calculated using a blended percentage of the SPR Business’s portion of GPC’s total net sales, operating profit, and assets. In addition to the corporate allocations, the SPR Business receives direct billings or charges from GPC generally related to a specific service being provided to the SPR Business by GPC. The financial information in the SPR Business’s historical combined financial statements does not necessarily include all expenses that would have been incurred by the SPR Business had it been a separate, stand-alone entity. Actual costs that may have been incurred if the SPR Business had been a stand-alone company would depend on a number of factors, including the chosen organizational structure and functions outsourced or performed by employees. Consequently, the SPR Business’s historical combined financial statements do not necessarily reflect what the SPR Business’s financial condition and results of operations would have been had the SPR Business operated as a stand-alone company during the periods or as of the date presented.

The pro forma financial statements have been prepared in accordance with Article 11 of Regulation S-X. The historical financial information has been adjusted in the unaudited combined condensed consolidated pro forma financial statements to give effect to pro forma events that are (1) directly attributable to the Merger and other Transactions, (2) factually supportable, and (3) with respect to the statements of operations, expected to have a continuing impact on the results of operations of the combined business.

The pro forma financial statements were prepared using the acquisition method of accounting with Essendant considered the accounting acquirer of the SPR Business. Under the acquisition method of accounting, the purchase price is allocated to the underlying tangible and intangible assets acquired and liabilities assumed based on their respective fair values, with any excess purchase price allocated to goodwill.

The pro forma purchase price allocation was based on preliminary estimates of the fair values of the tangible and intangible assets and liabilities related to the SPR Business. Essendant has considered multiple factors in arriving at the estimated fair market values which were based on a preliminary and limited review of the assets and liabilities related to the SPR Business to be transferred and certain assumptions that management of Essendant believes are factually supportable as of the date of this document. Following the effective date of the Transactions, Essendant will complete the preliminary purchase price allocation after considering the SPR Business’s assets and liabilities at the level of detail necessary to finalize the required purchase price allocation. A final determination of the fair value of the SPR Business’s assets acquired and liabilities assumed, including intangible assets, will be based on the actual net tangible and intangible assets and liabilities of the SPR Business that exist as of the closing date of the Merger and, therefore, cannot be made prior to the completion of the Merger. As a result, the pro forma adjustments are preliminary and are subject to change as additional information becomes available and as additional analyses are performed. These potential changes to the purchase price allocation and related pro forma adjustments could be material.



 

32


Table of Contents

The pro forma financial statements contain only adjustments that are factually supportable and directly attributable to the transactions and do not reflect the costs of any integration activities or benefits that may result from realization of the $75 million in annual run-rate net cost synergies, 90% of which are expected to be realized within two years post-closing, and more than $100 million in working capital improvements as a result of the Transactions. Essendant expects to incur significant, one-time costs, some of which will be capitalized, in connection with the Transactions. Essendant management expects to incur up to $50 million in cash costs and approximately $60 million in year one post-close non-cash costs. The financing fees and transaction-related costs that are expected to be incurred in 2018 will primarily be funded through new term loans and revolvers issued in connection with the Transactions and have been reflected as pro forma adjustments in the unaudited pro forma combined condensed consolidated balance sheet as of March 31, 2018. The transition and integration-related costs will be incurred primarily during the first two years following the consummation of the Transactions, and will primarily be funded through cash generated from operations.

The adjustments included in the pro forma financial statements are based upon currently available information and assumptions that Essendant believes to be reasonable. These adjustments and related assumptions are described in the accompanying notes presented on the following pages.

The pro forma financial statements are for informational purposes only and are not intended to represent or to be indicative of the actual results of operations or financial position that the combined Essendant and SPR Business would have reported had the Merger and Transactions been completed as of the dates set forth in the pro forma financial statements and should not be taken as being indicative of Essendant’s future consolidated results of operations or financial position. The actual results may differ significantly from those reflected in the pro forma financial statements for a number of reasons, including differences between the assumptions used to prepare the pro forma financial statements and actual amounts.

The pro forma financial statements should be read in conjunction with:

 

   

the accompanying notes to the pro forma financial statements;

 

   

Essendant’s audited historical consolidated financial statements and related notes as of and for the year ended December 31, 2017, as restated in Essendant’s Current Report on Form 8-K filed on May 31, 2018 which is incorporated herein and attached as Annex E;

 

   

Essendant’s unaudited historical condensed consolidated financial statements and related notes as of and for the three-month period ended March 31, 2018, as filed in Essendant’s most recent quarterly report on Form 10-Q filed on April 25, 2018 which is incorporated herein and attached as Annex D;

 

   

SPR Business’s audited historical combined financial statements and related notes as of and for the year ended December 31, 2017, which are included elsewhere in this document; and

 

   

SPR Business’s unaudited historical combined financial statements and related notes as of and for the three months ended March 31, 2018, which are included elsewhere in this document.

The deferred tax amounts reflected in the pro forma financial statements are based on the assumption that GPC is making IRC Section 338(h)(10) elections as part of its domestic internal reorganization resulting in asset step up/down adjustments to fair market value and no book/tax basis differences at the time of merger that would result in the establishment of deferred taxes.



 

33


Table of Contents

Unaudited Pro Forma Combined Condensed Consolidated Balance Sheet

As Of March 31, 2018

 

(Dollars in thousands)

  Essendant
Inc.
Historical
    S.P. Richards
Co. and Subs
Historical
    Pro Forma
Adjustments
   

Notes

  Pro Forma
Combined
 

ASSETS:

         

Current assets:

         

Cash and cash equivalents

    30,967       1,478       (1,478   (4a)     30,967  

Accounts receivable, less allowance for doubtful accounts

    641,637       301,160       19,733     (4b)     962,530  

Inventories

    704,313       364,202       4,174     (3), (4c)     1,072,689  

Other current assets

    69,523       121,594       (87,977   (4d)     103,140  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total current assets

    1,446,440       788,434       (65,548       2,169,326  

Property, plant, and equipment, net

    129,291       29,945       9,743     (3), (4e)     168,979  

Intangible assets, net

    70,866       87,825       (2,794   (3), (4f)     155,897  

Goodwill

    13,128       81,977       185,746     (3), (4g)     280,851  

Other long-term assets

    52,334       32,316       (738   (4h)     83,912  

Deferred income taxes

    —         148       (148   (4i)     —    
 

 

 

   

 

 

   

 

 

     

 

 

 

Total assets

    1,712,059       1,020,645       126,261         2,858,965  
 

 

 

   

 

 

   

 

 

     

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY:

         

Current liabilities:

         

Accounts payable

    469,981       154,240       13,516     (4j)     637,737  

Accrued liabilities

    185,577       49,448       12,215     (4k)     247,240  

Current maturities of long-term debt

    6,077       6,010       (6,087   (4l)     6,000  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total current liabilities

    661,635       209,698       19,644         890,977  

Deferred income taxes

    1,172       —         —           1,172  

Long-term debt

    530,350       365,000       8,527     (4l)     903,877  

Mandatorily redeemable preferred securities

    —         —         5,000     (4m)     5,000  

Other long-term liabilities

    77,551       6,892       (2,865   (4n)     81,578  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities

    1,270,708       581,590       30,306         1,882,604  

Shareholders’ equity:

         

Common stock, par value $0.10 per share

    7,444       —         —           7,444  

Additional paid in capital

    414,055       —         575,331     (4o)     989,386  

Treasury stock

    (1,092,979     —         —           (1,092,979

Retained earnings

    1,162,237       —         (40,321   (4o)     1,121,916  

Net parent investment

    —         438,739       (438,739   (4o)     —    

Accumulated other comprehensive loss

    (49,406     316       (316   (4o)     (49,406
 

 

 

   

 

 

   

 

 

     

 

 

 

Total shareholders’ equity

    441,351       439,055       95,955         976,361  
 

 

 

   

 

 

   

 

 

     

 

 

 

Total liabilities and shareholders’ equity

    1,712,059       1,020,645       126,261         2,858,965  
 

 

 

   

 

 

   

 

 

     

 

 

 

See accompanying “Notes to the Pro Forma Financial Statements” beginning on page 164.



 

34


Table of Contents

Unaudited Pro Forma Combined Condensed Consolidated Statement Of Operations

For the Three Months Ended March 31, 2018

 

(Dollars in thousands)

   Essendant Inc.
Historical
    S.P. Richards
Co. and Subs
Historical
     Pro Forma
Adjustments
   

Notes

   Pro Forma
Combined
 

Net sales

     1,240,155       475,230        175     (5a)      1,715,560  

Cost of goods sold

     1,118,979       356,256        42,034     (5b)      1,517,269  
  

 

 

   

 

 

    

 

 

      

 

 

 

Gross profit

     121,176       118,974        (41,859        198,291  

Operating expenses:

            

Warehousing, marketing and administrative expenses

     165,544       101,673        (38,977   (5c)      228,240  

Restructuring charges

     14,061       —          —            14,061  

Impairment of goodwill

     —         —          —            —    
  

 

 

   

 

 

    

 

 

      

 

 

 

Operating (loss) income

     (58,429     17,301        (2,882        (44,010

Interest and other expense, net

     8,222       4,067        (3,314   (5d)      8,975  
  

 

 

   

 

 

    

 

 

      

 

 

 

(Loss) income before income taxes

     (66,651     13,234        432          (52,985

Income taxes (benefit) expense

     (15,211     2,719        114     (5e)      (12,378
  

 

 

   

 

 

    

 

 

      

 

 

 

Net (loss) income

     (51,440     10,515        318          (40,607
  

 

 

   

 

 

    

 

 

      

 

 

 

Average common shares outstanding

     36,865          40,191     (5f)      77,056  

Average diluted shares outstanding

     36,865          40,191     (5f)      77,056  

Earnings per common share

     (1.40             (0.53

Earnings per common share—assuming dilution

     (1.40             (0.53

See accompanying “Notes to the Pro Forma Financial Statements” beginning on page 164.



 

35


Table of Contents

Unaudited Pro Forma Combined Condensed Consolidated Statement Of Operations

For the Year Ended December 31, 2017

 

(Dollars in thousands)

   Essendant Inc.
Historical*
    S.P. Richards
Co. and Subs
Historical
     Pro Forma
Adjustments
   

Notes

   Pro Forma
Combined
 

Net sales

     5,037,327       1,923,504        1,852     (5a)      6,962,683  

Cost of goods sold

     4,331,273       1,444,929        166,158     (5b)      5,942,360  
  

 

 

   

 

 

    

 

 

      

 

 

 

Gross profit

     706,054       478,575        (164,306        1,020,323  

Operating expenses:

            

Warehousing, marketing and administrative expenses *

     661,385       399,460        (144,822   (5c)      916,023  

Restructuring charges

     —         —          —            —    

Impairment of goodwill

     285,166       —          —            285,166  
  

 

 

   

 

 

    

 

 

      

 

 

 

Operating (loss) income

     (240,497     79,115        (19,484        (180,866

Interest and other expense, net *

     28,513       22,329        (17,265   (5d)      33,577  
  

 

 

   

 

 

    

 

 

      

 

 

 

(Loss) income before income taxes

     (269,010     56,786        (2,219        (214,443

Income taxes (benefit) expense

     (2,029     19,343        (863   (5e)      16,451  
  

 

 

   

 

 

    

 

 

      

 

 

 

Net (loss) income

     (266,981     37,443        (1,356        (230,894
  

 

 

   

 

 

    

 

 

      

 

 

 

Average common shares outstanding

     36,729          40,191     (5f)      76,920  

Average diluted shares outstanding

     36,729          40,191     (5f)      76,920  

Earnings per common share

     (7.27             (3.00

Earnings per common share—assuming dilution

     (7.27             (3.00

 

*

Revised in the second quarter of 2018 for the impact of the adoption of a new pension accounting pronouncement (ASU 2017-07) to present the non-service components of periodic pension cost to “Interest and other expense, net” in the condensed consolidated statement of operations, while service cost remains in “Warehouse, marketing and administrative expense.” There is no net impact to (loss) income before income taxes as a result of the adoption.

See accompanying “Notes to the Pro Forma Financial Statements” beginning on page 164.

Summary Historical and Pro Forma Per Share Data

The summary below sets forth certain historical per share information for Essendant and unaudited pro forma per share information of the combined company as if the SPR Business and Essendant had been combined as of and for the periods presented. The historical per share data of Essendant as of and for the year ended December 31, 2017 has been derived from the audited consolidated financial statements of Essendant included in Essendant’s Current Report on Form 8-K filed on May 31, 2018, which is incorporated herein and attached as Annex E. The historical per share data of Essendant as of and for the three months ended March 31, 2018 has been derived from the unaudited condensed consolidated financial statements of Essendant included in Essendant’s most recent Quarterly Report on Form 10-Q, which is incorporated herein and attached as Annex D. The unaudited pro forma combined per share data as of and for the year ended December 31, 2017 and as of and for the three months ended March 31, 2018 has been derived from the unaudited pro forma combined financial information included elsewhere in this proxy statement/prospectus-information statement. See “Unaudited Pro Forma Combined Financial Information.” The pro forma amounts in the table below are presented for illustrative purposes only and are not necessarily indicative of what the financial position or the results of operations of the combined company would have been had the Merger occurred as of the date or for the period presented. The pro forma amounts also do not indicate what the financial position or results of operations of the combined company will be in the future. No adjustment has been included in the pro forma amounts for any anticipated cost savings or other synergies that Essendant expects to result from the Merger.



 

36


Table of Contents
(Per share)    Essendant Inc.
Historical
    S.P. Richards
Co. and Subs
Historical(2)
     Pro Forma
Combined
 

Earnings from continuing operations per basic share attributable to common shareholders(1)

       

Three Months ended March 31, 2018

   $         (1.40     N/A      $         (0.53

Twelve Months ended December 31, 2017

   $         (7.27     N/A      $         (3.00

Earnings from continuing operations per diluted share attributable to common shareholders(1)

       

Three Months ended March 31, 2018

   $         (1.40     N/A      $ (0.53

Twelve Months ended December 31, 2017

   $         (7.27     N/A      $ (3.00

Cash dividends per share

       

Three Months ended March 31, 2018

   $         0.14       N/A        N/A  

Twelve Months ended December 31, 2017

   $         0.56       N/A        N/A  

Book value per share(3)

       

March 31, 2018

   $         11.72       N/A        N/A  

December 31, 2017

   $         13.15       N/A        N/A  

 

(1)

This includes an adjustment to the weighted-average common shares outstanding for both basic and diluted earnings per share in order to reflect an estimated 40.1 million shares of Essendant common stock that will be issued as purchase consideration in the Merger. GPC shareholders will receive a fixed number of shares of Essendant common stock pursuant to the Merger rather than a number of shares with a particular fixed market value.

(2)

Earnings, dividends and book value from the SPR Business’s common stock has not been presented because the SPR Business is wholly owned by GPC, and shares of the SPR Business’s common stock do not trade separately from shares of GPC common stock.

(3)

Because the SPR Business is wholly owned by GPC and shares of the SPR Business’s common stock do not trade separately from shares of GPC common stock, book value values for the SPR Business and for pro forma combined are not provided.



 

37


Table of Contents

Historical Market Price and Dividend Information of Essendant Common Stock

Essendant common stock currently trades on Nasdaq under the ticker symbol “ESND.” On April 11, 2018, the last trading day before the announcement of the Transactions, the closing price of Essendant common stock was $8.47 per share. On July 31, 2018, the last practicable trading day for which information is available as of the date of this proxy statement/prospectus-information statement, the closing price of Essendant common stock was $16.63 per share. The following table sets forth the high and low prices per share of Essendant common stock on Nasdaq for the periods indicated. For current price information, Essendant and GPC shareholders are urged to consult publicly available sources.

 

     ESND Common Stock  
     High      Low      Dividend  

Year Ending December 31, 2018

        

First Quarter (through March 31, 2018)

   $ 10.23      $ 7.44      $ 0.14  

Second Quarter (through June 29, 2018)

   $ 14.39      $ 10.50      $ 0.14  

Year Ending December 31, 2017

        

Fourth Quarter

   $ 13.68      $ 8.34      $ 0.14  

Third Quarter

   $ 14.77      $ 11.31      $ 0.14  

Second Quarter

   $ 17.85      $ 14.30      $ 0.14  

First Quarter

   $ 22.09      $ 14.05      $ 0.14  

Year Ending December 31, 2016

        

Fourth Quarter

   $ 21.67      $ 15.05      $ 0.14  

Third Quarter

   $ 32.49      $ 18.84      $ 0.14  

Second Quarter

   $ 34.56      $ 29.01      $ 0.14  

First Quarter

   $ 32.18      $ 25.60      $ 0.14  

Since 2011, Essendant has paid quarterly dividends on its common stock every year. During the second quarter of 2018, Essendant paid a cash dividend of $0.14 per share of Essendant common stock on April 13, 2018, and on May 24, 2018, following a recommendation by the Finance Committee, the Essendant Board declared a cash dividend of $0.14 per share of Essendant common stock, payable to Essendant’s stockholders of record as of June 15, 2018. The dividend was paid on July 13, 2018.

The Finance Committee of the Essendant Board makes recommendations to the Essendant Board regarding the declaration and payment of dividends. The current Finance Committee has expressed its intention to continue recommendation of quarterly per share dividends not to exceed $0.14, as permitted by the Merger Agreement. Per the terms of the Merger Agreement, Essendant is currently restricted from declaring and paying any dividends, other than the regular quarterly cash dividend not in excess of $0.14 in respect to Essendant common stock, adjusted to reflect any stock split, reverse stock split, recapitalization or other like change. Following the closing of the Merger, the reconstituted Finance Committee will be responsible for recommending dividends and the reconstituted Essendant Board will be responsible for declaring dividends. Any determination as to the declaration of future dividends following the Merger is at the sole discretion of the Essendant Board.

Following the Merger, Essendant expects that the reconstituted Essendant Board will consider the declaration and payment of any additional future dividends based on a number of factors, including the results of Essendant’s operations, financial condition, future prospects, contractual restrictions, restrictions imposed by applicable law and other factors the Essendant Board deems relevant. In addition, Essendant’s existing and anticipated credit facilities may contain certain financial and operating covenants that may restrict Essendant’s ability to pay dividends in the future.

Market price data for the SPR Business’s common stock has not been presented because the SPR Business is wholly owned by GPC, and shares of the SPR Business’s common stock do not trade separately from shares of GPC common stock.



 

38


Table of Contents

Recent Developments

Second Quarter Financial Results of Essendant

On July 26, 2018, Essendant announced unaudited financial results for the second quarter ended June 30, 2018. A summary of the results is set forth below, followed by summary consolidated financial statements for the three and six months ended June 30, 2018 and 2017, and a Reconciliation of Non-GAAP Financial Measures. The historical results of Essendant are not necessarily indicative of results that should be expected in the future, and the results for the three months and six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full year ending December 31, 2018. This information is only a summary, and you should read it in conjunction with Essendant’s consolidated financial statements and related notes for the three-month periods ended March 31, 2018 and March 31, 2017 and the years ended December 31, 2017, December 31, 2016 and December 31, 2015, and Essendant’s consolidated financial statements and related notes and the “Management’s Discussion and Analysis of Financial Condition and Results of Operations” section included in Essendant’s Current Report on Form 8-K filed on May 31, 2018 and most recent Annual Report on Form 10-K and Quarterly Report on Form 10-Q, each of which is incorporated herein. See also “Where You Can Find Additional Information.”

Second Quarter 2018 Summary:

 

   

Net sales declined 0.5% to $1.3 billion in the quarter, compared to the prior year quarter.

 

   

GAAP loss per share in the quarter was $(0.00) compared to income per share of $0.14 in the prior year quarter. GAAP net loss was $(0.1) million in the quarter compared to income of $5.1 million in the prior year quarter.

 

   

Adjusted diluted earnings per share(1) in the quarter was $0.16, compared to $0.28 in the prior year quarter. Adjusted net income(1) was $6.1 million in the quarter, compared to $10.3 million in the second quarter of 2017. Results for the second quarter of 2018 included a $5.1 million reduction in a receivables reserve for one customer, which benefited earnings per share by $0.09 in the quarter.

 

   

Gross profit was $173.2 million, a decline of $(4.4) million versus the prior year quarter primarily due to increased freight costs and lower product margin resulting from lower supplier allowances and sales mix, partially offset by a reduction in product assortment reserves of $8.6 million. Adjusted gross profit(1) was $164.7 million compared to $177.6 million in the prior year quarter.

 

   

Operating expenses were $164.6 million, an increase from $161.0 million in the prior year quarter due primarily to restructuring expenses of $8.0 million, partially offset by a $5.1 million reduction in a receivables reserve for one customer. Adjusted operating expenses were $146.7 million, a decrease of $(5.8) million from the prior year quarter primarily due to the reduction in a receivables reserve for one customer.

 

   

Income tax benefit was $0.1 million in the second quarter of 2018, compared to income tax expense of $4.5 million in the prior year quarter due to a net loss in the second quarter. Income tax expense on adjusted net income was $3.0 million, compared to adjusted income tax expense of $7.7 million in the prior year quarter.

 

   

Cash flow for the first six months of 2018 was $2.9 million. Operating cash flow in the first six months included $4.5 million in transaction costs related to the S.P. Richards merger. Investing cash flow reflects $19 million of investment in the independent reseller channel during the second quarter. Free cash flow(1) totaled $37.2 million in the second quarter of 2018 and $7.9 million in the first six months of 2018.

 

(1)

This is non-GAAP information. See the Reconciliation of Non-GAAP Financial Measures below for more information.



 

39


Table of Contents

Summary Consolidated Financial Statements:

 

     Three months ended
June 30,
    Six months ended
June 30,
 

(Dollars in thousands, except per share data)

   2018     2017*     2018     2017*  
     (Unaudited)     (Unaudited)  

Statement of Operations Data:

        

Net sales

     1,254,222       1,260,656       2,494,378       2,530,038  

Cost of goods sold

     1,081,016       1,083,092       2,199,996       2,166,807  
  

 

 

   

 

 

   

 

 

   

 

 

 

Gross profit(1)

     173,206       177,564       294,382       363,231  

Operating expenses(2)

        

Warehousing, marketing and administrative expenses

     156,574       160,972       322,119       333,270  

Restructuring charges

     8,019       —         22,080       —    

Impairment of goodwill

     —         —         —         198,828  
  

 

 

   

 

 

   

 

 

   

 

 

 

Operating income (loss)

     8,613       16,592       (49,817     (168,867

Interest expense

     7,875       6,422       15,410       13,348  

Interest income

     (149     (124     (369     (309

Pension expense

     1,124       724       2,031       1,446  
  

 

 

   

 

 

   

 

 

   

 

 

 

Interest and other expense, net

     8,850       7,022       17,072       14,485  
  

 

 

   

 

 

   

 

 

   

 

 

 

(Loss) income before income taxes

     (237     9,570       (66,889     (183,352

Income tax (benefit) expense

     (140     4,474       (15,352     146  
  

 

 

   

 

 

   

 

 

   

 

 

 

Net (loss) income

     (97     5,096       (51,537     (183,498
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per share:

        

Net loss per common share—basic

     (0.00     0.14       (1.40     (5.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Net loss per common share—diluted

     (0.00     0.14       (1.40     (5.01
  

 

 

   

 

 

   

 

 

   

 

 

 

Cash dividends declared per share

     0.14       0.14       0.28       0.28  

Balance Sheet Data:

        

Working capital

     725,318       803,653       725,318       803,653  

Total assets

     1,763,274       1,875,825       1,763,274       1,875,825  

Total debt(3)

     524,732       511,021       524,732       511,021  

Total stockholders’ equity

     439,237       593,679       439,237       593,679  

Statement of Cash Flows Data:

        

Net cash provided by operating activities

     45,103       72,786       23,678       125,811  

Net cash used in investing activities

     (26,938     (5,365     (34,730     (13,677

Net cash provided by (used in) financing activities

     (17,359     (66,316     14,201       (109,759

 

* Statement of Operations Data revised for the impact of the adoption of a new accounting pronouncement.

 

(1) Q2 2018 — Includes ($8.6) million reversal of charges related to product assortment refinements.

YTD Q2 2018 — Includes $34.3 million charge related to product assortment refinements.

 

(2) Q2 2018 — Includes $8.0 million charge related to workforce reductions and facility consolidations and $9.9 million of transformational expenses.

Q2 2017 — Includes $5.4 million of transformational expenses and $3.0 million charge related to a litigation reserve.

YTD Q2 2018 — Includes $22.1 million charge related to workforce reductions and facility consolidations and $14.1 million of transformational expenses, partially offset by a $0.1 million gain reflecting recovery of notes receivable in 2015.



 

40


Table of Contents

YTD Q2 2017 — Includes $198.8 million of charges related to goodwill impairment, $9.0 million charge related to a litigation reserve and $8.4 million of transformational expenses.

 

(3)

Total debt includes current maturities where applicable.

Reconciliation of Non-GAAP Financial Measures Adjusted Gross Profit, Adjusted Operating Expenses, Adjusted Operating Income, Adjusted Net Income, Adjusted Diluted Earnings Per Share, Adjusted EBITDA and Free Cash Flow:

The Reconciliation of Non-GAAP Financial Measures table below presents Essendant’s Adjusted Gross Profit, Adjusted Operating Expenses, Adjusted Operating Income, Adjusted Net Income, Adjusted Diluted Earnings per Share, Adjusted EBITDA and Free Cash Flow for the three and six months ended June 30, 2018 and 2017 (in thousands, except per share data). These non-GAAP measures exclude certain non-recurring items and exclude other items that do not reflect Essendant’s ongoing operations and are included to provide investors with useful information about the financial performance of our business. The presented non-GAAP financial measures should not be considered in isolation or as substitutes for the comparable GAAP financial measures. The non-GAAP financial measures do not reflect all of the amounts associated with our results of operations as determined in accordance with GAAP, and these non-GAAP financial measures should only be used to evaluate Essendant’s results of operations in conjunction with the corresponding GAAP financial measures.

In order to calculate the non-GAAP measures, Essendant management excludes the following items to the extent they occur in the reporting period, to facilitate the comparison of current and prior year results and ongoing operations, as Essendant management believes these items do not reflect the underlying cost structure of our business. These items can vary significantly in amount and frequency.

 

   

Restructuring charges. Workforce reduction and facility closure charges such as employee termination costs, facility closure and consolidation costs, and other costs directly associated with shifting business strategies or business conditions that are part of a restructuring program.

Restructuring actions were taken by Essendant in the three and six months ended June 30, 2018 that included facility consolidations, workforce reductions and product assortment refinements.

 

   

Gain or loss on sale of assets or businesses. Sales of assets, such as buildings or equipment, and businesses can cause gains or losses. These transactions occur as Essendant is repositioning its business and reviewing its cost structure.

 

   

Severance costs for operating leadership. Employee termination costs related to members of Essendant’s operating leadership team are excluded as they are based upon individual agreements.

 

   

Asset impairments. Changes in strategy or macroeconomic events may cause asset impairments.

In the six months ended June 30, 2017, Essendant recorded goodwill impairment which resulted from declines in sales, earnings and market capitalization.

 

   

Other actions. Actions, which may be non-recurring events, that result from the changing strategies and needs of Essendant and do not reflect the underlying expense of the on-going business.

In the three and six months ended June 30, 2018, these were charges related to transformational expenses, including potential merger, acquisition and equity investment transactions, and a gain reflecting receipt of payment on notes receivable reserved in 2015. In the three and six months ended June 30, 2017, other actions included litigation and transformational expenses.

Adjusted Gross Profit, adjusted operating expenses and adjusted operating income. Adjusted gross profit, adjusted operating expenses and adjusted operating income provide management and Essendant’s investors with



 

41


Table of Contents

an understanding of the results from the primary operations of Essendant’s business by excluding the effects of items described above that do not reflect the ordinary expenses and earnings of Essendant’s operations. Adjusted gross profit, adjusted operating expenses and adjusted operating income are used to evaluate our period-over-period operating performance as they are more comparable measures of Essendant’s continuing business. These measures may be useful to an investor in evaluating the underlying operating performance of Essendant’s business.

Adjusted net income and adjusted diluted earnings per share. Adjusted net income and adjusted diluted earnings per share provide a more comparable view of Essendant’s underlying performance and trends than the comparable GAAP measures. Net (loss) income and diluted (loss) earnings per share are adjusted for the effect of items described above that do not reflect the ordinary earnings of Essendant’s operations.

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA). Adjusted EBITDA is helpful in evaluating Essendant’s operating performance and is used by management for various purposes, including as a measure of performance and as a basis for strategic planning and forecasting. Net (loss) income is adjusted for the effect of interest and other expenses, net, taxes, depreciation and amortization and stock-based compensation expense. Essendant’s management believes that adjusted EBITDA is also commonly used by investors to evaluate operating performance between competitors because it helps reduce variability caused by differences in capital structures, income taxes, stock-based compensation accounting policies, and depreciation and amortization policies.

Free cash flow. Free cash flow is useful to management and our investors as it is a measure of Essendant’s liquidity. It provides a more complete understanding of factors and trends affecting our cash flows than the comparable GAAP measure. Net cash provided by operating activities and net cash used in investing activities are aggregated and adjusted to exclude the impact of acquisitions and equity investments, net of cash acquired and divestitures.



 

42


Table of Contents

Essendant Inc. and Subsidiaries

Reconciliation of Non-GAAP Financial Measures

Adjusted Gross Profit, Adjusted Operating Expenses, Adjusted Operating Income,

Adjusted Net Income, Adjusted Diluted Earnings Per Share, Adjusted EBITDA, and Free Cash Flow

(Unaudited)

(in thousands, except per share data)

 

     For the Three Months
Ended June 30,
 
     2018     2017 (2)  

Gross profit

   $ 173,206     $ 177,564  

Restructuring charges—product assortment refinements

     (8,554     —    
  

 

 

   

 

 

 

Adjusted gross profit

   $ 164,652     $ 177,564  
  

 

 

   

 

 

 

Operating expenses

   $ 164,593     $ 160,972  

Restructuring charges

     (8,019     —    

Transformational expenses

     (9,854     (5,444

Litigation reserve

     —         (3,000
  

 

 

   

 

 

 

Adjusted operating expenses

   $ 146,720     $ 152,528  
  

 

 

   

 

 

 

Operating income

   $ 8,613     $ 16,592  

Gross profit and operating expense adjustments noted above

     9,319       8,444  
  

 

 

   

 

 

 

Adjusted operating income

   $ 17,932     $ 25,036  
  

 

 

   

 

 

 

Net (loss) income

   $ (97   $ 5,096  

Gross profit and operating expense adjustments noted above

     9,319       8,444  

Non-GAAP tax provision on adjustments

    

Product assortment refinements

     2,870       —    

Restructuring charges

     (2,690     —    

Transformational expenses

     (3,306     (2,085

Litigation reserve

     —         (1,164
  

 

 

   

 

 

 

Income tax provision on adjusted net loss

     (3,126     (3,249
  

 

 

   

 

 

 

Adjusted net income

   $ 6,095     $ 10,291  
  

 

 

   

 

 

 

Diluted (loss) income per share (1)

   $ —       $ 0.14  

Gross profit and operating expense adjustments noted above

     0.25       0.23  

Non-GAAP tax provision on adjustments

     (0.09     (0.09
  

 

 

   

 

 

 

Adjusted diluted earnings per share

   $ 0.16     $ 0.28  
  

 

 

   

 

 

 

Net (loss) income

   $ (97   $ 5,096  

Income tax (benefit) expense

     (140     4,474  

Interest and other expense, net

     8,850       7,022  

Depreciation and amortization

     10,591       10,569  

Equity compensation expense

     2,411       1,570  

Gross profit and operating expense adjustments noted above

     9,319       8,444  
  

 

 

   

 

 

 

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)

   $ 30,934     $ 37,174  
  

 

 

   

 

 

 

Net cash provided by operating activities

   $ 45,103     $ 72,786  

Net cash used in investing activities

   $ (26,938   $ (5,365

Add: Independent dealer channel investments (3)

     19,000       —    
  

 

 

   

 

 

 

Free cash flow

   $ 37,165     $ 67,421  
  

 

 

   

 

 

 


 

43


Table of Contents
(1)

Per share amounts for the three months ended June 30, 2018 under GAAP reflect basic earnings per share due to the net loss. The adjusted diluted earnings per share is based on diluted shares outstanding.

 

(2)

Revised for the impact of the adoption of a new pension accounting pronouncement.

 

(3)

The Company invested $19 million during the second quarter in the independent reseller channel as part of its strategic driver to accelerate sales performance in key channels. The Company’s share of earnings and losses of its investees is reflected in the Condensed Consolidated Statement of Operations and the investments are included in the Condensed Consolidated Balance Sheet.

 

     For the Six Months
Ended June 30,
 
     2018     2017  

Gross profit

   $ 294,382     $ 363,231  

Restructuring charges—product assortment refinements

     34,269       —    
  

 

 

   

 

 

 

Adjusted gross profit

   $ 328,651     $ 363,231  
  

 

 

   

 

 

 

Operating expenses

   $ 344,199     $ 532,098  

Restructuring charges

     (22,080     —    

Transformational expenses

     (14,084     (8,395

Payment on notes receivable

     110       —    

Impairment of goodwill

     —         (198,828

Litigation reserve

     —         (9,000
  

 

 

   

 

 

 

Adjusted operating expenses

   $ 308,145     $ 315,875  
  

 

 

   

 

 

 

Operating loss

   $ (49,817   $ (168,867

Operating expense adjustments noted above

     70,323       216,223  
  

 

 

   

 

 

 

Adjusted operating income

   $ 20,506     $ 47,356  
  

 

 

   

 

 

 

Net loss

   $ (51,537   $ (183,498

Gross profit and operating expense adjustments noted above

     70,323       216,223  

Non-GAAP tax provision on adjustments

    

Product assortment refinements

     (6,864     —    

Restructuring charges

     (5,886     —    

Transformational expenses

     (4,267     (3,203

Payment on notes receivable

     25       —    

Impairment of goodwill

     —         (6,559

Litigation reserve

     —         (3,488

Income tax provision on adjusted net loss

     (16,992     (13,250
  

 

 

   

 

 

 

Adjusted net income

   $ 1,794     $ 19,475  
  

 

 

   

 

 

 

Diluted loss per share (1)

   $ (1.38   $ (4.97

Gross profit and operating expense adjustments noted above

     1.88       5.86  

Non-GAAP tax provision on adjustments

     (0.45     (0.36
  

 

 

   

 

 

 

Adjusted diluted earnings per share

   $ 0.05     $ 0.53  
  

 

 

   

 

 

 

Net loss

   $ (51,537   $ (183,498

Income tax (benefit) expense

     (15,352     146  

Interest and other expense, net

     17,072       14,485  

Depreciation and amortization

     21,389       21,534  

Equity compensation expense

     4,441       4,038  

Gross profit and operating expense adjustments noted above

     70,323       216,223  
  

 

 

   

 

 

 

Adjusted earnings before interest, taxes, depreciation and amortization (EBITDA)

   $ 46,336     $ 72,928  
  

 

 

   

 

 

 


 

44


Table of Contents
     For the Six Months
Ended June 30,
 
     2018     2017  

Net cash provided by operating activities

   $ 23,678     $ 125,811  

Net cash used in investing activities

   $ (34,730   $ (13,677

Add: Independent dealer channel investments (3)

     19,000       —    
  

 

 

   

 

 

 

Free cash flow

   $ 7,948     $ 112,134  
  

 

 

   

 

 

 

 

(1)

Per share amounts for the six months ended June 30, 2018 and 2017 under GAAP reflect basic earnings per share due to the net loss. The adjusted diluted earnings per share is based on diluted shares outstanding.

 

(2)

Revised for the impact of the adoption of a new pension accounting pronouncement.

 

(3)

The Company invested $19 million during the second quarter in the independent reseller channel as part of its strategic driver to accelerate sales performance in key channels. The Company’s share of earnings and losses of its investees is reflected in the Condensed Consolidated Statement of Operations and the investments are included in the Condensed Consolidated Balance Sheet.

Second Quarter Financial Results of the SPR Business

A summary of the unaudited financial results of the SPR Business for the second quarter ended June 30, 2018 is set forth below, followed by summary condensed combined financial data for the three and six months ended June 30, 2018 and 2017.

Second Quarter 2018 Summary:

 

   

Sales for the three months ended June 30, 2018 were $487.1 million, a 0.2% decrease as compared to $488.3 million in the same period in 2017.

 

   

For the three months ended June 30, 2018, the SPR Business recorded combined net income of $9.1 million, an increase of 23.7% as compared to combined net income of $7.4 million in the same three month period in 2017.

 

   

For the six months ended June 30, 2018, sales were $962.4 million, a 2.5% decrease as compared to $987.0 million in the same period of the prior year.

 

   

For the six months ended June 30, 2018, the SPR Business recorded combined net income of $19.7 million, a decrease of 13.4% as compared to combined net income of $22.7 million in the same six month period in 2017.

Summary Condensed Combined Financial Data:

The following table sets forth summary condensed combined financial data of the SPR Business for the three and six month periods ended June 30, 2018 and June 30, 2017. The summary condensed combined financial data of the SPR Business reflect the business as it was operated within GPC. In the opinion of GPC management, the summary condensed combined financial data of the SPR Business reflects all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of the financial information in those data. The historical results of the SPR Business are not necessarily indicative of results that should be expected in the future, and the results for the three and six months ended June 30, 2018 are not necessarily indicative of the results to be expected for the full year ending December 31, 2018. Because the SPR Business is wholly owned by GPC and shares of the SPR Business’s common stock do not trade separately from shares of GPC common stock, per share values for the SPR Business are not provided. This information should be read in conjunction with the



 

45


Table of Contents

combined financial statements of the SPR Business and related notes included elsewhere in this proxy statement/prospectus-information statement for the three-month periods ended March 31, 2018 and March 31, 2017 and the years ended December 31, 2017, December 31, 2016 and December 31, 2015, “Management’s Discussion and Analysis of Financial Condition and Results of Operations of the SPR Business” and “Selected Historical Combined Financial Data of the SPR Business.”

 

     Three months ended
June 30,
     Six months ended
June 30,
 

(Dollars in thousands)

   2018      2017      2018      2017  
     (Unaudited) ($)      (Unaudited) ($)  

Net sales

     487,149        488,255        962,379        986,981  

Cost of goods sold

     371,017        371,244        727,273        742,127  

Operating and non-operating expenses, net

     104,132        105,228        209,872        209,632  

Income before income taxes

     12,000        11,783        25,234        35,222  

Income taxes

     2,857        4,389        5,576        12,518  

Net income

     9,143        7,394        19,658        22,704  


 

46


Table of Contents

RISK FACTORS

You should carefully consider the following risk factors, together with the other information contained or incorporated in this proxy statement/prospectus-information statement, including the factors discussed in Part I, Item 1A—Risk Factors, in Essendant’s Annual Report on Form 10-K for the year ended December 31, 2017 which is incorporated herein and attached as Annex B. The risks described below are the material risks, although not the only risks relating to the Separation, the Distribution, the Merger and Essendant after the Transactions. The risks described below are not the only risks that Essendant currently faces or will face after the consummation of the Transactions. Additional risks and uncertainties not currently known or that are currently expected to be immaterial may also materially and adversely affect Essendant’s businesses, financial condition or results of operations or the price of Essendant common stock following the consummation of the Transactions.

If any of the following risks and uncertainties develops into actual events, these events could have a material adverse effect on Essendant’s businesses, financial condition or results of operations after the Transactions. In addition, past financial performance may not be a reliable indicator of future performance, and historical trends should not be used to anticipate results or trends in future periods.

Essendant may not realize the anticipated cost synergies and growth opportunities from the Transactions.

Essendant expects that it will realize cost synergies, growth opportunities and other financial and operating benefits as a result of the Transactions. Essendant’s success in realizing these benefits, and the timing of their realization, depends on the successful integration of the business operations of the SPR Business with Essendant. Even if Essendant is able to integrate the SPR Business successfully, Essendant cannot predict with certainty if or when these cost synergies, growth opportunities and benefits will occur, or the extent to which they will actually be achieved. For example, the benefits from the Transactions may be offset by costs incurred in integrating the companies. Realization of any benefits and synergies could be affected by the factors described in other risk factors and a number of factors beyond Essendant’s control, including, without limitation, general economic conditions, further consolidation in the industries in which Essendant operates, increased operating costs and regulatory developments.

The integration of the SPR Business with Essendant following the Transactions may present significant challenges.

There is a significant degree of difficulty inherent in the process of integrating the SPR Business with Essendant. These difficulties include:

 

   

the integration of the SPR Business with Essendant’s current businesses while carrying on the ongoing operations of all businesses;

 

   

managing a significantly larger company than before the consummation of the Transactions;

 

   

coordinating geographically separate organizations;

 

   

integrating the business cultures of each of the SPR Business and Essendant, which may prove to be incompatible;

 

   

creating uniform standards, controls, procedures, policies and information systems and controlling the costs associated with such matters;

 

   

integrating the SPR Business, including its employees, customers, and suppliers, with Essendant; and

 

   

the potential difficulty in retaining key officers and personnel of Essendant and SpinCo.

The process of integrating operations could cause an interruption of, or loss of momentum in, the activities of the SPR Business or Essendant’s businesses. Members of Essendant’s or the SPR Business’s senior management

 

47


Table of Contents

may be required to devote considerable amounts of time to this integration process, which will decrease the time they will have to manage Essendant or the SPR Business, serve the existing Essendant business or the SPR Business, or develop new services or strategies. If Essendant’s or the SPR Business’s senior management is not able to effectively manage the integration process, or if any significant business activities are interrupted as a result of the integration process, the business of Essendant or the SPR Business could suffer.

Essendant’s successful or cost-effective integration of the SPR Business cannot be assured. The failure to do so could have a material adverse effect on Essendant’s businesses, financial condition or results of operations after the Transactions.

Essendant and GPC may fail to obtain the required regulatory approvals in connection with the Merger in a timely fashion, if at all, or regulators may impose burdensome conditions.

Essendant and GPC are subject to certain antitrust and competition laws, and the proposed Merger is subject to review and approval by regulators under those laws, including review and approval by the FTC. Although Essendant and GPC have agreed to use reasonable best efforts to obtain the requisite approvals, there can be no assurance that these regulatory approvals will be obtained. The parties made their respective filings with the FTC under the HSR Act on May 2, 2018. On June 1, 2018, the FTC extended the waiting period by issuing a Second Request. The effect of the Second Request is to extend the waiting period imposed by the HSR Act until 11:59 p.m. (Eastern Time in the U.S.) on the 30th day after certification of substantial compliance by the parties with such request unless that period is extended voluntarily by the parties or terminated sooner by the FTC.

The parties’ requirement to substantially comply with the Second Request or receive certain federal regulatory approvals before the consummation of the Transactions could delay the completion of the Transactions. An extended delay in the completion of the Transactions could diminish the anticipated benefits of the Transactions or result in additional transaction costs, loss of revenue or other effects associated with uncertainty about the Transactions. In addition, these governmental entities may attempt to condition their approval of the Transactions on the imposition of conditions, terms, obligations or restrictions that could have a material adverse effect on the Transactions themselves or Essendant’s businesses after the Transactions, including, but not limited to, Essendant’s operating results or the value of its common stock. If Essendant agrees to any material conditions, terms, obligations or restrictions in order to obtain any approvals required to complete the Transactions, the business, financial condition or results of operations of the combined company may be adversely affected.

Failure to complete the Transactions could adversely impact the market price of Essendant common stock as well as its business and operating results.

The consummation of the Transactions is subject to numerous conditions, including without limitation: (i) the Separation having taken place in accordance with the Separation Agreement; (ii) the U.S. Securities and Exchange Commission declaring effective Essendant’s registration statement registering Essendant common stock to be issued pursuant to the Merger Agreement; (iii) approval of the Share Issuance by the requisite vote of Essendant’s stockholders; and (iv) expiration of the applicable waiting period under the HSR Act. See “The Merger Agreement—Conditions to the Merger.” There is no assurance that these conditions will be met and that the Transactions will be consummated.

If the Transactions are not completed for any reason, the price of Essendant common stock may decline to the extent that the market price of Essendant common stock reflects positive market assumptions that the Transactions will be completed and the related benefits will be realized. In addition, Essendant and GPC have expended and will continue to expend significant management time and resources and have incurred and will continue to incur significant expenses due to legal, advisory, printing and financial services fees related to the Transactions. A substantial portion of these expenses must be paid regardless of whether the Transactions are consummated. Even if the Transactions are completed, delay in the completion of the Transactions could

 

48


Table of Contents

diminish the anticipated benefits of the Transactions or result in additional transaction expenses, loss of revenue or other effects associated with uncertainty about the Transactions. If the Transactions are not consummated because the Merger Agreement is terminated, Essendant may be required under certain circumstances to pay GPC a $12 million termination fee or may under other circumstances be required to reimburse GPC for up to $3 million for certain expenses in connection with the Transactions.

The announcement and pendency of the Merger could have an adverse effect on Essendant’s stock price or the business, financial condition, results of operations or business prospects of Essendant or the SPR Business.

The announcement and pendency of the Merger could disrupt Essendant’s businesses in negative ways. For example, customers and other third-party business partners of Essendant or the SPR Business may seek to terminate and/or renegotiate their relationships with Essendant or the SPR Business as a result of the Merger, whether pursuant to the terms of their existing agreements with Essendant and/or the SPR Business or otherwise. In addition, current and prospective employees of Essendant and the SPR Business may experience uncertainty regarding their future roles with the combined company, which might adversely affect Essendant’s ability to retain, recruit and motivate key personnel. Should they occur, any of these events could adversely affect the stock price of Essendant, or harm the financial condition, results of operations or business prospects of, Essendant or the SPR Business.

The previously announced unsolicited proposal from Staples, Inc. to acquire Essendant could have an adverse effect on the business, financial condition, results of operations or business prospects of Essendant.

The previously announced unsolicited proposal from Staples, Inc. to acquire Essendant could disrupt Essendant’s businesses in negative ways. For example, customers, suppliers and other third-party business partners of Essendant may seek to terminate or reduce their relationships with Essendant as a result of the proposal, whether pursuant to the terms of their existing agreements with Essendant or otherwise. In addition, current and prospective employees of Essendant may experience uncertainty regarding their current or potential future roles with Essendant, which might adversely affect Essendant’s ability to retain, recruit and motivate key personnel. Should they occur, any of these events could adversely affect the financial condition, results of operations or business prospects of Essendant.

Essendant will incur significant costs related to the Transactions.

Essendant expects to incur significant one-time costs in connection with the Transactions in 2018, including financing-related fees, legal, accounting and other professional fees and transition and integration-related expenses. While Essendant expects to be able to fund these one-time costs using cash from operations and borrowings under existing and anticipated credit sources, these costs will negatively impact Essendant’s liquidity, cash flows and results of operations in the periods in which they are incurred.

Essendant will incur significant debt related to the Transactions.

Essendant expects to incur approximately $926 million in indebtedness in connection with the Transactions, $542 million of which is expected be used in order to repay Essendant debt that is outstanding immediately prior to the consummation of the Merger. The degree to which Essendant will be leveraged following completion of the Transactions may have a material adverse effect on Essendant’s businesses, financial condition or results of operations and cash flows. Essendant’s ability to make payments on and to refinance its indebtedness, including the debt incurred pursuant to the Transactions, as well as any future debt that Essendant may incur, will depend on, among other things, Essendant’s ability to generate cash in the future from operations, financings or asset sales. Essendant’s ability to generate cash is subject to general economic, financial, competitive, legislative, regulatory and other factors that are beyond Essendant’s control. If Essendant is not able to repay or refinance its

 

49


Table of Contents

debt as it becomes due, Essendant may be forced to sell assets or take other disadvantageous actions, including (i) reducing financing in the future for working capital, capital expenditures and general corporate purposes or (ii) dedicating an unsustainable level of Essendant’s cash flow from operations to the payment of principal and interest on Essendant’s indebtedness. In addition, Essendant’s ability to withstand competitive pressures and react to changes in Essendant’s industry could be impaired. The lenders who hold such debt also could accelerate amounts due in the event Essendant were to default, which could potentially trigger a default or acceleration of any of Essendant’s other debt. In addition, Essendant may increase its debt or raise additional capital following the Transactions, subject to restrictions in Essendant’s debt agreements and agreements entered into in connection with the Transactions. If Essendant’s cash flow from operations is less than it anticipates, or if Essendant’s cash requirements are more than it expects, Essendant may require more financing. However, debt or equity financing may not be available to Essendant on terms advantageous or acceptable to Essendant, if at all. If Essendant incurs additional debt or raises equity through the issuance of preferred stock, the terms of the debt or preferred stock issued may give the holders rights, preferences and privileges senior to those of holders of Essendant’s common stock, particularly in the event of liquidation. The terms of the debt or preferred stock also may impose additional and more stringent restrictions on Essendant’s operations than it currently has. If Essendant raises funds through the issuance of additional equity, Essendant stockholders’ percentage ownership in Essendant would be diluted. If Essendant is unable to raise additional capital when needed, it could affect Essendant’s financial condition.

Essendant’s rights plan and certain anti-takeover provisions contained in Essendant’s certificate of incorporation, Essendant’s bylaws and under Delaware law could hinder a takeover attempt.

On May 17, 2018, the Essendant Board adopted a stockholder rights plan, as subsequently amended on May 29, 2018, between Essendant and Equiniti Trust Company, as rights agent (the “Rights Plan”). Pursuant to the Rights Plan, one preferred stock purchase right (a “Right”) was distributed as a dividend on each share of Essendant common stock held of record as of the close of business on May 27, 2018. Each Right entitles Essendant stockholders to purchase a unit representing one one-thousandth of a share of Series A Junior Participating Preferred Stock for $33.00, subject to adjustment.

The Rights generally will be exercisable only if a person or group acquires beneficial ownership (including through derivatives) of 10% or more (or 15% or more for a person or group reporting beneficial ownership on Schedule 13G) of Essendant common stock or commences a tender or exchange offer upon consummation of which such person or group would beneficially own 10% or more of Essendant common stock. The Rights expire on May 17, 2019, unless earlier redeemed, exchanged or terminated.

The Rights Plan could have the effect of delaying, deferring or preventing a change in control. For example, such provisions may deter tender offers for shares of common stock or exchangeable shares, which offers may be attractive to stockholders, or deter purchases of large blocks of common stock or exchangeable shares, thereby limiting the opportunity for stockholders to receive a premium for their shares of common stock or exchangeable shares over the then-prevailing market prices.

Essendant is subject to the provisions of Section 203 of the Delaware General Corporation Law prohibiting, under some circumstances, publicly-held Delaware corporations from engaging in business combinations with certain interested stockholders unless certain approvals are obtained. Such provisions could delay or impede the removal of incumbent directors and could make more difficult a merger, tender offer or proxy contest involving Essendant, even if such events could be beneficial, in the short-term, to the interests of the stockholders. In addition, such provisions could limit the price that some investors might be willing to pay in the future for shares of Essendant common stock. Additionally, Essendant’s certificate of incorporation and bylaws contain provisions relating to the limitations of liability and indemnification of Essendant’s directors and officers and dividing its board of directors into three classes of directors serving three-year terms. These provisions also may have the effect of deterring hostile takeovers or delaying changes in control or management of Essendant.

 

50


Table of Contents

The Transactions may discourage other companies from trying to acquire Essendant before or for a period of time following completion of the Transactions.

Certain provisions in the Merger Agreement prohibit Essendant from soliciting any acquisition proposal during the pendency of the Merger. If the Merger Agreement is terminated under circumstances that obligate Essendant to pay GPC a termination fee, Essendant’s financial condition will be adversely affected as a result of the payment of the termination fee, which might deter third parties from proposing alternative acquisition proposals, including acquisition proposals that might result in greater value to Essendant stockholders than the Transactions. In addition, certain provisions of the Tax Matters Agreement, which are intended to preserve the intended tax treatment of certain aspects of the Transactions for U.S. federal income tax purposes, may discourage acquisition proposals for a period of time following the Transactions. Essendant expects to issue approximately 40,191,482 shares of its common stock in connection with the Merger. See “The Merger Agreement—Merger Consideration.” Consequently, Essendant will be a significantly larger company and have significantly more shares of common stock outstanding after the consummation of the Transactions, and an acquisition of Essendant may become more expensive. As a result, some companies who would otherwise consider acquiring Essendant may not seek to do so.

Depending upon the facts and circumstances, the Distribution, the Merger or both could be taxable to GPC shareholders, and SpinCo and Essendant may be obligated to indemnify GPC for certain taxes.

The U.S. federal income tax consequences of the Distribution and the Merger to GPC shareholders will depend upon whether the Distribution qualifies as a distribution to GPC shareholders under Section 355(a) of the Code and the Merger qualifies as a reorganization under Section 368(a) of the Code, in each case based on the applicable facts and circumstances existing on the date of the Distribution and the Merger. GPC received an opinion from Davis Polk & Wardwell LLP dated April 12, 2018, and expects to receive an opinion from Davis Polk & Wardwell LLP dated as of the closing date of the Merger, to the effect that the Distribution and the Merger should so qualify. Assuming the Distribution and the Merger so qualify, GPC shareholders will generally not recognize any gain or loss for U.S. federal income tax purposes as a result of the Transactions, except for any gain or loss attributable to the receipt of cash in lieu of a fractional share of Essendant common stock.

The obligation of the parties to consummate the Transactions is not conditioned upon the receipt of an opinion from tax counsel with respect to the tax treatment of the Distribution or Merger, nor have the parties applied for a ruling from the Internal Revenue Service (“IRS”). There can be no assurance that the IRS will not successfully assert that either or both of the Distribution and the Merger are taxable transactions for U.S. federal income tax purposes, and that a court will not sustain such assertion. If the Distribution and/or the Merger fail to qualify for the expected tax treatment for any reason, GPC shareholders could be subject to U.S. federal income tax as a result of the Distribution and/or the Merger. See “U.S. Federal Income Tax Consequences of the Distribution and the Merger.”

Under the Tax Matters Agreement, SpinCo and Essendant may be obligated, in certain cases, to indemnify GPC against taxes and related losses that arise in connection with the Transactions as a result of SpinCo’s or Essendant’s actions, or failure to act that, in each case, affect the intended tax treatment of the Internal Reorganization, the Distribution or the Merger. See “Additional Agreements Related to the Separation, the Distribution and the Merger—Tax Matters Agreement” beginning on page 138. Any such indemnification obligation could be substantial and have a material adverse effect on Essendant.

Under the Tax Matters Agreement, Essendant and SpinCo will be restricted from taking certain actions that could adversely affect the intended U.S. federal income tax treatment of the Transactions, and such restrictions could significantly impair Essendant’s and SpinCo’s ability to implement strategic initiatives that otherwise would be beneficial.

The Tax Matters Agreement generally restricts Essendant and SpinCo from taking certain actions after the Transactions that could adversely affect the intended U.S. federal income tax treatment of the Transactions. Failure to adhere to these restrictions, including in certain circumstances that may be outside of Essendant’s control, could result in tax being imposed on GPC for which Essendant and SpinCo could bear responsibility and

 

51


Table of Contents

for which Essendant and SpinCo could be obligated to indemnify GPC. Because of these provisions in the Tax Matters Agreement, Essendant and SpinCo will be restricted from taking certain actions following the Merger. These restrictions could have a material adverse effect on Essendant’s liquidity and financial condition, and otherwise could impair Essendant’s and SpinCo’s ability to implement strategic initiatives.

Current Essendant stockholders’ percentage ownership interest in Essendant will be substantially diluted in the Merger.

The Essendant common stock outstanding on a fully diluted basis immediately prior to the Merger will represent, in the aggregate, approximately 49% of Essendant’s common stock outstanding on a fully diluted basis immediately following the Merger. Consequently, Essendant’s pre-Merger stockholders, as a group, will be substantially diluted in the Merger and have less ability to exercise influence over the management and policies of Essendant following the Merger than immediately prior to the Merger.

The calculation of the number of shares of Essendant common stock to be distributed in the Merger will not be adjusted if there is a change in the value of the SPR Business or Essendant before the Merger is completed.

The number of shares of Essendant common stock to be issued by Essendant in the Merger will not be adjusted if there is a change in the value of the SPR Business or its assets or the value of Essendant prior to the closing of the Transactions. GPC shareholders will receive a fixed number of shares of Essendant common stock pursuant to the Merger rather than a number of shares with a particular fixed market value. As a result, the actual value of the Essendant common stock to be received by GPC shareholders in the Merger will depend on the value of such shares at the time of closing of the Merger, and may be more or less than the current value of Essendant common stock.

The SPR Business may be negatively impacted or the anticipated synergies of the Transactions may not be realized if Essendant is unable to provide benefits and services, or access to equivalent financial strength and resources, to the SPR Business that historically have been provided by GPC.

The SPR Business has historically received benefits and services from GPC and has benefited from GPC’s financial strength and scale. After the Transactions, SpinCo will be a subsidiary of Essendant, and the SPR Business will no longer benefit from GPC’s services, financial strength or business relationships to the extent not otherwise addressed in the Transaction Documents. While GPC has agreed to provide certain transition services to SpinCo for a period of time following the consummation of the Transactions, it cannot be assured that Essendant will be able to adequately replace or provide resources formerly provided by GPC, or replace them at the same or lower cost. If Essendant is not able to replace the resources provided by GPC or is unable to replace them without incurring significant additional costs or is delayed in replacing the resources provided by GPC, Essendant’s results of operations may be negatively impacted and the anticipated synergies of the Transactions may not be realized.

The historical financial information of the SPR Business may not be representative of its results if it had been operated independently of GPC and may not be a reliable indicator of future results of the SPR Business.

The SPR Business is currently operated through various subsidiaries of GPC. Consequently, the financial information of the SPR Business included in this proxy statement/prospectus-information statement has been derived from the consolidated financial statements and accounting records of GPC and reflects assumptions and allocations made by GPC. The financial position, results of operations and cash flows of the SPR Business presented may be different from those that would have resulted if the SPR Business had been operated as a standalone company or by a company other than GPC. For example, in preparing the financial statements of the SPR Business, GPC made an allocation of GPC costs and expenses that are attributable to the SPR Business. However, these costs and expenses reflect the costs and expenses attributable to the SPR Business as part of a larger organization and do not necessarily reflect costs and expenses that would be incurred by the SPR Business had it been operated independently, and may not reflect costs and expenses that would have been incurred had the SPR Business been operated as a part of Essendant. The historical financial information of the SPR Business may not be a reliable indicator of the SPR Business’s future results or the results that it will achieve as a part of Essendant.

 

52


Table of Contents

The unaudited pro forma combined financial information of Essendant and the SPR Business is based in part on certain assumptions regarding the Transactions and may not be indicative of Essendant’s future operating performance.

The historical financial statements included or incorporated in this document consist of the separate financial statements of the SPR Business and Essendant. The unaudited pro forma combined financial information presented in this document is for illustrative purposes only and does not represent what Essendant’s actual results or financial condition would have been if the Merger and other Transactions had occurred on the dates indicated. In addition, such unaudited pro forma combined financial information is based in part on certain assumptions regarding the Transactions that Essendant believes are reasonable.

Essendant will account for the Merger as an acquisition of the SPR Business, with Essendant being the accounting acquirer. Following the effective date of the Merger, Essendant expects to complete the purchase price allocation for the acquisition of the SPR Business after determining the fair value of the SPR Business’s assets and liabilities. The final purchase price allocation may be different than the preliminary one reflected in the unaudited pro forma purchase price allocation presented in this document, and this difference may be material.

The unaudited pro forma combined financial information does not reflect the costs of any integration activities or transaction-related costs or incremental capital expenditures that Essendant management believes are necessary to realize the anticipated synergies from the Transactions. Accordingly, the unaudited pro forma combined financial information included in this document does not reflect what Essendant’s results of operations or operating condition would have been had Essendant and the SPR Business been a consolidated entity during all periods presented, or what Essendant’s results of operations and financial condition will be in the future.

Sales of Essendant common stock after the Transactions may negatively affect the market price of Essendant common stock.

The shares of Essendant common stock to be issued in the Merger to holders of SpinCo common stock (following the Distribution) will generally be eligible for immediate resale. The market price of Essendant common stock could decline as a result of sales of a large number of shares of Essendant common stock in the market after the consummation of the Transactions, or even the perception that these sales could occur.

Currently, GPC shareholders may include index funds that have performance tied to the Standard & Poor’s 500 Index or other stock indices, and institutional investors subject to various investing guidelines. Because Essendant may not be included in these indices or may not meet the investing guidelines of some of these institutional investors, these index funds and institutional investors may decide or may be required to sell the Essendant common stock that they receive in the Merger. These sales, or the possibility that these sales may occur, may also make it more difficult for Essendant to obtain additional capital by selling equity securities in the future at a time and at a price that it deems appropriate.

Essendant and the SPR Business may have difficulty attracting, motivating and retaining executives and other employees in light of the Transactions.

Uncertainty about the effect of the Transactions on the employees of Essendant and the SPR Business may have an adverse effect on Essendant and the SPR Business. This uncertainty may impair Essendant’s and the SPR Business’s ability to attract, retain and motivate personnel until the Transactions are completed. Employee retention may be particularly challenging during the pendency of the Transactions, as employees may feel uncertain about their future roles with Essendant or the SPR Business after their combination. If employees of Essendant or the SPR Business depart because of issues relating to the uncertainty or perceived difficulties of integration or a desire not to become or remain employees of Essendant after the Transactions, Essendant’s ability to realize the anticipated benefits of the Transactions could be reduced.

 

53


Table of Contents

Due to the Merger, the ability of the combined company to use net operating losses to offset future taxable income may be restricted and these net operating losses could expire or otherwise be unavailable.

As of December 31, 2017, Essendant had federal net operating loss carryforwards, or “NOLs”, of approximately $4.8 million and approximately $0.7 million of state NOLs. In general, under Section 382 of the Code, a corporation that undergoes an “ownership change” is subject to limitations on its ability to utilize its NOLs to offset future taxable income. If the Merger is completed, Essendant’s existing NOLs may be subject to limitations and the combined company may not be able to fully use these NOLs to offset future taxable income. In addition, if the combined company undergoes any subsequent ownership change, its ability to utilize NOLs could be further limited.

The Merger Agreement contains provisions giving both Essendant and GPC the right to terminate the Merger Agreement in certain circumstances.

The Merger Agreement contains certain termination rights, including the right, subject to certain exceptions, of either party to terminate the agreement if the Merger is not completed on or prior to April 12, 2019, and the right of Essendant to terminate the Merger Agreement, subject to certain conditions, to enter into a definitive agreement with respect to a Superior Proposal. If the Merger is not completed, the ongoing business of each of Essendant and GPC could be adversely affected.

Interest of certain persons in the Merger may be different.

Certain of Essendant’s directors and executive officers have financial interests in the Transactions that may be different from, or in addition to, the interests of Essendant’s stockholders generally. As of July 13, 2018, Essendant’s directors and executive officers beneficially owned approximately 2.2% of the outstanding shares of Essendant’s common stock.

The SPR Business and Essendant face substantial competition in the industries in which they do business.

The sale of business products is highly competitive and impacted by many factors, including product availability, customer service, changing customer preferences, and pricing pressures. Because the SPR Business and Essendant independently seek to offer competitive prices, if one of the many competitors in the space reduce their prices, this may affect their prices, which could result in a material decline in their revenues and earnings. Increased competition in the sale of office products, including disintermediation of wholesalers and increased availability among digital and e-commerce providers across the markets in which they do business, could cause a material adverse effect on their results of operations. Competition in this space is only increasing, and the SPR Business and Essendant anticipate no decline in competition in their respective business segments in the foreseeable future.

Furthermore, the office supply industry continues to experience consolidation. Consolidation among competitors of the SPR Business and Essendant could further enable competitors to more effectively compete for customers, including through enhanced financial positions, the ability to provide more competitive prices to customers, and increased efficiencies in their consolidated operations. If the SPR Business and Essendant are unable to continue to develop successful competitive strategies or if their competitors develop more effective strategies, they could lose customers and their sales and profits may decline.

The SPR Business and Essendant may not be able to successfully implement their business initiatives to grow their sales and earnings, which could adversely affect their business, financial condition, results of operations and cash flows.

The SPR Business and Essendant have implemented numerous initiatives to grow sales and earnings, including the introduction of new and expanded product lines, strategic acquisitions, sales to new markets and channels, cost reductions and enhanced customer marketing programs. If the SPR Business and Essendant are unable to implement these initiatives efficiently and effectively, or if these initiatives are unsuccessful, the SPR Business’s and Essendant’s business, financial condition, results of operations and cash flows could be adversely affected.

 

54


Table of Contents

Successful implementation of these initiatives also depends on factors specific to the industries in which the SPR Business and Essendant operate and numerous other factors that may be beyond their control. In addition to the other risk factors contained in this “Risk Factors,” adverse changes in the following factors could undermine their business initiatives and have a material adverse effect on their business, financial condition, results of operations and cash flows:

 

   

the competitive environment in their end markets may affect their prices or their competitive strategies;

 

   

their ability to anticipate changes in consumer preferences and to meet customers’ needs for their products in a timely manner;

 

   

their ability to successfully enter new markets, including by successfully identifying and acquiring suitable acquisition targets in these new markets;

 

   

their ability to effectively manage their costs;

 

   

their ability to continue to grow through acquisitions and successfully integrate acquired businesses in their existing operations;

 

   

their ability to identify and successfully implement appropriate technological, digital and e-commerce solutions;

 

   

the occurrence of unusually severe weather events, which can disrupt their operations (forcing temporary closure of distribution centers, prohibiting shipment of inventory and products) and negatively impact their results in the affected geographies; and

 

   

the economy in general.

The SPR Business and Essendant’s business will be adversely affected if demand for their products slows.

The SPR Business and Essendant’s business depends on customer demand for the products that they distribute. Demand for these products depends on many factors, including the following:

 

   

the increasing digitization of the workplace, as this negatively impacts the need for certain office products;

 

   

the level of unemployment, especially as it relates to white collar and service jobs, as high unemployment reduces the need for office products;

 

   

the level of office vacancy rates, as high vacancy rates reduce the need for office products;

 

   

consolidation of customers and consolidation of the industry; and

 

   

the economy in general, which in declining conditions may cause reduced demand for business products consumption.

Changes in legislation or government regulations or policies could have a significant impact on SPR Business’s and Essendant’s business, financial condition, results of operations and cash flows.

Certain political developments, including the results of the presidential election in the U.S. and concerns related to the future of the North American Free Trade Agreement, have resulted in increased economic uncertainty for multi-national companies. These developments may result in economic and trade policy actions that could impact economic conditions in many countries and change the landscape of international trade. Changes to existing international trade agreements, blocking of foreign trade or imposition of tariffs on foreign goods could result in decreases in revenues and/or increases in pricing, either of which could have an adverse impact on the SPR Business’s and Essendant’s business, results of operations, financial condition and cash flows in future periods. In addition, the Tax Cuts and Jobs Act (the “Act”) was signed into law on December 22, 2017. The Act, which reduces the U.S. corporate tax rate to 21 percent from 35 percent for taxable years beginning after December 31, 2017, requires companies to pay a one-time transition tax on earnings of certain foreign subsidiaries that were previously tax deferred and creates new taxes on certain foreign sourced earnings. It resulted in the SPR Business

 

55


Table of Contents

writing down its deferred taxes in 2017 and recording a payable for the estimated transition tax on foreign sourced earnings. These amounts were provisional and could be adjusted in 2018 as calculations are finalized and the full effects of the Act are reflected on its business and financial results.

Uncertainty and/or deterioration in general macro-economic conditions, including unemployment, inflation or deflation, changes in tax policies, changes in energy costs, uncertain credit markets, or other economic conditions, could have a negative impact on the SPR Business and Essendant’s business, financial condition, results of operations and cash flows.

The SPR Business and Essendant’s business and operating results have been and may in the future be adversely affected by uncertain global economic conditions, including domestic outputs, employment rates, inflation or deflation, changes in tax policies, instability in credit markets, declining consumer and business confidence, fluctuating commodity prices, interest rates, volatile exchange rates, and other challenges that could affect the global economy. The SPR Business’s and Essendant’s customers may experience deterioration of their financial resources, which could result in existing or potential customers delaying or canceling plans to purchase their products. The SPR Business’s and Essendant’s vendors could experience similar conditions, which could impact their ability to fulfill their obligations to the SPR Business and Essendant. Future weakness in the global economy could adversely affect the SPR Business and Essendant’s business, results of operations, financial condition and cash flows in future periods.

The SPR Business and Essendant depend on their relationships with their vendors, and a disruption of their vendor relationships or a disruption in their vendors’ operations could harm their business.

As distributors of business products, their business depends on developing and maintaining close and productive relationships with their vendors. The SPR Business and Essendant depend on their vendors to sell them quality products at favorable prices. Many factors outside their control, including, raw material shortages, inadequate manufacturing capacity, labor disputes, transportation disruptions, tax and legislative uncertainties or weather conditions, could adversely affect their vendors’ ability to deliver to the SPR Business and Essendant quality merchandise at favorable prices in a timely manner.

Furthermore, financial or operational difficulties with a particular vendor could cause that vendor to increase the cost of the products or decrease the quality of the products the SPR Business or Essendant purchase from it. Vendor consolidation could also limit the number of suppliers from which the SPR Business and Essendant may purchase products and could materially affect the prices the SPR Business and Essendant pay for these products. In addition, the SPR Business and Essendant would suffer an adverse impact if their vendors limit or cancel the return privileges that currently protect them from inventory obsolescence. Finally, a number of vendors are increasingly choosing to supply their products directly to their customers.

The SPR Business and Essendant recognize the growing demand for business-to-business and business-to-customer digital and e-commerce options and solutions, and the SPR Business and Essendant could lose business if the SPR Business and Essendant fail to provide the digital and e-commerce options and solutions their customers wish to use.

The SPR Business’s and Essendant’s success in digital and e-commerce depends on their ability to accurately identify and provide services that enable their customers to compete effectively online and that their customers wish to use (including mobile) with rapidly changing technology in a highly competitive environment.

If the SPR Business or Essendant experiences a security breach, if their internal information systems fail to function properly or if the SPR Business and Essendant are unsuccessful in implementing, integrating or upgrading their information systems, their business operations could be materially affected.

The SPR Business and Essendant depend on information systems to process customer orders, manage inventory and accounts receivable collections, purchase products, manage accounts payable processes, ship products to

 

56


Table of Contents

customers on a timely basis, maintain cost effective operations, provide superior service to customers and accumulate financial results. Despite their implementation of security measures, their IT systems are vulnerable to damages from computer viruses, natural disasters, unauthorized physical or electronic access, power outages, computer system or network failures, cyber-attacks and other similar disruptions. Maintaining and operating these measures requires continuous investments, which SPR has made and will continue to make. A security breach could result in sensitive data being lost, manipulated or exposed to unauthorized persons or to the public.

A serious prolonged disruption of their information systems for any of the above reasons could materially impair fundamental business processes and increase expenses, decrease sales or otherwise reduce earnings. Furthermore, such a breach may harm their reputation and business prospects and subject the SPR Business and Essendant to legal claims if there is loss, disclosure or misappropriation of or access to their customers’ information. As threats related to cyber security breaches develop and grow, the SPR Business and Essendant may also find it necessary to make further investments to protect their data and infrastructure.

Because the SPR Business and Essendant are involved in litigation from time to time and are subject to numerous laws and governmental regulations, the SPR Business and Essendant could incur substantial judgments, fines, legal fees and other costs.

The SPR Business and Essendant are sometimes the subject of complaints or litigation from customers, employees or other third parties for various reasons. The damages sought against the SPR Business and Essendant in some of these litigation proceedings are substantial. Although the SPR Business and Essendant maintain liability insurance for some litigation claims, if one or more of the claims were to greatly exceed their insurance coverage limits or if their insurance policies do not cover a claim, this could have a material adverse effect on their respective business, financial condition, results of operations and cash flows.

Additionally, the SPR Business and Essendant are subject to numerous federal, state and local laws and governmental regulations relating to taxes, environmental protection, product quality standards, building and zoning requirements, as well as employment law matters. If the SPR Business or Essendant fails to comply with existing or future laws or regulations, they may be subject to governmental or judicial fines or sanctions, while incurring substantial legal fees and costs. In addition, their capital expenses could increase due to remediation measures that may be required if they are found to be noncompliant with any existing or future laws or regulations.

The SPR Business and Essendant are dependent on key personnel and the loss of one or more of those key personnel could harm their business.

The SPR Business’s and Essendant’s future success significantly depends on the continued services and performance of their key management personnel. The SPR Business and Essendant believe their respective management team’s depth and breadth of experience in their industry is integral to executing their business plan. The SPR Business and Essendant also will need to continue to attract, motivate and retain other key personnel. The loss of services from members of their senior management team or other key employees, the inability to attract additional qualified personnel as needed or failure to plan for the succession of senior management and key personnel could have a material adverse effect on their business.

 

57


Table of Contents

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This proxy statement/prospectus-information statement, including information incorporated in this proxy statement/prospectus-information statement, contains forward-looking statements, including statements regarding the proposed business combination transaction between Essendant and GPC in which GPC will separate its SPR Business and combine this business with Essendant. These forward-looking statements are intended to provide management’s current expectations or plans for our future operating and financial performance, based on assumptions currently believed to be valid. Forward-looking statements often contain words such as “expects,” “anticipates,” “estimates,” “intends,” “plans,” “believes,” “seeks,” “will,” “is likely to,” “scheduled,” “positioned to,” “continue,” “forecast,” “predicting,” “projection,” “potential” or similar expressions. Forward-looking statements may include references to goals, plans, strategies, objectives, projected costs or savings, anticipated future performance, results, events or transactions of Essendant or the combined company following the proposed transaction, the anticipated benefits of the proposed transaction, including estimated synergies, the expected timing of completion of the transaction and other statements that are not strictly historical in nature. These forward-looking statements are based on management’s current expectations, forecasts and assumptions. This means they involve a number of risks and uncertainties that could cause actual results to differ materially from those expressed or implied here, including but not limited to:

 

   

the ability of Essendant and GPC to receive the required regulatory approvals for the proposed transaction and approval of Essendant’s stockholders and to satisfy the other conditions to the closing of the transaction on a timely basis or at all;

 

   

the occurrence of events that may give rise to a right of one or both of Essendant and GPC to terminate the Merger Agreement;

 

   

negative effects of the announcement or the consummation of the transaction on the market price of Essendant’s common stock and/or on its business, financial condition, results of operations and financial performance;

 

   

risks relating to the value of the Essendant shares to be issued in the transaction, significant transaction costs and/or unknown liabilities;

 

   

the possibility that the anticipated benefits from the proposed transaction cannot be realized in full or at all or may take longer to realize than expected;

 

   

risks associated with contracts containing consent and/or other provisions that may be triggered by the proposed transaction;

 

   

risks associated with transaction related litigation;

 

   

disruption caused by the Merger with customers, suppliers or other business relationships;

 

   

the possibility that costs or difficulties related to the integration of the businesses will be greater than expected; and

 

   

the ability of the combined company to retain and hire key personnel.

There can be no assurance that the proposed transaction or any other transaction described above will in fact be consummated in the manner described or at all. Stockholders, potential investors and other readers are urged to consider these risks and uncertainties in evaluating forward-looking statements and are cautioned not to place undue reliance on the forward-looking statements. For additional information on identifying factors that may cause actual results to vary materially from those stated in forward-looking statements, please see the matters discussed under the heading “Risk Factors” beginning on page 47 and the risks and uncertainties detailed in Essendant’s Annual Report on Form 10-K for the year ended December 31, 2017 and subsequent filings with the SEC. The forward-looking information herein is given as of this date only, and neither Essendant nor GPC undertakes any obligation to revise or update it.

 

58


Table of Contents

THE ESSENDANT SPECIAL MEETING

General

This proxy statement/prospectus-information statement is being provided to Essendant stockholders as part of a solicitation of proxies by the Essendant Board for use at the Essendant special meeting of stockholders and any adjournments or postponements thereof. This proxy statement/prospectus-information statement provides Essendant stockholders with important information they need to know to be able to vote, or instruct their brokers or other nominees to vote, at the Essendant special meeting.

Date, Time and Place

The Essendant special meeting of stockholders will be held at Essendant’s offices located at One Parkway North Boulevard, Deerfield, Illinois, on [●], 2018 at [●] p.m., Central time.

Matters for Consideration

At the special meeting, Essendant stockholders will be asked to vote on the following proposals:

 

   

a proposal to approve the Share Issuance;

 

   

a proposal to approve the meeting adjournment proposal; and

 

   

a proposal to approve the advisory merger-related executive compensation proposal.

Completion of the Merger is conditioned on approval by Essendant stockholders of the Share Issuance, but is not conditioned on the approval of the meeting adjournment proposal or the advisory merger-related executive compensation proposal. The Share Issuance becomes effective only if the Merger is completed.

THE ESSENDANT BOARD OF DIRECTORS HAS UNANIMOUSLY APPROVED THE MERGER AGREEMENT, THE MERGER AND THE SHARE ISSUANCE AND UNANIMOUSLY RECOMMENDS THAT ESSENDANT STOCKHOLDERS VOTE FOR THE SHARE ISSUANCE.

THE ESSENDANT BOARD OF DIRECTORS ALSO UNANIMOUSLY RECOMMENDS THAT ESSENDANT STOCKHOLDERS VOTE FOR THE MEETING ADJOURNMENT PROPOSAL.

THE ESSENDANT BOARD OF DIRECTORS ALSO UNANIMOUSLY RECOMMENDS THAT ESSENDANT STOCKHOLDERS VOTE FOR THE ADVISORY MERGER-RELATED EXECUTIVE COMPENSATION PROPOSAL.

Record Date; Voting Information

The record date for the special meeting is [●], 2018. Only holders of record of Essendant common stock at the close of business on the record date will be entitled to notice of, and to vote at, the special meeting or any adjournment or postponement thereof. As of the record date, approximately [●] shares of Essendant common stock were issued and outstanding and entitled to notice of, and to vote at, the special meeting, and there were approximately [●] holders of record of Essendant common stock. Each share of Essendant common stock shall entitle the holder to one vote on each of the proposals to be considered at the special meeting.

If you are a record holder of Essendant common stock on the record date, you may vote your shares of Essendant common stock in person at the special meeting or by proxy as described below under “—Voting by Proxy.”

Quorum

In order for business to be conducted at the Essendant special meeting of stockholders, the DGCL and Essendant’s bylaws require that a quorum must be present. The holders of a majority of the issued and

 

59


Table of Contents

outstanding common stock of Essendant present either in person or by proxy at the special meeting will constitute a quorum. Under Delaware law and Essendant’s bylaws, we count instructions to withhold voting authority, any abstentions and broker non-votes as present at meetings of stockholders for the purpose of determining the presence of a quorum.

If a quorum is not present or if there are not sufficient votes for the approval of the Share Issuance, Essendant expects to adjourn the Essendant special meeting to solicit additional proxies, subject to approval of the meeting adjournment proposal by the affirmative vote of a majority in voting power of the votes cast by the holders of all of the shares of Essendant common stock present or represented at the special meeting and voting affirmatively or negatively. At any subsequent reconvening of the Essendant special meeting, all proxies will be voted in the same manner as the proxies would have been voted at the original convening of the Essendant special meeting, except for any proxies that have been effectively revoked or withdrawn prior to the adjourned meeting.

Required Vote

Essendant stockholders of record on the record date for the Essendant special meeting may vote “FOR” or “AGAINST,” or may abstain from voting, on the proposal to approve each of the Share Issuance, meeting adjournment and advisory merger-related executive compensation proposals. Consummation of the Transactions requires only the approval of the Share Issuance.

In accordance with Nasdaq Marketplace Rules, the DGCL, and Essendant’s organizational documents, the approval by Essendant stockholders of the Share Issuance proposal requires the affirmative vote of a majority of the votes cast by the holders of all of the shares of Essendant common stock present in person or represented by proxy at the special meeting at which a quorum is present. This means the number of shares voted “FOR” the Share Issuance must exceed the number of shares voted “AGAINST” the Share Issuance. Abstentions and broker non-votes are not considered votes cast for the foregoing purpose, and will have no effect on the vote for the Share Issuance proposal.

In accordance with the DGCL and Essendant’s organizational documents, the approval of the meeting adjournment proposal requires the affirmative vote of a majority of the votes cast by the holders of all of the shares of Essendant common stock present in person or represented by proxy at the special meeting, whether or not a quorum is present. This means the number of shares voted “FOR” the meeting adjournment must exceed the number of shares voted “AGAINST” the meeting adjournment. Abstentions and broker non-votes are not considered votes cast for the foregoing purpose, and will have no effect on the vote for the meeting adjournment proposal.

In accordance with the DGCL and Essendant’s organizational documents, approval of the advisory merger-related executive compensation proposal requires the affirmative vote of a majority of the votes cast by the holders of all of the shares of Essendant common stock present in person or represented by proxy at the special meeting at which a quorum is present. This means the number of shares voted “FOR” the advisory merger-related executive compensation proposal must exceed the number of shares voted “AGAINST” the advisory merger-related executive compensation proposal. Abstentions and broker non-votes are not considered votes cast for the foregoing purpose, and will have no effect on the vote for this proposal.

No vote of GPC shareholders is required in connection with the Transactions, and the only vote required with respect to SpinCo is the vote of GPC as its sole stockholder, which stockholder approval has been obtained. No directors, executive officers or affiliates of GPC or SpinCo will have voting rights in connection with the Transactions with respect to their ownership of any GPC common stock or SpinCo common stock.

Notice of Internet Availability of Proxy Materials

Under SEC rules, we furnish annual proxy materials to our stockholders on the Internet. However, because these proxy materials are with respect to a business combination, we will be mailing printed copies to our stockholders. Whether or not you received a Notice of Internet Availability of Proxy Materials by mail for the annual meeting,

 

60


Table of Contents

you will receive a printed copy of the proxy materials for the special meeting. Additionally, the printed proxy materials and the proxy card will instruct you as to how you may access and review the proxy materials on the Internet as well as vote your shares online. You may also vote by telephone or by mail, following the proxy card instructions included in the proxy materials. We expect to commence mailing the proxy materials to our stockholders on or about [●], 2018.

Voting by Proxy

If you were a record holder of Essendant common stock at the close of business on the record date of the special meeting, you may submit a proxy with your voting instructions by the applicable deadline shown on the proxy card using any of the following methods:

Essendant stockholders may submit a proxy by mail, telephone or internet by following the instructions on their proxy card using any of the following methods:

 

   

Online: Go to the website http://www.proxyvote.com and follow the instructions on the proxy card to view the proxy materials online and vote your shares through the Internet.

 

   

By Telephone:

 

   

Please review your proxy card, which will include instructions on how to vote by telephone.

 

   

By Mail:

 

   

Please review your proxy card, which will include instructions on how to vote by mail.

If you choose to submit your proxy with voting instructions by telephone or through the Internet, you will be required to provide your assigned control number shown on the proxy card before your proxy and voting instructions will be accepted. Once you have indicated how you want to vote in accordance with those instructions, you will receive confirmation that your proxy has been submitted successfully by telephone or through the Internet.

If you hold your shares of Essendant common stock in “street name” through a broker, bank, custodian, fiduciary or other nominee, you should review the separate notice supplied by that firm to determine whether and how you may vote by mail, telephone or through the Internet. To vote these shares, you must use the appropriate voting instruction form or toll-free telephone number or website address specified on that firm’s voting instruction form for beneficial owners.

Giving your proxy means that you authorize the persons named as proxies to vote your shares at the special meeting in the manner you direct. If you hold any shares in the ESPP, your proxy (whether given by mailing the proxy card or voting by telephone or through the Internet) will also serve as voting instructions to Computershare Trust Company, as nominee holder under the ESPP, with respect to the shares allocated to your account in the ESPP.

If you sign and return a proxy card, or use telephone or Internet voting, but do not specify how you want to vote your shares, the proxies will vote your shares “FOR” the proposal to approve the Share Issuance, “FOR” the meeting adjournment proposal and “FOR” the advisory merger-related executive compensation proposal. If you specify how you want to vote your shares on one matter but not the other, the proxies will vote your shares as directed on the matter that you specify and as indicated above on the other matter described in this proxy statement. However, if you hold shares in the ESPP, Computershare Trust Company, as nominee holder under the ESPP, will not vote shares allocated to your ESPP account unless you indicate your voting instructions. The proxies will also vote your shares in their discretion on any other business that may properly come before the meeting.

 

61


Table of Contents

At the date hereof, the Essendant Board has no knowledge of any business that will be presented for consideration at the special meeting and that would be required to be set forth in this proxy statement/prospectus-information statement or the related proxy card other than the matters set forth in the Notice of Special Meeting of Stockholders.

If you hold Essendant common stock in “street name” through a broker, bank, custodian, fiduciary or other nominee, you should review the separate notice supplied by that firm to determine whether and how you may vote by mail, telephone or through the Internet. To vote these shares, you must use the appropriate voting instruction form or toll-free telephone number or website address specified on that firm’s voting instruction form for beneficial owners.

Your vote is important. Whether or not you plan to attend the special meeting, you are encouraged to submit your proxy as described in this proxy statement/prospectus-information statement. Proxies submitted through the specified internet website or by phone must be received by [11:59 p.m., Eastern Time], on [].

Revocation of Proxies

If you are the record holder of Essendant common stock, you can change your vote or revoke your proxy at any time before your proxy is voted at the special meeting. You can do this by:

 

   

requesting and submitting a new proxy card that is properly signed with a later date;

 

   

voting again at a later date by telephone or through the Internet—your latest voting instructions received before the deadline for telephone or Internet voting, 11:59 p.m. Eastern Time on [], 2018, will be counted and your earlier instructions revoked;

 

   

sending a properly signed written notice of your revocation to the Secretary of Essendant at Essendant Inc., One Parkway North Blvd., Suite 100, Deerfield, Illinois 60015-2559; or

 

   

voting in person at the special meeting. Attendance at the special meeting will not itself revoke an earlier submitted proxy.

A proxy card with a later date or written notice of revocation shall not constitute a revocation of a previously submitted proxy unless it is received by the Secretary of Essendant before the previously submitted proxy is exercised at the special meeting.

A registered Essendant stockholder may revoke a proxy by any of these methods, regardless of the method used to deliver the stockholder’s previous proxy.

If you hold your shares in “street name” through a broker, bank, custodian, fiduciary or other nominee, you should review the separate notice supplied by that firm to determine whether and how you may vote by mail, telephone or through the Internet. To vote these shares, you must use the appropriate voting instruction form or toll-free telephone number or website address specified on that firm’s voting instruction form for beneficial owners.

Voting by Essendant Directors and Executive Officers

At the close of business on the record date of the special meeting, Essendant directors and executive officers were entitled to vote approximately [●]% of the shares of Essendant common stock outstanding on the record date. Essendant currently expects that its directors and executive officers and their affiliates will vote their shares in favor of all proposals.

Solicitation of Proxies

Essendant is soliciting proxies for the special meeting and will bear all expenses in connection with solicitation of proxies. Essendant has retained Innisfree M&A Incorporated, a third party proxy consultant, to solicit proxies

 

62


Table of Contents

in connection with the special meeting at a cost of approximately $20,000 plus expenses. In addition to the solicitation by mail, proxies may be solicited personally or by telephone, facsimile or electronic communication by Essendant directors, officers and other employees. Directors, officers and other employees of Essendant who participate in soliciting proxies will not receive any additional compensation from Essendant for doing so. Upon request, Essendant will reimburse brokers, banks, custodians and other nominee record holders for their out-of-pocket expenses in forwarding proxy materials to their principals who are the beneficial owners of Essendant common stock as of the record date.

Other Matters

As of the date of this proxy statement/prospectus-information statement, the Essendant Board knows of no other matters that will be presented for consideration at the special meeting other than as described in this proxy statement/prospectus-information statement. If any other matters properly come before the special meeting of Essendant stockholders, or any adjournments or postponements of the special meeting, and are properly voted upon, the enclosed proxies will give the individuals that Essendant stockholders name as proxies therein discretionary authority to vote the shares represented by these proxies as to any of these matters; provided, however, that those individuals will only exercise this discretionary authority with respect to matters that were unknown a reasonable time before the solicitation of proxies.

Assistance

Essendant stockholders who need assistance in voting their shares or need a copy of this proxy statement/prospectus-information statement should contact:

Corrine Kassitas

Essendant Management Services LLC

One Parkway North Blvd.

Deerfield, IL 60015

Telephone: 847-627-2774

Email: [email protected]

Essendant stockholders should contact Essendant’s transfer agent at the address listed below, if they have questions concerning transfer of ownership or other matters pertaining to their stock accounts.

Equiniti Trust Company

1110 Centre Pointe Curve, Suite 101

Mendota Heights, MN 55120

Attention: Relationship Management

 

63


Table of Contents

THE TRANSACTIONS

General

On April 12, 2018, GPC and Essendant announced that they had entered into an agreement pursuant to which Essendant will combine with GPC’s SPR Business. In connection with the Transactions, GPC will effect (1) the separation of the SPR Business into SpinCo from GPC’s other businesses, and (2) the distribution of all of the shares of SpinCo common stock to GPC’s shareholders entitled to shares of SpinCo common stock in the Distribution. Immediately thereafter, the Merger of Merger Sub with and into SpinCo will occur, with SpinCo becoming a wholly owned subsidiary of Essendant. Following the consummation of the Transactions, GPC shareholders are expected to own approximately 51% of Essendant common stock on a fully diluted basis, and current Essendant stockholders are expected to own approximately 49% of Essendant common stock on a fully diluted basis. GPC shareholders will retain the shares of GPC common stock that they held prior to the Merger.

In order to effect the Separation, the Distribution and the Merger, Essendant, GPC, SpinCo and Merger Sub entered into a number of agreements, including the Merger Agreement and the Separation Agreement. These agreements, which are described in greater detail in this proxy statement/prospectus-information statement, provide for (1) all of the SPR Entities becoming direct or indirect subsidiaries of SpinCo, with certain of the SPR Entities and certain other assets being contributed by GPC to its subsidiary, SPR HoldCo, pursuant to the Internal Reorganization, in order to separate the SPR Business from GPC’s other businesses, (2) the distribution of all of the shares of SpinCo common stock to an exchange agent to be held collectively for the benefit of GPC shareholders of record on the record date for the Distribution who are entitled to a pro rata distribution of such shares in the Distribution, (3) the Merger of Merger Sub with and into SpinCo, with SpinCo being the surviving corporation of the Merger and a wholly owned subsidiary of Essendant and (4) the automatic conversion of shares of SpinCo common stock into the right to receive shares of Essendant common stock pursuant to the Merger, the distribution of book-entry authorizations for such shares of Essendant common stock to GPC shareholders entitled to shares of SpinCo common stock in the Distribution and the payment of cash in lieu of fractional shares (if any) of such Essendant common stock. In addition, Essendant, GPC, SpinCo and Merger Sub have also entered, or will enter, into various ancillary agreements in connection with the Transactions that will govern the relationship among Essendant, GPC, SpinCo and their respective affiliates after the Separation, the Distribution and the Merger.

Transaction Sequence

Below is a step-by-step list illustrating the sequence of material events relating to the Separation, the Distribution and the Merger. Each of these events is discussed in more detail elsewhere in this proxy statement/prospectus-information statement. Essendant and GPC anticipate that the Separation, the Distribution and the Merger will occur in the following order:

Step 1: Pursuant to the Internal Reorganization (as currently contemplated), prior to the Distribution Date (as defined in the Separation Agreement), all of the SPR Entities will become direct or indirect subsidiaries of SpinCo, with certain of the SPR Entities and certain other assets being contributed by GPC to its subsidiary, SPR HoldCo, in exchange for common stock and preferred stock of SPR HoldCo. Pursuant to a pre-existing binding commitment entered into prior to this exchange, the SPR HoldCo Preferred Stock will subsequently be sold by GPC to a third party prior to the completion of the Distribution. The Separation Agreement provides that the aggregate principal amount of the SPR HoldCo Preferred Stock shall not exceed $5,000,000 and the SPR HoldCo Preferred Stock shall have no voting rights except for limited customary protective voting rights with respect to (i) changes to the terms of the SPR HoldCo Preferred Stock and (ii) authorization or issuance of securities by SPR HoldCo that are senior to the SPR HoldCo Preferred Stock with respect to dividend rights on liquidation.

Step 2: On or before the Distribution Date, SpinCo will enter into a definitive agreement or agreements providing for indebtedness in an aggregate principal amount of up to $400,000,000 in the form of borrowings under credit facilities, as more fully described in “Debt Financing”. Immediately thereafter, and prior to the Distribution Effective Time, SpinCo will draw on such credit facilities in an amount sufficient for it and its subsidiaries to make the Internal Reorganization Cash Payments, including SpinCo Special Cash Payment, subject to adjustment as described in “The Separation Agreement—Incurrence of Debt; SpinCo Special Cash Payment.”

 

64


Table of Contents

Step 3: Prior to the Distribution Effective Time (as defined in the Separation Agreement), GPC shall contribute all of the common stock of SPR HoldCo to SpinCo and SpinCo shall issue and deliver to GPC a number of shares equal to the difference of (i) 40,191,482, minus (ii) the number of shares of SpinCo Common Stock held by GPC immediately prior to such issuance. Additionally, prior to the Distribution Effective Time, SpinCo will deliver to GPC the SpinCo Special Cash Payment.

Step 4: At the Distribution Effective Time, GPC shall effect the Distribution.

Step 5: Immediately following the Distribution, Merger Sub will merge with and into SpinCo, with SpinCo being the surviving corporation of the Merger as a wholly owned subsidiary of Essendant. In the Merger, each share of SpinCo common stock held by GPC shareholders will be automatically converted into the right to receive one share of Essendant common stock as described in “The Merger Agreement—Merger Consideration.” Immediately after the consummation of the Merger, GPC shareholders are expected to collectively own approximately 51% of the shares of Essendant common stock on a fully diluted basis, and Essendant stockholders immediately prior to the Merger are expected to collectively own approximately 49% of the shares of Essendant common stock on a fully diluted basis.

Step 6: The exchange agent will distribute to GPC shareholders entitled to shares of SpinCo common stock in the Distribution shares of Essendant common stock in the form of a book-entry authorization and cash in lieu of fractional shares (if any) in accordance with the terms of the Merger Agreement.

Set forth below are diagrams that graphically illustrate, in simplified form, the existing corporate structure of the parties to the Transactions, the corporate structure of the parties immediately following the Distribution but before the Merger, and the final corporate structure immediately following the consummation of the Merger.

Existing Structure

 

 

LOGO

 

65


Table of Contents

Structure Following the Separation and the Distribution but Before the Merger

 

LOGO

Structure Following the Merger

 

 

LOGO

 

66


Table of Contents

The Separation and The Distribution

At or prior to the date of the Distribution, to the extent not completed prior to the date of the Separation Agreement, GPC and SpinCo will take steps to effect the Internal Reorganization, pursuant to which, among other things, all of the SPR Entities will become direct or indirect subsidiaries of SpinCo.

In addition, GPC has agreed to transfer any assets that are exclusively used in the SPR Business to an SPR Entity to the extent not held by an SPR Entity as of the date of the Distribution.

Pursuant to the Internal Reorganization (as currently contemplated), prior to the Distribution, GPC will form a new subsidiary and cause such subsidiary to issue the SPR HoldCo Preferred Stock. Pursuant to a pre-existing binding commitment entered into prior to this exchange, GPC will sell the SPR HoldCo Preferred Stock to a third party unaffiliated with either GPC or Essendant prior to the completion of the Distribution. The Separation Agreement provides that the aggregate principal amount of the SPR HoldCo Preferred Stock shall not exceed $5,000,000 and the SPR HoldCo Preferred Stock shall have no voting rights except for limited customary protective voting rights with respect to (i) changes to the terms of the SPR HoldCo Preferred Stock and (ii) authorization or issuance of securities by SPR HoldCo that are senior to the SPR HoldCo Preferred Stock with respect to dividend rights on liquidation.

In connection with the Internal Reorganization, on or prior to the date of the Distribution, SpinCo will issue and deliver to GPC additional shares of SpinCo common stock which, along with the 100 shares of SpinCo common stock then owned by GPC, will constitute all of the outstanding stock of SpinCo and will equal the number of shares of Essendant common stock to be issued to SpinCo stockholders in the Merger.

At the Distribution Effective Time, GPC will distribute all of the outstanding shares of SpinCo common stock to the GPC shareholders by way of a pro rata dividend. GPC will effect the Distribution by delivering the shares of SpinCo common stock to the exchange agent. The exchange agent will hold such shares for the benefit of GPC shareholders that are entitled to shares of SpinCo common stock pending the effective time of the Merger and the automatic conversion of such shares of SpinCo common stock into the right to receive shares of Essendant common stock. After the Distribution, GPC will not own any shares of SpinCo common stock.

As of the date of this proxy statement/prospectus-information statement, the GPC Board of Directors (the “GPC Board”) has not set a record date for the Distribution. GPC will publicly announce the record date for the Distribution when the record date has been determined, and prior to the completion of the Distribution and the Merger.

The specific terms of the Separation, including the specific subsidiaries, assets and liabilities to be transferred to SpinCo or a SpinCo designee and the procedures by which GPC and SpinCo will become separate companies are described in more detail in “The Separation Agreement” on page 130.

The Merger

Immediately after the Distribution, pursuant to and in accordance with the terms and conditions of the Merger Agreement and in accordance with the DGCL, Merger Sub will merge with and into SpinCo whereby the separate corporate existence of Merger Sub will cease and SpinCo will survive the Merger as a wholly owned subsidiary of Essendant. After the Merger, Essendant will continue its existence as a separately traded public company, owning the combined businesses of Essendant and SpinCo. In accordance with the DGCL, SpinCo will succeed to and assume all the rights, powers and privileges and be subject to all of the obligations of Merger Sub. The certificate of incorporation and bylaws of SpinCo in effect immediately prior to the Merger will be the certificate of incorporation and bylaws of SpinCo following completion of the Merger.

In the Merger, each share of SpinCo common stock will be automatically converted into the right to receive one share of Essendant common stock, as described below under “—Calculation of Merger Consideration.” Following the Merger, an exchange agent will distribute to each GPC shareholder entitled to shares of SpinCo common stock in the Distribution book-entry authorizations representing the number of whole shares of Essendant common stock that such shareholder is entitled to receive in the Merger. The exchange agent will also distribute to each GPC shareholder entitled to shares of SpinCo common stock in the Distribution cash in lieu of

 

67


Table of Contents

fractional shares of Essendant common stock, if any. GPC shareholders entitled to shares of SpinCo common stock in the Distribution will not be required to pay for the shares of Essendant common stock that they will receive in the Merger, and they will also retain all of their shares of GPC common stock that they held prior to the Merger.

Under the terms of the Merger Agreement, the directors of Merger Sub before the Merger will be the initial directors of SpinCo after the Merger, and the officers of SpinCo before the Merger will be the initial officers of SpinCo after the Merger.

Calculation of Merger Consideration

The Merger Agreement provides that, at the effective time of the Merger, each issued and outstanding share of SpinCo common stock will be automatically converted into the right to receive one share of Essendant common stock. After giving effect to the issuance of SpinCo shares to GPC under the Separation Agreement and the distribution of SpinCo shares to the shareholders of GPC in the Distribution, it is expected that shareholders of GPC following the Distribution will collectively hold approximately 51% of the shares of Essendant common stock on a fully diluted basis immediately following the Merger. GPC expects to distribute 40,191,482 shares of SpinCo common stock to GPC shareholders in the Distribution. As a result, it is presently estimated that GPC shareholders entitled to shares of SpinCo common stock in the Distribution will be entitled to receive [●] shares of Essendant common stock for each share of GPC common stock that they own on the record date for the Distribution, based on the number of shares of GPC common stock outstanding on [●]. Essendant currently expects to issue approximately 40,191,482 shares of Essendant common stock to GPC shareholders in connection with the Merger.

No fractional shares of Essendant common stock will be issued pursuant to the Merger. All fractional shares of Essendant common stock that a GPC shareholder entitled to shares of SpinCo common stock in the Distribution would otherwise be entitled to receive as a result of the Merger will be aggregated by an exchange agent, and the exchange agent will cause the whole shares obtained by such aggregation to be sold in the open market or otherwise at then-prevailing market prices no later than five business days after the Distribution. The exchange agent will then make available the net proceeds of the sale, after deducting any brokerage charges, commissions and transfer taxes (estimated, in the aggregate, at $0.05 per share), on a pro rata basis, without interest, as soon as practicable to the GPC shareholders entitled to shares of SpinCo common stock in the Distribution that otherwise would be entitled to receive such fractional shares of Essendant common stock in the Merger.

The merger consideration and any cash in lieu of fractional shares paid in connection with the Merger will be reduced by any applicable tax withholding. See “U.S. Federal Income Tax Consequences of the Distribution and Merger—Information Reporting and Backup Withholding” for further information.

The merger consideration will be adjusted to reflect appropriately the effect of (x) any stock split, reverse stock split, subdivision, stock dividend not related to the Rights Plan (including any dividend or distribution of securities convertible into shares of Essendant common stock or shares of SpinCo common stock), extraordinary cash dividend, reorganization, recapitalization, reclassification, combination, exchange of shares not related to the Rights Plan or other like change with respect to shares of Essendant common stock or shares of SpinCo common stock (other than, in the case of shares of SpinCo common stock, to the extent contemplated in the Separation Agreement) with a record date occurring on or after the date of the Merger Agreement and prior to the effective time of the Merger, other than the issuance of stock by SpinCo in connection with the Separation, the Internal Reorganization or the other contemplated transactions or (y) until the earlier of the expiration of the Rights and the time at which the Rights are redeemed, the exercise of any Rights, the exchange of any Rights, or the making, setting aside, payment or declaration of any dividend or distributions with respect to any shares of preferred stock that are (or would be) issued upon the exercise of the Rights.

Anticipated Costs of the Transactions

GPC and Essendant have incurred certain costs and will incur additional costs in connection with the Transactions.

 

68


Table of Contents

Except as described in “The Merger Agreement—Termination Fee and Expenses Payable in Certain Circumstances” and subject to certain exceptions, the Merger Agreement provides that all out-of-pocket expenses incurred in connection with the Merger Agreement and the Transactions are to be paid by the party incurring the expenses. Notwithstanding the foregoing, however, with respect to expenses relating to printing, filing and mailing the Essendant and SpinCo registration statements and the Essendant proxy statement, all SEC and other regulatory filing fees incurred in connection with the registration statements and the proxy statement, obtaining the prepaid directors’ and officers’ liability insurance policy or policies required by the Merger Agreement and the SpinCo Commitment Letter, the Essendant Commitment Letter and the related financings, if (1) the Transactions are consummated, then the such expenses shall be treated as an adjustment to the SpinCo Special Cash Payment as set forth in the Separation Agreement and as described below in “The Separation Agreement— Incurrence of Debt; SpinCo Special Cash Payment” or (2) the Transactions are not consummated and the Merger Agreement is terminated, then, promptly after such termination, GPC shall reimburse Essendant, or Essendant shall reimburse GPC, in either case as necessary to ensure that GPC and Essendant each bear one-half of such expenses.

Essendant, GPC and SpinCo expect their combined transaction expenses to be approximately $69.6 million, approximately $39.1 million of which are expected to be incurred by Essendant and approximately $30.5 million of which are expected to be incurred by GPC and SpinCo on a pre-tax basis. Essendant, GPC and SpinCo anticipate that a significant portion of these total transaction expenses will be attributable to advisory fees to be paid to legal, financial and tax advisors, accountants, and auditors.

Trading Markets

GPC Common Stock

Following the Merger, GPC shareholders will continue to hold their shares of GPC common stock, subject to the same rights as prior to the Separation, the Distribution and the Merger, except that their shares of GPC common stock will represent an interest in GPC that no longer reflects the ownership and operation of the SPR Business. Shares of GPC common stock will continue to be traded publicly on the NYSE. GPC shareholders, to the extent they were holders of record on the record date of the Distribution, will also hold shares of Essendant common stock after the Transactions.

SpinCo Common Stock

There currently is no trading market for shares of SpinCo common stock, and no such trading market is expected to be established in the future prior to the Merger. All outstanding shares of SpinCo common stock will automatically be canceled and cease to exist at the effective time of the Merger and upon their conversion into the right to receive shares of Essendant common stock.

Essendant Common Stock

Essendant common stock began trading on Nasdaq under the ticker symbol “ESND” on June 1, 2015, but was previously listed as “USTR” starting on November 27, 1981. After the Merger, shares of Essendant will continue to trade on Nasdaq.

Background of the Merger

The boards of directors of each of Essendant and GPC periodically evaluate and consider a variety of financial and strategic opportunities to enhance stockholder value as part of their respective long-term business plans.

Throughout 2016 and through the summer of 2017, the GPC Board met from time to time with members of GPC management and representatives of J.P. Morgan Securities LLC (“JPM”) to discuss, consider and explore potential strategic alternatives with respect to the SPR Business.

On July 13, 2016, the Essendant Board discussed potential strategic alternatives and opportunities for Essendant with management. In connection with this strategic review, Essendant engaged a consulting firm, Skadden, Arps,

 

69


Table of Contents

Slate, Meagher & Flom LLP (“Skadden”) as its legal advisor and Citi as its financial advisor to assist in identifying and evaluating potential strategic options available to Essendant, including potential acquisition strategies in addition to other strategic alternatives, and related matters.

On September 28, 2016, the Essendant Board met with members of management and reviewed the status of management’s preliminary discussions with representatives of a third party (“Party A”) which had indicated potential interest in a transaction with Essendant. Citi discussed with the Essendant Board certain publicly available information relating to Party A. The Essendant Board directed management to enter into a non-disclosure and standstill agreement with Party A and to prepare certain additional information for review by the Essendant Board and disclosure to Party A in order to determine Party A’s interest in a transaction with Essendant.

On October 18, 2016, Essendant entered into a confidentiality agreement with Party A.

On December 20, 2016, Essendant management made a presentation to Party A.

On January 13, 2017, Essendant management spoke with representatives of Party A regarding Essendant’s operations, competitive landscape and merger and acquisition opportunities.

On February 19, 2017, Party A sent Essendant a preliminary offer letter to purchase Essendant for up to $18.00 per share.

On February 22, 2017, the Essendant Board met with members of management and representatives of Skadden and Citi. Skadden reviewed the Essendant Board’s fiduciary duties. Citi discussed with the Essendant Board certain financial aspects of Party A’s proposal. After discussion, the Essendant Board authorized management to continue to provide Party A with due diligence materials.

During February and early March 2017, Party A continued to conduct its business and legal due diligence. On March 13, 2017, the Essendant Board met with members of management and representatives of Skadden and Citi to further consider Party A’s February 19, 2017 proposal to purchase Essendant. At this meeting, Citi summarized, among other things, certain financial aspects of Party A’s proposal, potential responses of Essendant to such proposal and an illustrative timeline for a potential transaction if Essendant were to continue to engage in discussions with Party A. The Essendant Board authorized management to continue to explore a potential transaction with Party A. In addition, the Essendant Board considered whether parties other than Party A should be contacted regarding a potential business combination with Essendant. The Essendant Board considered that a “go-shop” process could be undertaken to solicit third-party interest after announcement of an agreement with Party A. After discussion, the Essendant Board determined not to initiate discussions with other parties at that time.

In mid-March 2017, as a condition to its continued due diligence review and incurrence of related expenses, Party A requested exclusivity to negotiate a transaction with Essendant. On March 21, 2017, the executive committee of the Essendant Board met with members of management and representatives of Skadden and Citi to review the status of discussions with Party A and Party A’s request for exclusivity. Citi provided an update on Essendant’s discussions with Party A and Party A’s ongoing due diligence efforts. Following discussion, the executive committee authorized management to enter into 30-day exclusivity agreement with Party A.

During late March and early April 2017, due diligence meetings and site visits were held with Party A. On April 11, 2017, the Essendant Board met with members of management and representatives of Skadden and Citi. The Essendant Board was updated as to the status of the due diligence review of, and negotiations with, Party A. Following this meeting, on April 13, 2017, a draft of a merger agreement, along with related schedules, was provided to Party A. On April 25, 2017, Essendant was notified that Party A was no longer interested in pursuing a transaction with Essendant.

Beginning in fall of 2017, and continuing as the transaction with Essendant developed, the GPC Board met from time to time with members of GPC management and representatives of GPC’s advisors to discuss a potential combination of Essendant and the SPR Business.

 

70


Table of Contents

On October 16, 2017, Mr. Paul Donahue, GPC’s President and Chief Executive Officer, contacted Mr. Richard Phillips, Essendant’s President and Chief Executive Officer. Mr. Donahue asked if Mr. Phillips would be interested in speaking briefly by telephone.

On October 17, 2017, Mr. Phillips and Mr. Donahue agreed to speak by telephone on October 24, 2017.

On October 24, 2017, Mr. Phillips and Mr. Stuart Taylor, Chairman of the Finance Committee and an independent Essendant director, spoke with Mr. Donahue, who proposed a potential transaction. Additionally, on October 24, 2017, at an Essendant Board meeting, Mr. Phillips and Mr. Taylor reported on their earlier conversation with Mr. Donahue. The Essendant Board authorized Mr. Phillips and Mr. Taylor to proceed with discussions regarding a potential transaction.

On November 3, 2017, Mr. Taylor and Ms. Elizabeth Meloy, Essendant’s Senior Vice President, Strategy and Corporate Development, spoke with Mr. Treg Brown, Senior Vice President, Planning and Acquisitions of GPC. Mr. Brown proposed a transaction that would combine the SPR Business with Essendant and discussed several possible transaction structures, including a “Reverse Morris Trust” structure in which Essendant would merge with the SPR Business immediately following its spin off by GPC to GPC shareholders. Mr. Brown indicated that GPC had hired JPM as its financial advisor and Davis Polk & Wardwell LLP (“DPW”) as its legal advisor.

On November 8, 2017, Mr. Phillips and Mr. Taylor had a dinner meeting with Mr. Donahue and Mr. Brown. The parties revisited their discussion regarding a transaction that would combine the SPR Business with Essendant. Mr. Brown reviewed the “Reverse Morris Trust” deal structure. Mr. Donahue and Mr. Brown outlined several considerations, including the other transaction structures that GPC considered, the proposed governance and management of combined companies, suggestions on how to analyze potential synergies from the proposed transaction and potential regulatory matters. Essendant management and GPC management each considered the risks and benefits associated with several alternatives for combining Essendant with the SPR Business, including the all-stock “Reverse Morris Trust” structure proposed by GPC and an acquisition of the SPR Business for mostly cash. Essendant management and GPC management were both of the view that the “Reverse Morris Trust” structure was the optimal structure for both parties in relation to alternative structures because, among other reasons, the tax impacts to GPC shareholders of a “Reverse Morris Trust” were superior when compared to a cash or mostly cash transaction, the pro forma leverage was more favorable to the combined company in a “Reverse Morris Trust” versus a cash or mostly cash transaction, and the parties were expected to have improved ability to secure committed financing in a “Reverse Morris Trust” versus a cash or mostly cash transaction.

On November 9, 2017, the Essendant Board met with members of management and representatives of Skadden to review discussions between Essendant and GPC regarding a potential transaction. Skadden outlined the deal structure proposed by GPC, whereby Essendant would engage in a stock-for-stock merger with the SPR Business immediately after the SPR Business was spun off to GPC shareholders. Essendant would be the publicly traded parent corporation for the combined businesses, with former GPC shareholders owning a slight majority of the outstanding Essendant shares. Skadden also discussed the stockholder and regulatory approvals required for such a transaction. Skadden outlined the Essendant Board’s fiduciary duties in considering the proposal. The Essendant Board authorized management to proceed with discussions with GPC.

On November 15, 2017, Essendant and GPC executed a confidentiality agreement. The parties discussed the exchange of certain non-public, confidential and proprietary information.

On November 16, 2017, Ms. Meloy and Mr. Brown, together with representatives from Citi and JPM, met to discuss a process and timeline for a potential transaction.

On December 13, 2017, the Essendant Board met with members of management and representatives of Skadden and Citi to discuss the strategic rationale for a potential transaction between Essendant and GPC and the SPR Business. Management reviewed the proposed deal structure and the potential strategic benefits of such a transaction. Management described the potential sales impact of such a transaction and reviewed a plan to

 

71


Table of Contents

quantify potential synergies and assess the potential regulatory issues in the proposed transaction. Representatives of Skadden reviewed a potential timetable for the proposed transaction and the required regulatory and stockholder approvals.

On December 15, 2017, Mr. Phillips, Ms. Meloy and Mr. Harry Dochelli, Essendant’s President of Office and Facilities, met in Atlanta with Mr. Brown, Mr. Rick Toppin, President and Chief Executive Officer of the SPR Business, Mr. Bryan Wight, Senior Vice President of the SPR Business and Mr. Tom Maley, Vice President Corporate Development and Analytics of the SPR Business. Ms. Janet Zelenka, Essendant’s Senior Vice President and Chief Financial Officer, participated by telephone. Representatives of Skadden, Citi, DPW, JPM and a third-party consultant also attended. Each management team presented its respective business and historical results.

On January 25, 2018, the Essendant Board met with members of management and representatives of Skadden and Citi to review progress and workstreams with respect to the potential transaction with GPC and the strategic rationale for the transaction, including Essendant management’s estimates of potential cost synergies. Management then discussed with the Essendant Board these non-public, internal estimates of cost synergies. Representatives of Skadden provided legal analysis and advice regarding obtaining antitrust clearance to consummate the transaction.

On February 15, 2018, the Essendant Board met with members of management and representatives of Skadden and Citi to review progress with respect to the potential transaction with GPC. Members of management reviewed the discussions with GPC, including the proposed management of the combined companies, and reported that the parties had exchanged financial information. Management also reviewed a financing plan for the potential transaction and management’s preliminary financial projections. Representatives of Skadden reviewed the “Reverse Morris Trust” structure, timing for completion of the potential transaction and the required stockholder and regulatory approvals. Citi reviewed certain financing considerations and related financial matters. The Essendant Board discussed whether any other parties should be contacted regarding possible strategic transactions with Essendant and reviewed Essendant’s considerations and actions in this area during the last several years. Following discussion, in light of, among other things, the Essendant Board’s belief in the attractiveness of the proposed transaction with GPC relative to other strategic alternatives, the possibility of losing the opportunity to pursue the GPC transaction if Essendant did not promptly move forward with the GPC transaction, and the Essendant Board’s assessment of the likelihood of another party being interested in a strategic transaction with Essendant, the Essendant Board determined not to contact any third parties at that time. The Essendant Board directed management to proceed with the next steps for the potential transaction.

On February 25, 2018, each of Essendant and GPC opened a virtual data room to facilitate due diligence review. On February 27 and March 1, 2018, Essendant and GPC had due diligence telephone calls concerning the SPR Business and Essendant. To facilitate due diligence and the exchange of non-public information, on March 4 and 16, 2018, Essendant and GPC entered into “clean team” agreements covering various categories of information.

Over the next several weeks, representatives of Essendant and GPC and their respective advisors spoke regularly to conduct additional due diligence and to negotiate transaction terms. On March 5, 2018, functional leaders from Essendant, GPC and SPR met in Atlanta, together with representatives of JPM and Citi, to review transition services and other functional diligence items. On March 12, 2018, Skadden sent a draft of the Merger Agreement to GPC and DPW, GPC’s legal advisor. On March 14, 2018, DPW sent drafts of the Transition Services Agreement and the Supply Chain Transition Services Agreement to Essendant and Skadden. On March 19, 2018, DPW sent a revised draft of the Merger Agreement to Essendant and Skadden. Skadden sent revised drafts of the Transition Services Agreement and the Supply Chain Agreement to DPW and GPC. On March 20, 2018, DPW sent an initial draft of the Separation Agreement to Essendant and Skadden. On March 26, 2018, DPW sent an initial draft of the Tax Matters Agreement to Skadden and Essendant.

During the following weeks, representatives of Essendant and GPC continued to negotiate the terms of the Merger Agreement and the other Transaction Documents. In particular, Essendant and GPC continued to negotiate the termination fee, the allocation of expenses and the assumed and excluded liabilities. Additionally, during this time Essendant and GPC continued to negotiate the disclosure schedules to the Merger Agreement.

 

72


Table of Contents

On March 29, 2018, the GPC Board met with members of GPC management and representatives of JPM to receive a briefing on the proposed transaction, including potential risks and benefits for GPC and its stockholders. Following discussion, the GPC Board directed GPC management to seek to finalize definitive documentation for the proposed transaction on the material terms discussed with the GPC Board. Also on March 29, 2018, representatives of Essendant sent GPC drafts of the financing commitment letter for the borrowing contemplated by Essendant and SpinCo in connection with the proposed transaction.

From March 29, 2018 through April 12, 2018, Essendant and GPC, together with their respective advisors, continued to negotiate definitive agreements. In addition, Essendant and GPC continued their respective due diligence reviews.

On April 5, 2018, the Essendant Board met with members of management and representatives of Skadden and Citi to consider the proposed merger with the SPR Business in exchange for Essendant common stock. Members of management described the progress in negotiations and the due diligence investigations on the SPR Business. They also reviewed the business rationale for the proposed transaction. Representatives of Skadden reviewed, among other things, the Essendant Board’s fiduciary duties in considering the transaction, the proposed structure and terms of the transaction, the consequences of the merger for Essendant equity awards and other compensation plans and agreements, the treatment of equity awards of employees of the SPR Business, the transition services agreements, the terms of the proposed financing, the composition of the board of directors and senior management after closing, the representations and covenants of each party in the transaction agreements, the closing conditions to the merger and the term of the Merger Agreement, and each party’s termination rights and termination fees. Representatives of Skadden also addressed the regulatory matters raised by the proposed merger. Citi discussed the proposed transaction structure and financing arrangements for the transaction, the methodology used by the parties to determine the number of shares of Essendant common stock to be issued in the Merger and certain preliminary financial perspectives regarding Essendant and the SPR Business.

On April 11, 2018, the Essendant Board met with members of management and representatives of Skadden and Citi to review the structure and terms of the proposed transaction, including the related financing arrangements, and to discuss developments since the previous Essendant Board meeting. Mr. Phillips reported that on April 9, 2018, he received a call from Mr. Stefan Kaluzny of Sycamore Partners, the owner of Staples, Inc. As Mr. Phillips was traveling, they agreed that Mr. Kaluzny would call Mr. Phillips on April 13, 2018. Mr. Phillips did not know the purpose of the call. (Following the announcement of the Merger Agreement with GPC on April 12, 2018, Mr. Kaluzny did not call Mr. Phillips on April 13, 2018.) At the April 11, 2018 meeting, members of management reviewed, among other things, the components of the consideration to be delivered to GPC and its shareholders and the methodology used by the parties to determine the amount of Essendant common stock to be issued in the Merger. Skadden reviewed the structure and terms of the proposed transaction, including related developments since the previous Essendant Board meeting. Citi reviewed with the Essendant Board its financial analysis of the aggregate merger consideration and rendered an oral opinion, confirmed by delivery of a written opinion dated April 11, 2018, to the Essendant Board to the effect that, as of such date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, the aggregate merger consideration provided for pursuant to the Merger Agreement was fair, from a financial point of view, to Essendant. Members of management provided an update on the status of the proposed debt financing as well as the various agreements to be entered into in connection with the transaction. Following discussion, the Essendant Board unanimously determined that the Merger Agreement and the Transactions, including the Merger and the issuance of Essendant common stock in connection therewith, were advisable, fair to and in the best interests of Essendant and its stockholders, authorized and approved the Merger Agreement and the other Transaction Documents, and authorized and approved the proposed debt financing.

On April 12, 2018, Essendant and SpinCo executed the Commitment Letter and the SpinCo Commitment Letter to provide financing for the proposed Transactions. GPC and SpinCo entered into the Separation Agreement and Essendant and GPC and certain of their affiliates, including SpinCo, entered into the Merger Agreement and the Tax Matters Agreement.

 

73


Table of Contents

Following the execution of the Merger Agreement and the other Transaction Documents, on April 12, 2018, Essendant and GPC each issued press releases announcing the Transactions.

Following the announcement, on April 17, 2018, Essendant received a letter from Staples, Inc. (“Staples”) expressing its interest in the purchase of 100% of Essendant’s equity for $11.50 per share in cash.

On April 18, 2018, the Essendant Board met with members of management and representatives of Skadden and Citi to consider the Staples proposal. Additionally, on April 18, 2018, Essendant sent notice and a copy of the Staples letter to GPC. Also on April 18, 2018, GPC sent a letter to Essendant stating that the Staples proposal was opportunistic, would deprive Essendant’s shareholders of the value opportunity of participating as shareholders in the combination of Essendant and the SPR Business, and did not constitute, and was not reasonably likely to lead to, a superior proposal as defined in the Merger Agreement.

On April 24, 2018, the Essendant Board met with members of management and representatives of Skadden and Citi to consider the Staples proposal received on April 17, 2018, including to discuss whether it was, or was reasonably likely to lead to, a superior proposal as defined in the Merger Agreement. Citi reviewed, among other things, financial terms of the proposal and certain related financial matters. Skadden outlined for the Essendant Board their fiduciary duties to stockholders when considering the Staples proposal and reviewed relevant terms of the Merger Agreement. Following discussion, the Essendant Board did not conclude that the Staples’s proposal was reasonably likely to lead to a superior proposal as defined in the Merger Agreement.

On April 27, 2018, Essendant informed Staples and GPC that the Essendant Board did not conclude that the Staples proposal was reasonably likely to lead to a superior proposal as defined in the Merger Agreement.

On April 29, 2018, Staples sent a second letter to Essendant requesting that Essendant engage with Staples in the purchase of 100% of Essendant’s outstanding equity for $11.50 per share in cash. Staples indicated in the second letter that, after receiving confidential information about Essendant and engaging in discussions, Staples believed that it would be able to “identify incremental opportunities which should enable [Staples] to increase [its] all-cash offer significantly in excess of $11.50 per share.”

On April 30, 2018, Essendant sent notice and a copy of the second Staples letter to GPC.

On May 1, 2018, GPC sent a letter to Essendant reiterating GPC’s view that the Staples proposal did not constitute, and was not reasonably likely to lead to, a superior proposal as defined in the Merger Agreement.

On May 4, 2018, the Essendant Board met with members of management and representatives of Skadden and Citi to consider Staples’s second proposal. Following discussions, the Essendant Board determined that Staples’s second proposal was reasonably likely to lead to a superior proposal and that, subject to entering into a satisfactory confidentiality agreement, Essendant should engage with Staples.

Also on May 4, 2018, Essendant notified GPC that the Essendant Board had made the determination that Staples’s second proposal was reasonably likely to lead to a superior proposal.

On May 7, 2018, the GPC Board met with members of GPC management and representatives of JPM and DPW to discuss the Staples proposal and potential modifications to the terms of the proposed GPC/Essendant transaction. Among other things, GPC management discussed proposing to Essendant, as a way to demonstrate GPC’s confidence in the upside value creation of the proposed transaction, enhanced transaction terms under which Essendant stockholders would be provided a non-transferable right to a contingent cash payment following completion of the Merger and based on the subsequent trading price of Essendant shares (the “CVR”). The CVR would have a maximum value of $4.00 per Essendant share and a minimum value of zero. Specifically, the CVR would be equal to $12.00 per share minus the greater of (a) the weighted average price of Essendant shares during a 20-day measurement period ending at the later of (i) December 31, 2019 or (ii) the 12-month anniversary of closing, or (b) $8.00, subject to other terms and conditions, including a “knock-out” provision

 

74


Table of Contents

pursuant to which the CVR would terminate if Essendant’s stock trades above $12.00 per share for any 20 out of 30 consecutive trading days prior to the measurement period. Following discussion, the GPC Board directed GPC management to propose, and to seek to negotiate the terms of, the CVR. Also on May 7, 2018, GPC responded to Essendant’s May 4 notification and reiterated that GPC did not believe that Staples’s proposal constituted, or was reasonably likely to lead to, a superior proposal. Despite GPC’s view of Staples’s proposal, “in order to expedite and assure approval of” the GPC/Essendant transaction by Essendant’s stockholders, on May 7, 2018, GPC sent Essendant a term sheet outlining the CVRs as described above.

On May 10, 2018, Essendant sent Staples a confidentiality agreement and notified GPC that it had done so.

On May 15, 2018, Staples sent Essendant a revised draft of the confidentiality agreement. Additionally, on May 15, 2018, DPW sent Essendant and Skadden drafts of proposed documentation to implement the CVR.

Also on May 15, 2018, Mr. Stefan Kaluzny of Sycamore Partners, the owner of Staples, informed Mr. Phillips that Staples would be filing a Schedule 13D to disclose a 9.9% ownership of Essendant.

On May 16, 2018, Staples filed a Schedule 13D with the SEC disclosing a 9.9% ownership of Essendant and Staples’ first and second offer letters sent to Essendant. On May 17, 2018, Essendant sent Staples a revised draft of the confidentiality agreement. As of the date hereof, Staples has not entered into a confidentiality agreement with Essendant and has not otherwise engaged in discussions with Essendant with respect to its proposal.

On May 17, 2018, the Essendant Board met with members of management and representatives of Skadden to consider the adoption of a stockholder rights plan. Representatives of Skadden reviewed, among other things, the Essendant Board’s fiduciary duties, Essendant’s defense profile, and the terms, goals and implementation of the stockholder rights plan. After discussion, the Essendant Board voted to adopt the Rights Plan.

On May 18, 2018, Skadden and DPW discussed the terms of the proposed CVR, the potential tax consequences of the CVR to Essendant and to its stockholders, and GPC’s proposed increases in the termination fee and the expense reimbursement cap as part of the CVR proposal. Skadden then reported Essendant’s request that GPC indemnify Essendant for potential tax consequences from the CVR and Essendant’s unwillingness to increase the termination fee and expense reimbursement cap.

On May 20, 2018, DPW sent Essendant and Skadden revised drafts of the Amendment Agreement and the Tax Matters Agreement Amendment relating to the CVR and the treatment of the Rights issued under the Rights Plan in connection with the Merger. In the revised drafts, GPC did not provide the requested tax indemnity and retained the proposed increases in the termination fee and expense reimbursement cap.

On May 21, 2018, Staples filed an amended Schedule 13D disclosing an 11.16% ownership of Essendant. On May 29, 2018, the Essendant Board adopted an amendment to the Rights Plan.

Between May 21, 2018 and May 30, 2018, Essendant and GPC continued to discuss the terms of the CVR and the treatment of the Rights issued under the Rights Plan in connection with the Merger. On May 31, 2018, Mr. Brown informed Ms. Meloy that GPC’s proposed CVR would not contain a tax indemnity and would include increases in the termination fee and expense reimbursement cap. He asked that Essendant accept or reject the CVR as proposed by GPC.

On June 1, 2018, the Essendant Board met with members of management and representatives of Skadden and Citi to consider whether to accept the CVR on the terms proposed by GPC. Following discussion, the Essendant Board determined that, in light of the current circumstances, it was not in the best interests of Essendant and its stockholders to agree to the terms of the CVR as proposed by GPC at that time. Essendant and GPC then determined that the two companies could not reach agreement on the CVR and their merger agreement would not be amended to reflect the CVR. Also on June 1, 2018, Staples filed an amended Schedule 13D disclosing that

 

75


Table of Contents

Staples had filed a Notification and Report Form pursuant to 16 C.F.R. §801.30 (the “Hart-Scott-Rodino Form”) in connection with the transaction proposed in Staples’ April 29, 2018 letter to Essendant. Staples also disclosed in the amended Schedule 13D that it had delivered a letter on June 1, 2018 to Mr. Phillips to notify Essendant of the filing of the Hart-Scott-Rodino Form.

On June 7, 2018, GPC, SpinCo, Essendant and Merger Sub entered into an amendment to the Merger Agreement to clarify the treatment of the Rights issued under the Rights Plan in connection with the Merger.

On July 2, 2018, Essendant was informed by the FTC that the FTC intended to issue a civil investigative demand (“CID”) to Essendant in connection with Staples’ filing under the HSR Act.

On July 16, 2018, Essendant received the CID issued by the FTC in connection with Staples’ filing under the HSR Act.

On July 31, 2018, Staples sent a third letter to Essendant reaffirming its proposal to acquire all of the outstanding shares of Essendant common stock for $11.50 per share in cash, as well as to again express its belief that after engaging in discussions with Essendant, Staples will be able to “identify incremental value opportunities to enable [Staples] to increase [its] all-cash offer significantly above $11.50 per share.” In the letter Staples indicated that it would seek to enter into a confidentiality agreement with Essendant. Shortly after sending the letter, Staples provided Essendant with a draft merger agreement for its review. On July 31, 2018, Staples filed an amended Schedule 13D disclosing this letter.

Essendant’s Reasons for the Merger

The Essendant Board and senior management routinely review Essendant’s businesses and consider whether possible strategic transactions, including potential acquisitions of, or strategic investments in, complementary businesses, might be advisable in order to enhance value for Essendant and its stockholders. In evaluating the Merger, the Essendant Board consulted with management and legal and financial advisors, held numerous meetings, received materials for its review and consideration, and considered a variety of factors and, in reaching its decision that the Merger Agreement, the Merger and the other Transactions contemplated by the Merger Agreement, including the Share Issuance, are advisable and in the best interests of Essendant and its stockholders, and to approve the Merger Agreement and the transactions contemplated thereby and to recommend that the Essendant stockholders approve the Share Issuance, the Essendant Board carefully considered a number of factors, including, but not limited to, the following:

 

    the Merger is expected to result in a more competitive combined company with the ability to harness each of Essendant’s and the SPR Business’s strengths and capitalize on opportunities to create value in a rapidly evolving market, including:

 

    greater resources to support and partner with the independent dealer channel and resellers in other sales channels and to drive enhanced value for customers, consumers and stockholders through expanded reach, a broader network and capabilities and operational efficiencies;

 

    an expanded and optimized assortment of branded and private-label products across a broad set of categories; and

 

    the ability to enhance our customers’ businesses by developing and offering innovative marketing, analytics and e-commerce solutions.

 

    the combined company is expected to drive more profitable growth, reduce leverage and create meaningful value for Essendant stockholders through increased scale, improved service capabilities and an enhanced financial profile, including significant cost savings, increased free cash flow and a stronger and more flexible balance sheet;

 

    the potential that the Transactions will expand Essendant’s product offerings and position the combined company for sustained performance in the highly competitive business products market;

 

76


Table of Contents
    the Merger is expected to result in enhanced earnings before interest, tax, depreciation and amortization (“EBITDA”) margins and approximately $7 billion of net sales for the combined company;

 

    the Merger is expected to unlock more than $75 million in annual run-rate net cost synergies, 90% of which are expected to be realized within two years post-closing, and more than $100 million in working capital improvements;

 

    the expectation that Essendant will benefit from increased liquidity in its stock as a result of the issuance of shares of Essendant common stock in the transaction benefitting all stockholders;

 

    the terms of the Merger Agreement were the result of extensive arms’-length negotiations between representatives of Essendant and GPC;

 

    the prospective financial results of the SPR Business (as well as the risks involved in achieving those results), the fit of the business combination with Essendant’s previously established strategic goals and the results of Essendant’s due diligence review of the SPR Business;

 

    the opinion of Citi, dated April 11, 2018, to the Essendant Board as to the fairness, from a financial point of view and as of the date of the opinion, to Essendant of the aggregate merger consideration provided for pursuant to the Merger Agreement, which opinion was based on and subject to the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken as more fully described below under the caption “—Opinion of Essendant’s Financial Advisor;”

 

    the Transactions are expected to be tax free to Essendant stockholders;

 

    immediately following the effective time of the Merger, the Essendant Board will be expanded to 12 individuals, comprised of four individuals designated by Essendant, four individuals designated by GPC and four individuals mutually agreed between Essendant and GPC;

 

    following completion of the Transactions, certain current executive officers of Essendant will continue in their current positions, with additional talent to be gained from the SPR Business; and

 

    the Merger Agreement permits the Essendant Board to withdraw or modify its recommendation that Essendant stockholders vote in favor of the Share Issuance or to terminate the Merger Agreement in response to a Superior Proposal, subject to the payment of a $12,000,000 termination fee, as described below in “The Merger Agreement—Board Recommendation.”

The Essendant Board also considered certain countervailing factors in its deliberations concerning the Merger and the other Transactions, including:

 

    the inability of Essendant to influence the operations of the SPR Business during the potentially significant time period prior to consummating the Transactions;

 

    the possibility that the value and efficiencies expected to result from the Transactions may fail to materialize;

 

    the possibility that revenue dis-synergies could result from the Transactions, which could adversely affect the combined company’s results of operations;

 

    the challenges inherent in fully and successfully separating the operations of the SPR Business from GPC and integrating such business with Essendant;

 

    the significant one-time costs, including transaction-related expenses, expected to be incurred in connection with the Transactions;

 

    the possibility that the public announcement of the Merger Agreement could have an adverse effect on Essendant, including effects on Essendant’s customers, operating results and share price, and on Essendant’s ability to attract and retain key management and personnel;

 

77


Table of Contents
    the risk that Essendant stockholders may not approve the Share Issuance, which is a condition to the consummation of the Transactions;

 

    that Essendant and GPC may fail to obtain the required regulatory approvals in connection with the Merger, or regulators may grant approval contingent upon burdensome conditions;

 

    the possibility that the Transactions may not be consummated and the potential adverse consequences, including substantial costs that would be incurred and potential damage to Essendant’s reputation, if the Transactions are not completed;

 

    the potential impact of the restrictions under the Merger Agreement on Essendant’s ability to take certain actions during the period between execution of the Merger Agreement and the consummation of the Transactions, generally requiring Essendant to conduct business only in the ordinary course or, if not in the ordinary course, to first obtain GPC’s consent (which could delay or prevent Essendant from undertaking business opportunities that may arise pending completion of the Transactions);

 

    the restrictions imposed on Essendant’s ability to take certain corporate actions under the terms of the Tax Matters Agreement among Essendant, SpinCo and GPC, which could reduce its ability to engage in certain future business transactions that might be advantageous;

 

    the dilution of the ownership interests of Essendant’s current stockholders that will result from the Share Issuance and the fact that Essendant’s current stockholders, as a group, will control less than a majority of Essendant after consummation of the Transactions;

 

    the risk that the Transactions and integration may divert management attention and resources away from other strategic opportunities and from operational matters;

 

    the risk that the Transactions may discourage other companies from trying to acquire Essendant before or for a period of time following completion of the Transactions;

 

    the risk that the historical financial information of the SPR Business may not be representative of its results if it had been operated independently of GPC and may not be a reliable indicator of future results of the SPR Business;

 

    that the SPR Business will be dependent on the provision of transition services by GPC for a period of time after completion of the Merger, and that Essendant may be unable to provide benefits and services, or access to equivalent financial strength and resources, to the SPR Business that historically have been provided by GPC;

 

    the need for Essendant and SpinCo to incur substantial indebtedness in connection with the Transactions;

 

    that Essendant could be required to pay a termination fee of $12,000,000 in certain circumstances under the Merger Agreement;

 

    that the indemnities provided by GPC under the Merger Agreement are limited in scope;

 

    the fact that the completion of the Merger is conditioned, among other things, on the Internal Reorganization and the Distribution; and

 

    certain of the other risks described above under the section entitled “Risk Factors,” beginning on page 47.

The Essendant Board considered all of the factors in support of and weighing against the Transactions as a whole, including the factors described above, and, on balance, concluded that those factors supported a determination to approve the Merger Agreement and the transactions contemplated thereby, including the Merger, the Share Issuance and the other Transaction Documents to which Essendant is a party, and to proceed with the Transactions.

 

78


Table of Contents

This discussion of the information and factors considered by the Essendant Board is not exhaustive. In view of the wide variety and complexity of factors considered by the Essendant Board in connection with its evaluation of the Transactions, the Essendant Board did not consider it practical to, and did not attempt to, quantify, rank or assign relative weights to the factors that it considered in making its decision to approve the Merger Agreement and the transactions contemplated thereby, including the Merger, the Share Issuance and the other Transaction Documents to which Essendant is a party, and in making its recommendation to the Essendant stockholders that they approve the Share Issuance. In considering the factors described above and any other factors, individual members of the Essendant Board may have viewed factors differently or given different weight, merit or consideration to different factors.

This explanation of the factors considered by the Essendant Board is in part forward-looking in nature and, therefore, should be read in light of the factors discussed in the sections of this proxy statement/prospectus-information statement entitled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors.”

After consideration, on April 11, 2018, the Essendant Board unanimously determined that the Merger Agreement, the Merger and the other transactions contemplated by the Merger Agreement, including the Share Issuance, are advisable and in the best interests of Essendant and its stockholders, and approved the Merger Agreement and the transactions contemplated thereby.

GPC’s Reasons for the Separation, the Distribution and the Merger

From time to time the GPC Board, together with GPC’s senior management, has reviewed GPC’s business segments and considered a variety of financial and strategic opportunities to enhance stockholder value. As a result of this process, GPC explored potential strategic alternatives for the SPR Business, with assistance from its financial advisors, which alternatives included retaining the SPR Business, conducting an auction process for the sale of the SPR Business, and pursuing a spin-sale hybrid transaction. In reaching a decision to approve the Merger Agreement, the Separation Agreement and the other Transaction Documents and to proceed with the Transactions, the GPC Board, in consultation with GPC senior management and its financial and legal advisors, held numerous meetings, received materials for its review and consideration, and considered a variety of factors, including the significant factors listed below in support of the decision:

 

    the strategic and operational benefits of separating the SPR Business from GPC’s other businesses, including that:

 

    the separation of the SPR Business from GPC would provide each business with the ability to adapt more quickly to rapid changes, customer dynamics and changes in the competitive landscapes in their respective markets;

 

    the separation of the SPR Business from GPC would provide each business with greater flexibility to invest capital in a manner appropriate for its distinct strategic and business needs and facilitate a more efficient allocation of capital; and

 

    the separation of the SPR Business from GPC would allow management of each business more flexibility to pursue its distinct operating priorities and strategies and opportunities for long-term growth, with GPC being able to strengthen its focus on its core, larger global automotive and industrial businesses;

 

    the payment by the SPR Business to GPC of approximately $347 million in one-time special cash payments in connection with the Separation and the Distribution, which will be utilized by GPC as part of its disciplined capital allocation strategy;

 

    the complementary nature of the service and product offerings of the SPR Business with those of Essendant, which will create a combined company that has an enhanced ability to serve customers through improved scale and expanded service capabilities and can offer improved opportunities for suppliers given the expanded customer reach;

 

79


Table of Contents
    the opportunity for the combined SPR Business and Essendant to have an enhanced financial profile, which will drive an improved margin profile through cost savings and improved cash flows and will deliver additional margin upside;

 

    the potential for the combined cash flows of the SPR Business and Essendant to support accelerated diversification, investment in higher growth segments and an opportunity to reinvest in the independent dealer channel, thereby improving the industry ecosystem;

 

    the potential procurement, operational and SG&A synergies associated with a combination of the SPR Business and Essendant, which synergies are believed to be significant (as more fully described under the caption “—Estimated Run-Rate Cost Synergies from the Transactions”);

 

    the ability of the combined Essendant and SPR Business to be more competitive in the industry, particularly in light of the continued consolidation within the independent dealer channel and Amazon’s continued gain of market share in the wholesale industry;

 

    the ability of the combined Essendant and SPR Business to use equity as an acquisition currency would enable it to evaluate a broader array of acquisition opportunities;

 

    the enhanced ability of the combined company to attract and retain qualified management;

 

    the benefit to the SPR Business from being freed of existing capital constraints imposed by GPC which have prevented the SPR Business from pursuing its optimal business strategy;

 

    the fact that GPC shareholders would own approximately 51% of the combined Essendant and SPR Business on a fully diluted basis immediately following the Merger and would have the opportunity to participate in any increase in the value of the shares of Essendant common stock, including potential increases in stockholder value associated with executing on the identified synergy opportunities;

 

    the fact that four individuals designated by GPC would be directors of the combined company following the Merger;

 

    the fact that the current chief executive officer of the SPR Business would be the chief operating officer, and GPC and Essendant would mutually agree on certain other members of the management team, of the combined company following the Merger;

 

    the expectation that the Separation, the Distribution and the Merger generally would result in a tax-efficient disposition of the SPR Business for GPC and its stockholders;

 

    the scope of the due diligence review conducted by GPC’s management of Essendant’s business and the reported findings from such due diligence; and

 

    the review by the GPC Board of materials regarding the proposed transaction with Essendant provided by GPC’s financial and legal advisors, and of the terms, conditions and structure of the Merger Agreement, the Separation Agreement and the other Transaction Documents and the Transactions, including the parties’ representations, warranties and covenants, the conditions to their respective obligations and the termination provisions of the Transaction Documents, as well as the likelihood of the consummation of the Transactions.

In the course of its deliberations, the GPC Board also considered a variety of risks and other potentially negative factors, including the following:

 

    risks relating to the separation of the SPR Business from GPC and the operation of the SPR Business separate from the other GPC businesses, including the loss of synergies and joint purchasing power, the costs of separation, and the risk of not realizing the anticipated benefits of the separation;

 

    while the Transactions are expected to be completed, there is no assurance that all conditions to the parties’ obligations to complete the Transactions will be satisfied or waived, including the receipt of Essendant stockholder approval and required regulatory approvals and, as a result, it is possible that the Transactions might not be completed;

 

80


Table of Contents
    because the consideration to be received by GPC shareholders pursuant to the Merger consists of a fixed number of shares of Essendant common stock, the value of the Essendant common stock received pursuant to the Merger could fluctuate significantly prior to and following the Merger based on a number of factors, many of which are outside the control of GPC or are unrelated to the performance of the SPR Business and some of which are outside of the control both GPC and Essendant, including general market conditions;

 

    the risk that the integration of the SPR Business and Essendant may be complex and time-consuming and may require substantial resources and effort, and that the synergies and cost savings anticipated by the parties may not be realized or may take longer to realize than anticipated;

 

    the risk that an extended period of time could pass between the signing of the Merger Agreement and completion of the Transactions, and the uncertainty created for GPC, the SPR Business and their respective customers, employees and shareholders during that period;

 

    GPC, prior to the completion of the Transactions, is required to conduct the SPR Business in the ordinary course, subject to specific limitations and exceptions, which could delay or prevent GPC from pursuing business opportunities that might arise prior to the completion of the Transactions;

 

    the risk that the Distribution might not qualify as a tax-free transaction under Section 355(a) of the Code or that the Merger might not qualify as a tax-free “reorganization” under Section 368(a) of the Code, in which case GPC shareholders could be required to pay substantial U.S. federal income taxes;

 

    the effect of divesting the SPR Business pursuant to the Transactions on GPC’s future growth rate, earnings per share and cash flows from operating activities; and

 

    the other risks described above under the section entitled “Risk Factors,” beginning on page 47.

The GPC Board considered all of the factors in support of and weighing against the Transactions as a whole, including the factors described above, and, on balance, concluded that those factors supported a determination to approve the Merger Agreement, the Separation Agreement and the other Transaction Documents to which GPC is a party, and to proceed with the Transactions.

This discussion of the information and factors considered by the GPC Board is not exhaustive. In view of the wide variety and complexity of factors considered by the GPC Board in connection with its evaluation of the strategic alternatives available to GPC for the SPR Business and the evaluation of the Transactions, the GPC Board did not consider it practical to, and did not attempt to, quantify, rank or assign relative weights to the factors that it considered in making its decision to approve the Merger Agreement, the Separation Agreement and the other Transaction Documents to which GPC is a party and to proceed with the Transactions. In considering the factors described above and any other factors, individual members of the GPC Board may have viewed factors differently or given different weight, merit or consideration to different factors.

This discussion of GPC’s reasons for the Transactions is forward-looking in nature and involves risks and uncertainties that could result in the expectations contained in such forward-looking statements not to occur, including those risks and uncertainties discussed in the sections of this document titled “Cautionary Statement Regarding Forward-Looking Statements” and “Risk Factors,” which sections should be read in conjunction with this discussion of GPC’s reasons for the Transactions.

Estimated Run-Rate Cost Synergies from the Transactions

Essendant management prepared estimates of cost synergies that management expected would result from Essendant’s combination with the SPR Business. Essendant management provided to, and discussed with, the Essendant Board and to Citi, for its use and reliance, these non-public, internal estimates of cost synergies.

Essendant management estimated that the combination of the SPR Business with Essendant would result in more than $75 million in annual run-rate net cost synergies, 90% of which are expected to be realized within two years

 

81


Table of Contents

post-closing, and more than $100 million in working capital improvements. Essendant management expects to incur up to $50 million in cash costs and approximately $60 million in year one post-close non-cash costs.

In order to achieve these estimated net cost synergies, Essendant expects to implement synergy work plans in each functional area, engage a third-party consultant to assist with synergy capture and integration, and develop a tracking system to monitor progress relative to the work plans.

Important factors that may affect Essendant’s actual ability to achieve these estimated net cost synergies are further described under “Cautionary Statement Regarding Forward-Looking Statements.” Information regarding the uncertainties associated with realizing these estimated net cost synergies is also described under the heading “Risk Factors—Essendant may not realize the anticipated cost synergies and growth opportunities from the Transactions.”

Opinion of Essendant’s Financial Advisor

Essendant has engaged Citi as its financial advisor in connection with the proposed Merger. In connection with Citi’s engagement, Essendant requested that Citi evaluate the fairness, from a financial point of view, to Essendant of the aggregate merger consideration provided for pursuant to the Merger Agreement. On April 11, 2018, at a meeting of the Essendant Board held to evaluate the Merger, Citi rendered an oral opinion, confirmed by delivery of a written opinion dated April 11, 2018, to the Essendant Board to the effect that, as of such date and based on and subject to various assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, the aggregate merger consideration provided for pursuant to the Merger Agreement was fair, from a financial point of view, to Essendant.

The full text of Citi’s written opinion, dated April 11, 2018, to the Essendant Board, which describes the assumptions made, procedures followed, matters considered and limitations and qualifications on the review undertaken, is attached as Annex A to this document and is incorporated herein by reference. The description of Citi’s opinion set forth below is qualified in its entirety by reference to the full text of Citi’s opinion. Citi’s opinion was provided for the information of the Essendant Board (in its capacity as such) in connection with its evaluation of the aggregate merger consideration from a financial point of view to Essendant and did not address any other terms, aspects or implications of the Merger or related transactions. Citi expressed no view as to, and its opinion did not address, the underlying business decision of Essendant to effect or enter into the Merger or any related transactions, the relative merits of the Merger or any related transactions as compared to any alternative business strategies that might exist for Essendant or the effect of any other transaction which Essendant might engage in or consider. Citi’s opinion is not intended to be and does not constitute a recommendation to any securityholder as to how such securityholder should vote or act on any matters relating to the proposed Merger, any related transaction or otherwise.

In arriving at its opinion, Citi:

 

    reviewed drafts, each dated April 11, 2018, of the Merger Agreement and the Separation Agreement;

 

    held discussions with certain senior officers, directors and other representatives of Essendant and certain senior officers and other representatives of GPC and the SPR Business concerning the SPR Business (including its operations and prospects) and the businesses, operations and prospects of Essendant;

 

   

reviewed certain publicly available and other business and financial information relating to the SPR Business and Essendant provided to or discussed with Citi by the managements of Essendant, GPC and the SPR Business, including certain financial forecasts and other information and data relating to the SPR Business provided to or discussed with Citi by the managements of GPC and the SPR Business (including as to tax matters and as adjusted and approved by the management of Essendant), certain financial forecasts and other information and data relating to Essendant (including as to tax matters) provided to or discussed with Citi by the management of Essendant, and certain information and data

 

82


Table of Contents
 

relating to the potential strategic implications and financial and operational benefits (including the amount, timing and achievability thereof) expected by the management of Essendant to result from the Merger and related transactions;

 

    reviewed the financial terms of the Merger as set forth in the Merger Agreement in relation to, among other things, current and historical market prices of Essendant common stock, the financial condition and certain historical and projected financial and operating data of the SPR Business and Essendant, and the capitalization of SpinCo and Essendant;

 

    analyzed certain financial, stock market and other publicly available information relating to the businesses of certain other companies whose operations Citi considered relevant in evaluating those of the SPR Business and Essendant;

 

    evaluated certain potential pro forma financial effects of the Merger and related transactions relative to Essendant on a standalone basis utilizing the financial forecasts and other information and data relating to the SPR Business and Essendant and the potential strategic implications and financial and operational benefits referred to above; and

 

    conducted such other analyses and examinations and considered such other information and financial, economic and market criteria as Citi deemed appropriate in arriving at its opinion.

In rendering its opinion, Citi assumed and relied, without independent verification, upon the accuracy and completeness of all financial and other information and data publicly available or provided to or otherwise reviewed by or discussed with Citi and upon the assurances of the managements and other representatives of Essendant, GPC and the SPR Business that they were not aware of any relevant information that was omitted or that remained undisclosed to Citi. Citi assumed, at Essendant’s direction, that there were no changes in the assets, liabilities, financial condition, results of operations, businesses or prospects of the SPR Business since the dates on which the most recent audited and unaudited financial statements or other information (financial or otherwise) relating to the SPR Business were made available to Citi that would be meaningful in any respect to Citi’s analyses or opinion. Citi also assumed, at Essendant’s direction, that, when delivered as contemplated by the Merger Agreement, additional audited and interim unaudited combined financial statements relating to the SPR Business would not reflect any information that would be meaningful in any respect to Citi’s analyses or opinion. With respect to the financial forecasts and other information and data relating to the SPR Business and Essendant that Citi was directed to utilize in its analyses, including, without limitation, as to the adjustments to the financial forecasts and other information and data relating to the SPR Business, tax matters and potential strategic implications and financial and operational benefits expected by the management of Essendant to result from the Merger and related transactions, Citi was advised by the managements of Essendant, GPC and the SPR Business, as the case may be, and Citi assumed, with Essendant’s consent, that they were reasonably prepared on bases reflecting the best currently available estimates and judgments of the managements of Essendant, GPC and the SPR Business as to, and were a reasonable basis upon which to evaluate, the future financial performance of the SPR Business and Essendant, such tax matters and the potential strategic implications and financial and operational benefits (including the amount, timing and achievability thereof) expected by the management of Essendant to result from, and other potential pro forma financial effects of, the Merger and related transactions and the other matters covered thereby. Citi expressed no view or opinion as to any financial forecasts and other information or data (or underlying assumptions on which any such financial forecasts and other information or data were based) provided to or otherwise reviewed by or discussed with Citi and Citi assumed, with Essendant’s consent, that the financial results, including with respect to the potential strategic implications and financial and operational benefits expected to result from the Merger and related transactions, reflected in such financial forecasts and other information and data would be realized in the amounts and at the times projected.

Citi relied, at Essendant’s direction, upon the assessments of the managements of Essendant, GPC and the SPR Business, as the case may be, as to, among other things, (i) the related transactions, including with respect to the timing thereof and the assets, liabilities and financial and other terms involved, (ii) the current and projected working capital and capitalization of SpinCo, Essendant and the pro forma combined company (including,

 

83


Table of Contents

without limitation, as to equity awards and the conversion and dilutive impact of such awards), (iii) the potential impact on the SPR Business and Essendant of certain market, competitive, cyclical and other trends and developments in and prospects for, and governmental, regulatory and legislative matters relating to or otherwise affecting, the wholesale office products distribution industry, (iv) the potential impact on Essendant of its cost reduction activities, including the nature of such activities and the timing and amounts involved, (v) existing and future contracts, relationships, agreements and arrangements with, and the ability to attract, retain and/or replace, key employees, customers, suppliers and other commercial relationships of the SPR Business and Essendant, and (vi) the ability to integrate the operations of Essendant and the SPR Business. Citi assumed, with Essendant’s consent, that there would be no developments with respect to any such matters (including, without limitation, any capital structure adjustments, whether relating to the number of fully diluted shares of Essendant common stock or SpinCo common stock, on a standalone or combined basis, as of the effective time of the Merger or otherwise) that would have an adverse effect on SpinCo (including the SPR Business), Essendant, the Merger or related transactions (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to Citi’s analyses or opinion.

Citi evaluated SpinCo (including the SPR Business) and the Merger for purposes of Citi’s analyses and opinion after giving effect to the related transactions. Citi did not make and was not provided with an independent evaluation or appraisal of the assets or liabilities (contingent, accrued, derivative, off-balance sheet or otherwise) of SpinCo (including the SPR Business), Essendant or any business or entity and Citi did not make any physical inspection of the properties or assets of SpinCo (including the SPR Business), Essendant or any other business or entity. Citi did not evaluate the solvency or fair value of SpinCo (including the SPR Business), Essendant or any other business or entity under any state, federal or other laws relating to bankruptcy, insolvency or similar matters. Citi expressed no view or opinion as to any pending or potential litigation, claims or governmental, regulatory or other proceedings, enforcement actions or investigations. Citi assumed, with Essendant’s consent, that the Merger and related transactions would be consummated in accordance with their respective terms and in compliance with all applicable laws, documents and other requirements, without waiver, modification or amendment of any material term, condition or agreement, and that, in the course of obtaining the necessary governmental, regulatory or third party approvals, consents, releases, waivers and agreements for the Merger and related transactions, no delay, limitation, restriction, condition or other action, including any divestiture or other requirements, amendments or modifications, would be imposed or occur that would have an adverse effect on SpinCo (including the SPR Business), Essendant, the Merger or related transactions (including the contemplated benefits thereof) or that otherwise would be meaningful in any respect to Citi’s analyses or opinion. Citi also assumed, with Essendant’s consent, that the Merger and related transactions would qualify, as applicable, for the intended tax treatment contemplated by the Merger Agreement, the Separation Agreement and related agreements. Citi’s opinion, as expressed therein, relates to the relative values of SpinCo (including the SPR Business) and Essendant. Citi did not express any view or opinion as to the actual value of Essendant common stock or any other securities when issued or distributed or the prices at which Essendant common stock or any other securities would trade or otherwise be transferable at any time, including following the announcement or consummation of the Merger and related transactions. Citi assumed, with Essendant’s consent, that SpinCo would retain or acquire all assets, properties and rights necessary for the operations of the SPR Business, that appropriate reserves, indemnification arrangements or other provisions were or would be made with respect to liabilities of or relating to SpinCo (including the SPR Business), and that neither SpinCo nor Essendant would directly or indirectly assume or incur any liabilities that are contemplated to be excluded as a result of the Merger, the related transactions or otherwise. Representatives of Essendant advised Citi, and Citi further assumed, that the final terms of the Merger Agreement and the Separation Agreement would not vary materially from those set forth in the drafts reviewed by Citi. Citi did not express any view or opinion with respect to accounting, tax, regulatory, legal or similar matters, including, without limitation, tax consequences resulting from the Merger, related transactions or otherwise or changes in, or the impact of, tax laws, regulations and governmental and legislative policies on SpinCo (including the SPR Business), Essendant, the Merger or related transactions (including the contemplated benefits thereof), and Citi relied, with Essendant’s consent, upon the assessments of representatives of Essendant as to such matters.

 

84


Table of Contents

Citi’s opinion did not address any terms (other than the aggregate merger consideration to the extent expressly specified in such opinion), aspects or implications of the Merger or related transactions, including, without limitation, the form or structure of the Merger, the form or structure, or financial or other terms, of any related transactions, or any terms, aspects or implications of any related agreements or any indemnification or other agreement, arrangement or understanding to be entered into in connection with or contemplated by the Merger, related transactions or otherwise. Citi expressed no view as to, and its opinion did not address, the fairness (financial or otherwise) of the amount or nature or any other aspect of any compensation or other consideration to any officers, directors or employees of any parties to the Merger or related transactions, or any class of such persons, relative to the aggregate merger consideration or otherwise. Citi’s opinion was necessarily based upon information available, and financial, stock market and other conditions and circumstances existing and disclosed, to Citi as of the date of its opinion. Although subsequent developments may affect Citi’s opinion, Citi has no obligation to update, revise or reaffirm its opinion. As the Essendant Board was aware, the credit, financial and stock markets, and the industry in which the SPR Business and Essendant operate, have experienced and continue to experience volatility and Citi expressed no view or opinion as to any potential effects of such volatility on SpinCo or Essendant (or their respective businesses) or the Merger or related transactions (including the contemplated benefits thereof). The issuance of Citi’s opinion was authorized by Citi’s fairness opinion committee.

In preparing its opinion, Citi performed a variety of financial and comparative analyses, including those described below. The summary of the analyses below is not a complete description of Citi’s opinion or the analyses underlying, and factors considered in connection with, Citi’s opinion. The preparation of a financial opinion is a complex analytical process involving various determinations as to the most appropriate and relevant methods of financial analysis and the application of those methods to the particular circumstances and, therefore, a financial opinion is not readily susceptible to summary description. Citi arrived at its ultimate opinion based on the results of all analyses undertaken by it and factors assessed as a whole, and it did not draw, in isolation, conclusions from or with regard to any one factor or method of analysis. Accordingly, Citi believes that the analyses must be considered as a whole and that selecting portions of its analyses and factors or focusing on information presented in tabular format, without considering all analyses and factors or the narrative description of the analyses, could create a misleading or incomplete view of the processes underlying such analyses and its opinion.

In its analyses, Citi considered industry performance, general business, economic, market and financial conditions and other matters existing as of the date of its opinion, many of which are beyond the control of Essendant, GPC and SpinCo. No company or business reviewed is identical or directly comparable to Essendant, SpinCo or their respective businesses and an evaluation of these analyses is not entirely mathematical; rather, the analyses involve complex considerations and judgments concerning financial and operating characteristics and other factors that could affect the public trading or other values of the companies or businesses reviewed or the results of any particular analysis.

The estimates contained in Citi’s analyses and the ranges resulting from any particular analysis are not necessarily indicative of actual values or predictive of future results or values, which may be significantly more or less favorable than those suggested by such analyses. In addition, analyses relating to the value of businesses or securities do not purport to be appraisals or to reflect the prices at which businesses or securities actually may be sold or acquired. Accordingly, the estimates used in, and the results derived from, Citi’s analyses are inherently subject to substantial uncertainty.

Citi was not requested to, and it did not, recommend or determine the specific consideration payable in the Merger. The type and amount of consideration payable in the Merger were determined through negotiations between Essendant and GPC and the decision to enter into the Merger Agreement, the Separation Agreement and related documents was solely that of the Essendant Board. Citi’s opinion was only one of many factors considered by the Essendant Board in its evaluation of the Merger and related transactions and should not be viewed as determinative of the views of the Essendant Board or the management of Essendant with respect to the Merger or related transactions or the consideration payable in the Merger or related transactions.

 

85


Table of Contents

Financial Analyses

The summary of the financial analyses described below under this heading “—Financial Analyses” is a summary of the material financial analyses prepared and reviewed with the Essendant Board in connection with Citi’s opinion, dated April 11, 2018. The summary set forth below does not purport to be a complete description of the financial analyses performed by, and underlying the opinion of, Citi, nor does the order of the financial analyses described represent the relative importance or weight given to those financial analyses by Citi. Certain financial analyses summarized below include information presented in tabular format. In order to fully understand the financial analyses, the tables must be read together with the text of each summary as the tables alone do not constitute a complete description of the financial analyses. Considering the data in the tables below without considering the full narrative description of the financial analyses, including the methodologies and assumptions underlying the financial analyses, could create a misleading or incomplete view of such financial analyses. Future results may be different from those described and such differences may be material. For purposes of the financial analyses described below, the term (a) “adjusted EBITDA” generally means earnings before interest, taxes, depreciation and amortization, excluding one-time, non-recurring and non-cash items and stock-based compensation expense, including operating lease expense, as applicable, and, in the case of the SPR Business, including incremental ongoing costs associated with the SPR Business operating as a standalone business as estimated by Essendant management and presented by Essendant management for accounting purposes on a last-in, first-out basis. Financial data utilized for the SPR Business and Essendant in the financial analyses described below, to the extent based on internal financial forecasts and estimates of management, were based on certain financial forecasts and other information and data relating to the SPR Business provided to or discussed with Citi by the managements of GPC and the SPR Business (as adjusted and approved by the management of Essendant) and certain financial forecasts and other information and data relating to Essendant provided to or discussed with Citi by the management of Essendant, referred to as the SPR Business forecasts and the Essendant forecasts, respectively. Approximate implied equity value reference ranges reflected in the summaries of the financial analyses described below were rounded to the nearest $5 million and were calculated, in the case of the SPR Business, after taking into account the SpinCo special cash payment and the issuance by SPR HoldCo of preferred stock.

In deriving approximate implied reference ranges of the aggregate number of issuable shares of Essendant common stock, referred to as implied issuable shares, for purposes of the financial analyses described below, Citi (a) calculated implied exchange ratio reference ranges by dividing the low-end (or high-end, as the case may be) of the approximate implied equity value reference ranges derived for the SPR Business from the financial analyses described below by the high-end (or low-end, as the case may be) of the approximate implied equity value reference ranges derived for Essendant from such analyses in order to calculate the low-end (high-end) of the implied exchange ratio reference ranges and (b) multiplied such implied exchange ratio reference ranges by the fully diluted shares of Essendant common stock as of the effective time of the Merger as estimated by Essendant as of the date of the Merger Agreement, taking into account the dilutive impact from the conversion of certain equity awards held by employees of the SPR Business immediately prior to the effective time of the Merger, which awards will be converted into Essendant equity awards at closing, per Essendant. Approximate implied issuable shares reflected in the summaries of the financial analyses described below were rounded to the nearest thousand.

Selected Public Companies Analyses. Citi performed separate selected public companies analyses of the SPR Business and Essendant in which Citi reviewed certain financial and stock market information, as applicable, relating to the SPR Business, Essendant and the following four selected companies that Citi considered generally relevant as publicly traded companies with operations in the business products market, collectively referred to as the selected companies:

 

    ACCO Brands Corporation

 

    Office Depot, Inc.

 

    Steelcase Inc.

 

    Veritiv Corporation

 

86


Table of Contents

Citi reviewed, among other information, enterprise values (calculated as fully diluted equity values based on closing stock prices on April 10, 2018, plus total debt (including operating lease expense, as applicable), plus preferred stock and non-controlling interests (as applicable) and minus cash and cash equivalents and investments in unconsolidated affiliates (as applicable)) as a multiple of calendar year 2017 actual and calendar year 2018 estimated adjusted EBITDA. Financial data of the selected companies were based on public filings, publicly available Wall Street research analysts’ estimates and other publicly available information and calendarized when necessary. Financial data of the SPR Business was based on the SPR Business forecasts. Financial data of Essendant was based on the Essendant forecasts.

The overall low to high calendar year 2017 actual and calendar year 2018 estimated adjusted EBITDA multiples observed for the selected companies were 4.4x to 9.1x (with a mean and a median of 6.8x, including Essendant, and a mean and a median of 6.9x, excluding Essendant) and 4.7x to 8.8x (with a mean of 6.9x and a median of 6.8x, including Essendant, and a mean and a median of 6.8x, excluding Essendant), respectively. Citi noted that the calendar year 2017 actual and calendar year 2018 estimated adjusted EBITDA multiples observed for Essendant were 6.7x and 7.2x, respectively.

Citi then applied selected ranges of calendar year 2017 actual and calendar year 2018 estimated adjusted EBITDA multiples of 6.3x to 7.3x and 6.3x to 7.3x, respectively, derived from the selected companies to corresponding data of the SPR Business and Essendant based on, in the case of the SPR Business, the SPR Business forecasts and, in the case of Essendant, the Essendant forecasts. These analyses indicated approximate implied equity value reference ranges based on calendar year 2017 actual and calendar year 2018 estimated adjusted EBITDA of $300 million to $405 million and $190 million to $275 million, respectively, for the SPR Business and $290 million to $410 million and $235 million to $345 million, respectively, for Essendant.

Based on the approximate implied equity value reference ranges derived for the SPR Business and Essendant described above, Citi calculated the following approximate ranges of implied issuable shares, as compared to the aggregate merger consideration:

 

Ranges of

Implied Issuable Shares Based on:

  

Aggregate Merger

Consideration

CY 2017A

Adjusted EBITDA

28.116 million—54.088 million

  

CY 2018E

Adjusted EBITDA

21.046 million—45.246 million

   40,191,482

Discounted Cash Flow Analyses. Citi performed separate discounted cash flow analyses of the SPR Business and Essendant in which Citi calculated the estimated present value (as of December 31, 2017) of the standalone unlevered, after-tax free cash flows that the SPR Business and Essendant were forecasted to generate during the calendar years ending December 31, 2018 through December 31, 2020 based on, in the case of the SPR Business, the SPR Business forecasts and, in the case of Essendant, the Essendant forecasts. For purposes of these analyses, stock-based compensation was treated as a cash expense and tax benefits or decreases associated with accelerated tax depreciation in respect of the SPR Business and Essendant during the calendar years ending December 31, 2018 through December 31, 2027 and taxes on undistributed non-U.S. earnings and profit in respect of Essendant were taken into account.

Citi calculated terminal values for the SPR Business and Essendant by applying to the standalone unlevered, after-tax free cash flows of the SPR Business and Essendant for the calendar year ending December 31, 2020 (assuming normalized depreciation equal to capital expenditures in the terminal year) a selected range of perpetuity growth rates of 0.0% to 1.5%. The present values (as of December 31, 2017) of the cash flows and terminal values were then calculated using a selected range of discount rates of 9.0% to 10.4% in the case of Essendant and a selected range of discount rates of 9.2% to 10.5% in the case of the SPR Business. These analyses indicated approximate implied equity value reference ranges of $230 million to $325 million for the SPR Business and $200 million to $315 million for Essendant.

 

87


Table of Contents

Based on the approximate implied equity value reference ranges derived for the SPR Business and Essendant described above, Citi calculated the following approximate range of implied issuable shares, as compared to the aggregate merger consideration:

 

Range of Implied Issuable Shares

   Aggregate Merger
Consideration
28.056 million—63.013 million    40,191,482

Certain Additional Information

As additional information that was not considered part of Citi’s financial analyses with respect to its opinion but was noted for informational purposes, Citi performed an illustrative discounted cash flow analysis of the pro forma combined company in which Citi calculated the estimated present value (as of December 31, 2017) of the standalone unlevered, after-tax free cash flows that the pro forma combined company was forecasted to generate during the calendar years ending December 31, 2018 through December 31, 2020 based on the SPR Business forecasts and the Essendant forecasts, after taking into account the potential net cost and net working capital synergies expected by Essendant management to result from the Merger and related transactions (collectively, the “synergies”) during the calendar years ending December 31, 2018 through December 31, 2022. This illustrative analysis generally utilized the methodology described in the section above under “—Discounted Cash Flow Analyses,” except that, among other things, the present values (as of December 31, 2017) of the synergies and the cash flows and terminal values of the pro forma combined company were calculated using a selected range of discount rates of 7.4% to 10.5% and, in the case of the synergies, a selected perpetuity growth rate of 0%. This indicated an approximate implied equity value reference range for the pro forma combined company of $13.30 to $23.90 per share (including a synergies range of approximately $8.35 to $11.25 per share based on the midpoint range of the estimated present values of the synergies). Actual results achieved by the combined company may vary from forecasted results and variations may be material.

Miscellaneous

Essendant has agreed to pay Citi for its services in connection with the proposed Merger and the related transactions an aggregate fee of $17 million, of which a portion was payable upon execution of the Merger Agreement and $15 million is payable contingent upon consummation of the Merger. In addition, Essendant has agreed to reimburse Citi for Citi’s expenses, including fees and expenses of counsel, and to indemnify Citi and related parties against certain liabilities, including liabilities under federal securities laws, arising out of Citi’s engagement.

As the Essendant Board was aware, at Essendant’s request, Citi and certain of its affiliates expect to participate in certain financings to be undertaken in connection with the Merger and related transactions, including acting as joint lead arranger, joint bookrunning manager and syndication agent for, and as a lender under, certain credit facilities of SpinCo and an affiliate of Essendant, for which services Citi and such affiliates will receive compensation. Citi’s aggregate fee in connection with such financings has not yet been finalized and will be estimated once determined. As the Essendant Board also was aware, Citi and its affiliates in the past have provided, currently are providing and in the future may provide investment banking, commercial banking and other similar financial services to Essendant and its affiliates unrelated to the proposed Merger and related transactions, for which services Citi and its affiliates have received and expect to receive compensation, including, during the two-year period prior to the date of Citi’s opinion, having acted or acting as financial advisor to Essendant in connection with certain strategic advisory matters, for which financial advisory services Citi and its affiliates received during such two-year period aggregate fees of less than $200,000. Although Citi and its affiliates did not provide investment banking, commercial banking or other similar financial services to GPC during the two-year period prior to the date of Citi’s opinion for which Citi and its affiliates received compensation, Citi and its affiliates in the future may provide investment banking, commercial banking and other similar financial services to GPC, SpinCo and/or their respective affiliates for which services Citi and its

 

88


Table of Contents

affiliates would expect to receive compensation. In the ordinary course of business, Citi and its affiliates may actively trade or hold the securities of Essendant, GPC, SpinCo and their respective affiliates for their own account or for the account of their customers and, accordingly, may at any time hold a long or short position in such securities. In addition, Citi and its affiliates (including Citigroup Inc. and its affiliates) may maintain relationships with Essendant, GPC, SpinCo and their respective affiliates.

Essendant selected Citi as its financial advisor in connection with the proposed Merger and related transactions based on Citi’s reputation, experience and familiarity with Essendant and its business. Citi is an internationally recognized investment banking firm that regularly engages in the valuation of businesses and their securities in connection with mergers and acquisitions, negotiated underwritings, competitive bids, secondary distributions of listed and unlisted securities, private placements and valuations for estate, corporate and other purposes.

Certain Projections

Essendant does not as a matter of course make public any long-term financial projections as to future performance, earnings or other results beyond the current fiscal year given the inherent unpredictability of the underlying assumptions and estimates for extended periods. However, in connection with its evaluation of the Merger, Essendant’s management prepared certain non-public, internal financial projections regarding Essendant’s anticipated future operations as a standalone business, based on assumptions that Essendant’s management believed to be reasonable at the time, for the calendar years ending December 31, 2017 through 2020. We refer to the internal financial projections prepared by Essendant for the calendar years ending December 31, 2017 through 2020 as the Essendant Projections. The Essendant Projections were provided to the Essendant Board and also were provided to Essendant’s financial advisor, which was directed to use and rely on the Essendant Projections for purposes of its financial analyses and opinion. A summary of the Essendant Projections has been provided below.

The financial projections included in this proxy statement/prospectus have been prepared by, and are the responsibility of, Essendant’s management. Ernst & Young LLP, Essendant’s independent registered public accounting firm, has neither examined, compiled nor performed any procedures with respect to the accompanying financial projections, and accordingly, Ernst & Young LLP does not express an opinion or any other form of assurance with respect thereto. The Ernst & Young LLP report included in this proxy statement/prospectus relates to Essendant’s historical financial information and does not extend to the financial projections and should not be read to do so.

GPC also does not as a matter of course make public any long-term financial projections as to the future performance, earnings or other results of the SPR Business. However, in connection with the process leading to the execution of the Merger Agreement and the Separation Agreement, GPC management prepared certain non-public, internal financial projections for the SPR Business for the calendar years ending December 31, 2017 through 2020, which were based on assumptions that GPC management believed to be reasonable at the time, including that (i) there would be continued sales erosion of core office, paper and technologies product categories due to unfavorable industry dynamics and customers buying such products directly, (ii) such continued sales erosion would be partially offset by moderate sales increases in the facilities, breakroom and safety product categories, (iii) there would be a significant decline in vendor incentives due to lower inventory purchases and unfavorable product mix shifts away from the office product category, which is the most profitable product category and (iv) SPR would engage in aggressive selling, general and administrative expense reduction initiatives. These projections were then provided to Essendant as part of Essendant’s due diligence review of the SPR Business and to Essendant’s financial advisor. We refer to these projections as the GPC SPR Projections. A summary of the GPC SPR Projections has been provided below.

In connection with Essendant’s evaluation of the Transactions, Essendant’s management also prepared its own non-public, internal financial projections regarding the SPR Business’s anticipated future operations for the calendar years ending December 31, 2017 through 2020, which were derived from the financial information

 

89


Table of Contents

provided by GPC to Essendant, including the GPC SPR Projections, in connection with Essendant’s due diligence review of the SPR Business. In preparing its own financial projections for the SPR Business, Essendant management considered the GPC SPR Projections and, as it believed appropriate based on its judgment and the results of its due diligence review of the SPR Business, made adjustments to incremental standalone costs and for presentation for accounting purposes on a last-in, first-out basis. We refer to the internal financial projections prepared by Essendant for the SPR Business for the calendar years ending December 31, 2017 through 2020 as the Essendant Adjusted SPR Projections. The Essendant Adjusted SPR Projections were provided to the Essendant Board and also were provided to Essendant’s financial advisor, which was directed to use and rely on the Essendant Adjusted SPR Projections for purposes of its financial analyses and opinion. A summary of the Essendant Adjusted SPR Projections has been provided below.

The Essendant Projections and the Essendant Adjusted SPR Projections were prepared by Essendant senior management and are based on numerous estimates and assumptions. The 2018 amounts resulted from Essendant’s annual budgeting process and reflect detailed sales and margin trends at the channel and category level as well as a zero-based budgeting approach to expenses. The 2019 and 2020 amounts resulted from Essendant’s long-range planning process and more general market-level forecasts overlaid with specific initiative contributions. Key assumptions include sales growth of 0.4% and 0.5% in 2019 and 2020, respectively, and EBIT margins of 1.6% and 2.0% in 2019 and 2020, respectively.

The estimates and assumptions underlying the unaudited financial projections involve judgments with respect to, among other things, future economic, competitive, regulatory and financial market conditions and future business decisions that may not be realized and that are inherently subject to significant uncertainties and contingencies, including, among others, risks and uncertainties described in the sections of this proxy statement/prospectus-information statement entitled “Risk Factors” beginning on page 47 and “Cautionary Statement Regarding Forward-Looking Statements” beginning on page 58, all of which are difficult to predict and many of which are beyond the control of Essendant and GPC, respectively. There can be no assurance that the underlying assumptions or projected results will be realized, and actual results will likely differ, and may differ materially, from those reflected in the unaudited financial projections, whether or not the Merger is completed. As a result, the unaudited financial projections cannot be considered predictive of actual future operating results, and this information should not be relied on as such.

Essendant Projections (in millions)

 

     2017A      2018E      2019E      2020E  

Net Sales

   $         5,037      $         4,794      $         4,815      $         4,861  

Gross Profit

   $ 706      $ 695      $ 716      $ 732  

Adjusted EBITDA (LIFO)(1)

   $ 121      $ 112      $ 127      $ 145  

Adjusted EBIT (LIFO)(1)

   $ 70      $ 60      $ 78      $ 95  

Unlevered Free Cash Flow

   $      $ 73      $ 48      $ 64  

 

(1) The 2017 figures are numbers before a $3 million pension expense reclassification from operating expenses to interest and other expense as a result of the adoption of the new pension accounting pronouncement (ASU 2017-07).

GPC SPR Projections (in millions)