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ACQUISITIONS | 3 Months Ended
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Mar. 31, 2021
Business Combinations [Abstract] |
Business Combination Disclosure | Anixter International Inc. On June 22, 2020, WESCO completed its acquisition of Anixter, a Delaware corporation. Pursuant to the terms of the Agreement and Plan of Merger, dated January 10, 2020 (the “Merger Agreement”), by and among Anixter, WESCO and Warrior Merger Sub, Inc., a Delaware corporation and a wholly owned subsidiary of WESCO (“Merger Sub”), Merger Sub was merged with and into Anixter (the “Merger”), with Anixter surviving the Merger and continuing as a wholly owned subsidiary of WESCO. On June 23, 2020, Anixter merged with and into Anixter Inc., with Anixter Inc. surviving to become a wholly owned subsidiary of WESCO. The Company used the net proceeds from the issuance of senior unsecured notes, borrowings under its revolving credit and accounts receivable securitization facilities, as well as cash on hand, to finance the acquisition of Anixter and related transaction costs. At the effective time of the Merger, each outstanding share of common stock of Anixter (subject to limited exceptions) was converted into the right to receive (i) $72.82 in cash, (ii) 0.2397 shares of common stock of WESCO, par value $0.01 per share (the “WESCO Common Stock”) and (iii) 0.6356 depositary shares, each representing a 1/1,000th interest in a share of newly issued fixed-rate reset cumulative perpetual preferred stock of WESCO, Series A, with a $25,000 stated amount per whole preferred share and an initial dividend rate equal to 10.625%. Anixter is a leading distributor of network and security solutions, electrical and electronic solutions, and utility power solutions with locations in over 300 cities across approximately 50 countries, and 2019 annual sales of more than $8 billion. The Merger brought together two companies with highly compatible capabilities and characteristics. The combination of WESCO and Anixter created an enterprise with scale and should afford the Company the opportunity to digitize its business, and expand its services portfolio and supply chain offerings. The total preliminary estimated fair value of consideration transferred for the Merger consisted of the following:
| (In thousands)
Cash portion attributable to common stock outstanding | $ | 2,476,010 |
Cash portion attributable to options and restricted stock units outstanding | 87,375 |
Fair value of cash consideration | 2,563,385 |
Common stock consideration | 313,512 |
Series A preferred stock consideration | 573,786 |
Fair value of equity consideration | 887,298 |
Extinguishment of Anixter obligations, including accrued and unpaid interest(1) | 1,247,653 |
Total purchase consideration | $ | 4,698,336 |
Supplemental cash flow disclosure related to acquisitions: |
Cash paid for acquisition | $ | 3,811,038 |
Less: Cash acquired | (103,463) |
Cash paid for acquisition, net of cash acquired | $ | 3,707,575 |
(1) The extinguishment of Anixter obligations includes a termination fee of $100.0 million that WESCO paid to entities affiliated with Clayton, Dubilier & Rice, LLC ("CD&R"), on behalf of Anixter, during the three months ended March 31, 2020. Such fee was required to terminate Anixter's then-existing merger agreement with CD&R. The Merger was accounted for as a business combination with WESCO acquiring Anixter in accordance with Accounting Standards Codification (“ASC”) 805, Business Combinations. Under the acquisition method of accounting, the preliminary purchase consideration was allocated to the identified assets acquired and liabilities assumed based on their respective acquisition date fair value, with any excess allocated to goodwill. The fair value estimates were based on income, market and cost valuation methods using primarily unobservable inputs developed by management, which are categorized within Level 3 of the fair value hierarchy. Specifically, the fair values of the identified trademark and customer relationship intangible assets were estimated using the relief-from-royalty and multi-period excess earnings methods, respectively. Significant inputs used to value these identifiable intangible assets included projected revenues and expected operating margins, customer attrition rates, discount rates, royalty rates, and applicable income tax rates. The excess purchase consideration recorded to goodwill is not deductible for income tax purposes, and has been assigned to the Company's reportable segments based on their relative fair values, as disclosed in Note 5, "Goodwill and Intangible Assets". The resulting goodwill is primarily attributable to Anixter's workforce, significant cross-selling opportunities in additional geographies, enhanced scale, and other operational efficiencies. Since the initial measurement of the identified assets acquired and liabilities assumed, the Company has recognized adjustments to trade accounts receivable of $9.2 million, inventories of $8.5 million, operating lease assets of $18.0 million, total identifiable intangible assets of $5.4 million, other noncurrent assets of $15.5 million, accounts payable of $7.2 million, operating lease liabilities of $17.0 million, deferred income taxes of $30.9 million and other noncurrent liabilities of $40.0 million. Certain other measurement period adjustments were made to the identified assets acquired and liabilities assumed, none of which were significant, individually or in aggregate. The net impact of these adjustments was an increase to goodwill of $3.0 million. The estimated fair values of assets acquired and liabilities assumed are based on preliminary calculations and valuations using estimates and assumptions at the time of acquisition. The determination of the fair values of assets acquired and liabilities assumed, especially those related to identifiable intangible assets, is preliminary due to the complexity of combining multibillion dollar businesses. Accordingly, as the Company obtains additional information during the measurement period (not to exceed one year from the acquisition date), estimates and assumptions for the preliminary purchase consideration allocations may change materially. The following table sets forth the preliminary allocation of the purchase consideration to the respective fair value of assets acquired and liabilities assumed for the acquisition of Anixter:
| (In thousands)
Assets |
Cash and cash equivalents | $ | 103,463 |
Trade accounts receivable | 1,300,710 |
Other accounts receivable | 116,386 |
Inventories | 1,416,296 |
Prepaid expenses and other current assets | 54,978 |
Property, buildings and equipment | 211,721 |
Operating lease assets | 280,285 |
Intangible assets | 1,838,065 |
Goodwill | 1,370,984 |
Other assets | 141,901 |
Total assets | $ | 6,834,789 |
Liabilities |
Accounts payable | $ | 912,974 |
Accrued payroll and benefit costs | 69,480 |
Short-term debt and current portion of long-term debt | 13,225 |
Other current liabilities | 225,516 |
Long-term debt | 77,617 |
Operating lease liabilities | 217,303 |
Deferred income taxes | 373,478 |
Other noncurrent liabilities | 246,860 |
Total liabilities | $ | 2,136,453 |
Fair value of net assets acquired, including goodwill and intangible assets | $ | 4,698,336 |
The following table sets forth the preliminary identifiable intangible assets and their estimated weighted-average useful lives:
Identifiable Intangible Assets |  | Estimated Fair Value |  | Weighted-Average Estimated Useful Life in Years(1)
|  | (In thousands) |  |
Customer relationships |  | $ | 1,098,900 |  |  | 19
Trademarks |  | 735,000 |  |  | Indefinite
Non-compete agreements |  | 4,165 |  |  | 2
Total identifiable intangible assets |  | $ | 1,838,065 |  |  |
(1) Measurement period adjustments include an update to the estimated useful lives initially assigned to customer relationships, which resulted in income of $6.4 million during the year ended December 31, 2020. The results of operations of Anixter are included in the unaudited condensed consolidated financial statements beginning on June 22, 2020, the acquisition date. For the three months ended March 31, 2021, the condensed consolidated statement of income includes $2.1 billion of net sales, and $105.4 million of income from operations for Anixter. Costs related to the merger are primarily comprised of advisory, restructuring, legal and other costs of $46.3 million and $4.6 million, which are included in selling, general and administrative expenses for the three months ended March 31, 2021 and 2020, respectively. Pro Forma Financial Information The following unaudited pro forma financial information presents combined results of operations for the period presented, as if the Company had completed the Merger on January 1, 2019. The unaudited pro forma financial information includes adjustments to amortization and depreciation for intangible assets and property, buildings and equipment, adjustments to interest expense for the additional indebtedness incurred to complete the acquisition (including the amortization of debt discount and issuance costs), transaction costs, dividends accrued on the Series A preferred stock, compensation expense associated with the WESCO phantom stock unit awards described in Note 9, "Employee Benefit Plans", as well as the respective income tax effects of such adjustments. For the three months ended March 31, 2020, adjustments totaling $50.2 million decreased the unaudited pro forma net income attributable to common stockholders. The unaudited pro forma financial information does not reflect any cost savings, operating synergies or revenue enhancements that WESCO may achieve as a result of its acquisition of Anixter, the costs to integrate the operations of WESCO and Anixter or the costs necessary to achieve these cost savings, operating synergies and revenue enhancements. The unaudited pro forma financial information presented below is not necessarily indicative of consolidated results of operations of the combined business had the acquisition occurred at the beginning of the respective period, nor is it necessarily indicative of future results of operations of the combined company.
| Three Months Ended
(In thousands) | March 31, 2020
Pro forma net sales | $ | 4,040,347 |
Pro forma net income attributable to common stockholders | 19,880 |
Canadian Divestitures On August 6, 2020, the Company entered into a Consent Agreement with the Competition Bureau of Canada regarding the merger with Anixter. Under the Consent Agreement, the Company was required to divest certain legacy WESCO utility and data communications businesses in Canada. In February 2021, the Company completed such divestitures for cash consideration totaling $54.1 million. The Company recognized a net gain from the sale of these businesses of $8.9 million, which is reported as a component of selling, general and administrative expenses for the three months ended March 31, 2021. These sales fulfilled the Company’s divestiture commitments under the Consent Agreement and the net cash proceeds were used to repay debt.

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- Definition The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable). + References Reference 1: http://fasb.org/us-gaap/role/ref/legacyRef -Publisher FASB -Name Accounting Standards Codification -Topic 805 -URI http://asc.fasb.org/topic&trid=2303972 + Details
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