Layne Christensen Announces Date of Special Meeting for Stockholders to Approve Merger with Granite Construction
The Special Meeting is scheduled to be held on
As previously announced, in
The Chairman of Layne's Board has prepared the following letter to stockholders:
Dear Layne Stockholders,
On behalf of Layne's Board of Directors, I am pleased to present our proposed merger with
The merger of Layne and Granite delivers significant value for Layne's stockholders in the form of a more than 20% premium over our unaffected share price of
Additionally, the merger presents a compelling opportunity to meaningfully share in the upside potential of a combined entity that will be well-positioned as a national leader across both the transportation and water infrastructure markets, with greater access to lower cost capital. Simply put, Granite's determination of value is superior to the standalone value of Layne.
About Granite and the Benefits of the Proposed Merger
Granite is one of the nation's largest infrastructure contractors and construction materials producers, with annual revenues approaching
As described in the proxy statement Layne filed with the
By partnering with Granite, Layne stockholders will benefit by becoming part of a stronger company with:
- Enhanced scale –
$600 millionof water-related revenues, nearly 7,000 employees, and a diversified and growing customer base – better positioned to capitalize on attractive macro dynamics in the water industry;
- Wider geographic reach across U.S. markets – particularly in the West and Midwest;
- A broader portfolio of offerings that meet the needs of public and private sector customers across the full lifecycle;
- Greater access to capital (at a lower cost) and operational resources to invest across all of our business lines and in a shorter time frame; and
- A better capitalized balance sheet that will, in our view, fuel growth at a rate superior to Layne's prospects on a standalone basis.
Since early 2015, Layne's management team has made significant progress in repositioning the company. However, there are market, execution and capital availability risks associated with our standalone plan. In order to deliver on the strategic plan and financial projections, Layne would need to access substantial capital at a reasonable cost to fund growth, particularly in our Water Midstream business and other distinct operating segments.3
The Process Prior to Announcing the Transaction
The Board did not enter lightly into the agreement with Granite. As detailed in Layne's proxy statement, the Board, in consultation with its independent financial and legal advisors, conducted an extensive review of Layne's business and explored a variety of strategic alternatives dating back to early 2016, prior to unanimously recommending the proposed merger with Granite. As part of its evaluation, Layne, directly or through its advisors:4
- Analyzed the company's prospects on a standalone basis;5
- Evaluated potential strategic transactions, which included raising growth capital from new and existing sources of capital, as well as prospective acquisition, sale and expansion opportunities relating to one or more divisions of Layne's business;
- Communicated with ten potential strategic and financial counterparties deemed the most likely interested parties – including multinational infrastructure, water services and oilfield services companies, as well as financial sponsors – to determine their interest in exploring a strategic transaction with Layne; and
- Explored several refinancing options that would address the upcoming maturities of Layne's convertible notes due in 2018 and 2019, including the receipt of indicative refinancing proposals from multiple financing sources prior to signing the merger agreement with Granite. However, given the cyclical nature of Layne's business, our recent financial performance and high leverage ratios, our analysis determined that refinancing alternatives were expensive, in some cases very dilutive to stockholders, and not in the best interest of stockholders as compared to the merger with Granite.6
Following the completion of this thorough review process, the Board unanimously determined that the proposed merger was in the best interests of Layne and its stockholders.
The Merger Agreement and the Board's Underlying Process
It is important to note that a deal with Granite was reached more than a year after the parties first discussed a potential transaction. Granite initially submitted an offer of
In addition to the share price premium, over the course of the negotiations, Layne's Board was able to negotiate:
- a 0.27 per share exchange ratio which, when applied to Granite's volume weighted average price ("VWAP") for the 10-day and the 90-day period prior to the announcement of the merger, equated to a price of
$17.00per Layne share, representing a 31% and 33% premium to the 10-day and 90-day VWAP of Layne's shares, and a 35% premium to the price of Layne immediately prior to the announcement of the merger;
- a fixed exchange ratio, enabling Layne's stockholders to immediately benefit from any upside in Granite's trading price from announcement until close;7
- Granite Board representation for one of Layne's current non-executive directors to ensure continuity and familiarity with Layne's business post-merger; and
- provisions allowing the Layne Board to change its recommendation in the case of certain intervening events or upon receipt of a superior proposal. Since announcing the merger with Granite, Layne has not received any expressions of interest from any other party.
Additionally, the Board, working closely with its compensation committee and external advisors, ensured that management's compensation was benchmarked and evaluated against company peers – before approving it. Management compensation was also approved on an advisory basis by Layne stockholders in "say on pay" votes in both
As detailed above, the Board conducted a thorough process aimed at maximizing value for our stockholders. As Board members, we take our fiduciary duties and governance responsibilities very seriously.
Our loyalty is to you, the stockholders of Layne, and everything we do is with the best interest of the company in mind. Notwithstanding the daily fluctuations in share prices, the Board continues to believe in the strong financial and strategic merits of the proposed merger. As such, we unanimously approved the proposed merger with Granite and recommend that you vote "FOR" each of the related proposals noted in the proxy statement, which you can access at the
I look forward to welcoming you to the Special Meeting that will take place on
Chairman of the Board of Directors
Certain statements in this communication may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Such statements relate to a variety of matters, including but not limited to: the consummation of the proposed merger; the expected benefits of the integration of the two companies; and other statements that are not historical fact. These statements are made on the basis of the current beliefs, expectations and assumptions of the management of Layne and Granite regarding future events and are subject to significant risks and uncertainty. Statements regarding our expected performance in the future are forward-looking statements.
It is uncertain whether any of the events anticipated by the forward-looking statements will transpire or occur, or if any of them do, what impact they will have on the results of operations and financial condition of the combined company or the price of Layne's or Granite's common stock prior to the proposed merger, or Granite's common stock following the proposed merger. These forward-looking statements involve certain risks and uncertainties that could cause actual results to differ materially from those indicated in such forward-looking statements, including but not limited to: failure to obtain stockholder approvals in a timely manner or otherwise; failure to satisfy other closing conditions to the proposed merger; risks that Layne will not be integrated successfully or that Granite will not realize estimated cost savings, synergies and growth or that such benefits may take longer to realize than expected; failure to realize anticipated benefits from Layne's operations; risks relating to unanticipated costs of integration; reductions in customer spending, or a slowdown in customer payments; unanticipated changes relating to competitive factors in the industry in which Layne and Granite participate; ability to hire and retain key personnel; ability to successfully integrate Layne's businesses; the potential impact of announcement or consummation of the proposed merger on relationships with third parties, including customers, employees and competitors; ability to attract new customers and retain existing customers in the manner anticipated; reliance on and integration of information technology systems; changes in legislation or governmental regulations affecting the companies; international, national or local economic, social or political conditions that could adversely affect the companies or their customers; conditions in the credit markets; risks associated with assumptions the parties make in connection with the parties' critical accounting estimates and legal proceedings; the continuing recovery in the mining industry; prevailing prices for various commodities; the timing and extent of future oil and gas drilling and production in the
Should one or more of these risks or uncertainties materialize, or should underlying assumptions prove incorrect, actual results may vary materially and adversely from those anticipated, estimated or projected. These forward-looking statements are made as of the date of this filing. Neither Layne nor Granite undertakes any obligation to update any such forward-looking statements to reflect any new information, subsequent events or circumstances, or otherwise, except as may be required by law.
Additional Information and Where to Find It
Granite has filed with the
No Offer or Solicitation
The information in this document is for informational purposes only and is neither an offer to purchase, nor a solicitation of an offer to sell, subscribe for or buy any securities or the solicitation of any vote in any jurisdiction pursuant to the proposed merger or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. No offer of securities shall be made except by means of a prospectus meeting the requirements of Section 10 of the Securities Act of 1933, as amended.
Participants in the Solicitation
Layne and Granite and their respective directors and executive officers may be deemed to be participants in the solicitation of proxies from Layne's stockholders in connection with the proposed merger and may have direct or indirect interests in the proposed merger. Information about Layne's directors and executive officers is set forth in its Annual Report on Form 10-K for the fiscal year ended
Chief Financial Officer
1 Based on 0.27x Granite's closing share price of
2 FY 2019 EBITDA based on equity research consensus estimates of
3 Layne operates three distinct businesses with limited operating synergies.
4 In connection with the strategic evaluation process, Layne's Board formally retained
5 For further information, please see the valuation analysis provided in Layne's proxy statement, as prepared by the Company's independent financial advisors. This analysis, along with other noted considerations, formed the basis on which the Board made its recommendation to approve the merger with Granite. The potential sum-of-the-parts valuation appearing in several of Layne's prior investor presentations provided valuation ranges for our respective business segments utilizing Adjusted EBITDA, average Adjusted EBITDA and historical Adjusted EBITDA at various points in time and did not reflect all aspects of valuation necessary to calculate per-share values, including factors such as corporate overhead and present value estimates of net operating loss tax benefits.
6 Convertible note holders may have different interests and incentives from common stockholders.
7 During the course of its advisory work in late 2017,