Genuine Parts’ Merger of S.P. Richards business with Essendant

Citigroup Global Markets Inc. is acting as financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal counsel to Essendant. J.P. Morgan is acting as financial advisor and Davis Polk & Wardwell LLP is acting as legal counsel to Genuine Parts Company.

Essendant (Nasdaq: ESND) and Genuine Parts Company (NYSE: GPC) have entered into a definitive agreement to combine Essendant and Genuine Parts Company’s S.P. Richards business. The transaction, which has been unanimously approved by the Boards of Essendant and Genuine Parts Company, is expected to be tax free to the companies’ respective shareholders. Together, Essendant and S.P. Richards will form a stronger, more competitive business products distributor with greater scale and service capabilities and an enhanced ability to support customers.

The transaction creates a company with pro forma 2017 net sales of approximately $7 billion, $300 million in Adjusted EBITDA, 4.2% Adjusted EBITDA margins.1 The combined company will have a stronger and more flexible balance sheet, which will enable it to reduce leverage, invest in the business and provide value to shareholders.

In addition to creating a platform with greater scale and the enhanced ability to serve customers, the combination is expected to unlock more than $75 million in annual run-rate cost synergies and more than $100 million in working capital improvements. The cost synergies will primarily be driven by sourcing, supply chain and selling, general and administrative efficiencies. The combined company expects 90% of the cost synergies to be realized within two years post-closing and to incur less than $50 million in one-time cash costs to realize the synergies.

Upon close of the transaction, the combined company, which will be called Essendant, will be led by Essendant President and CEO Ric Phillips, and Janet Zelenka will serve as CFO. S.P. Richards President and CEO Rick Toppin will be appointed Chief Operating Officer of the combined company. Additional leadership roles will be mutually determined as part of the integration process.

Charles K. Crovitz, current Chairman of the Board of Essendant, will serve as Chairman of the Board of the combined company. He will be joined by three Essendant-appointed Directors, four Genuine Parts Company-appointed Directors, and four Directors appointed by mutual agreement.

The combined company will maintain headquarters in both Deerfield, IL and Atlanta, GA.

Davis Polk advised Genuine Parts Company with partner John H. Butler (Picture) and associates Robert F. Smith and Jenny Ge. Partner David H. Schnabel and associate Nicole P. Field are providing tax advice. Partner Ronan P. Harty is providing antitrust and competition advice. Partner Joseph P. Hadley is providing credit advice. Partner Richard D. Truesdell Jr. is providing capital markets advice. Partner Jeffrey P. Crandall is providing executive compensation advice. Associate Gregory A. Goldman is providing real estate advice.

 

Involved fees earner: John Butler – Davis Polk & Wardwell; Robert Smith – Davis Polk & Wardwell; Jenny Ge – Davis Polk & Wardwell; David Schnabel – Davis Polk & Wardwell; Nicole Field – Davis Polk & Wardwell; Ronan Harty – Davis Polk & Wardwell; Joseph P. Hadley – Davis Polk & Wardwell; Richard Truesdell Jr. – Davis Polk & Wardwell; Jeffrey Crandall – Davis Polk & Wardwell; Gregory Goldman – Davis Polk & Wardwell;

Law Firms: Davis Polk & Wardwell;

Clients: Genuine Parts Company;