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Proposed Acquisition of Rockwood (Notes) | 9 Months Ended
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Sep. 30, 2014
Business Combinations [Abstract] |
Proposed Acquisition of Rockwood | Proposed Acquisition of Rockwood: General On July 15, 2014, Albemarle and Rockwood entered into the Merger Agreement pursuant to which Albemarle will acquire Rockwood for consideration of $50.65 in cash and 0.4803 of a share of Albemarle common stock per outstanding share of Rockwood common stock. We refer to the transactions contemplated by the Merger Agreement as “the transaction” or “the merger” herein. Upon closing of the transaction, Albemarle shareholders will own approximately 70% of the combined company and Rockwood shareholders will own approximately 30% of the combined company. The boards of directors of both Albemarle and Rockwood have approved the transaction. A special shareholder meeting will be held on November 14, 2014 to vote on the issuance of shares of Albemarle common stock in connection with the transaction. The transaction is also subject to regulatory approvals and other customary closing conditions and is expected to close by the end of the first quarter of 2015. Financing Related to the Merger Albemarle expects to fund the aggregate cash portion of the merger consideration using (a) approximately $2.2 billion of cash on hand expected to be available from Albemarle, Rockwood and their respective subsidiaries at the time of closing, and (b) up to $1.7 billion in debt financing from the proceeds of new senior notes to be issued by Albemarle. Albemarle continues to make progress in finalizing its structure to access the internal cash from Albemarle, Rockwood and their respective subsidiaries to help fund the merger consideration. At this time, Albemarle has not determined its final structure to access such cash and has not finalized any plan to repatriate cash. With regard to this merger structure, Albemarle believes that it is at least reasonably possible that it might utilize cash from foreign operations that, to date, have been asserted as indefinitely invested. On July 15, 2014, Albemarle entered into a commitment letter (the “Commitment Letter”) with Bank of America, N.A. and Merrill Lynch, Pierce, Fenner & Smith Incorporated. The Commitment Letter provides for the following, if needed:
• | A senior unsecured cash bridge facility in an aggregate principal amount of up to $1.15 billion. Amounts borrowed under the cash bridge facility are intended to be used as short-term borrowings to fund a portion of the cash consideration payable in connection with the merger and pay related fees and expenses, and would mature 60 days following the completion of the merger.
• | A senior unsecured bridge facility in an aggregate principal amount of up to $2.7 billion to be provided if, prior to the date of the completion of the merger, (a) a new senior unsecured term loan in an aggregate principal amount of $1.0 billion is not effective, and (b) up to $1.7 billion in gross proceeds from the issuance and sale of new senior unsecured notes has not been received by Albemarle.
The funding of the bridge facilities is contingent on the satisfaction of customary conditions, including (a) execution and delivery of definitive documentation with respect to such facilities in accordance with the terms sets forth in the Commitment Letter, and (b) consummation of the merger. Structuring and underwriting fees of approximately $15.5 million were paid in the third quarter of 2014 in connection with the bridge facilities, and are reflected in Other, net, in our condensed consolidated statements of cash flows. These costs were capitalized and we expense them over the term of the facilities or until the date at which permanent financing is obtained and the facilities are eliminated. Accordingly, we recorded approximately $6.8 million of expense in the third quarter of 2014, which is reflected in Other expenses, net, in the consolidated statements of income and Other, net in our condensed consolidated statements of cash flows. On August 15, 2014, Albemarle entered into a term loan credit agreement (the “Term Loan”) providing for a tranche of senior unsecured term loans in an aggregate amount of $1.0 billion in connection with the merger. Amounts borrowed under the Term Loan are intended to be used as short-term borrowings to fund a portion of the cash consideration payable in connection with the merger and pay related fees and expenses. Borrowings bear interest at variable rates based on an average LIBOR for deposits in dollars plus an applicable margin which ranges from 1.125% to 2.500%, depending on Albemarle’s credit rating from S&P and Moody’s. As of the closing of the Term Loan agreement, the applicable margin over LIBOR was 1.125%. Term Loan borrowings will be guaranteed by the subsidiaries of Albemarle that guarantee Rockwood’s existing senior notes due in 2020 or that guarantee the senior unsecured notes that Albemarle expects to issue in connection with the merger. Borrowings are conditioned upon compliance with one financial covenant (the “Maximum Leverage Ratio”) requiring that the Company’s consolidated funded debt, as defined in the agreement, must be less than or equal to 4.50 times consolidated EBITDA, as defined in the agreement, (which reflects adjustments for certain non-recurring or unusual items such as restructuring charges, facility divestiture charges and other significant non-recurring items), or herein “consolidated adjusted EBITDA,” as of the end of any fiscal quarter. The Term Loan matures 364 days following the date of funding, which will occur on the completion of the merger. On August 15, 2014, the Company amended the February 2014 Credit Agreement. The amendments provide for: (a) an increase in the Company’s Maximum Leverage Ratio from 3.50 to 4.50 for the first four quarters following the completion of the merger, stepping down by 0.25 on a quarterly basis thereafter until reaching 3.50; (b) borrowings of up to $100 million on the date of the completion of the Merger, subject to a reduced set of borrowing conditions; (c) guarantees by the subsidiaries of Albemarle that guarantee Rockwood’s existing senior notes due in 2020 or that guarantee the senior unsecured notes that Albemarle expects to issue in connection with the merger. Acquisition Costs Included in Acquisition and integration related costs on our consolidated statements of income for the three-month and nine-month periods ended September 30, 2014 are $9.3 million of acquisition and integration related costs in connection with the proposed acquisition of Rockwood. Termination Fees The Merger Agreement contains provisions addressing the circumstances under which Albemarle or Rockwood may terminate the Merger Agreement. In certain circumstances, upon termination of the Merger Agreement, Albemarle or Rockwood will be required to pay a termination fee of $300 million or $180 million, respectively, to the other party. Additionally, if the Merger Agreement is terminated as a result of the failure of Albemarle’s shareholders to approve the issuance of its common stock at the special meeting of shareholders to be held on November 14, 2014, Albemarle must pay Rockwood for up to $25 million of Rockwood’s out-of-pocket fees and expenses. If the Merger Agreement is terminated as a result of the failure of Rockwood’s shareholders to adopt the Merger Agreement at the Rockwood special meeting of shareholders to be held on November 14, 2014, Rockwood must pay Albemarle for up to $25 million of Albemarle’s out-of-pocket fees and expenses. The amount of any expenses paid by either Albemarle or Rockwood to the other party will be credited against any termination fee to be paid by such party if the termination fee subsequently becomes payable. Pending Litigation Against Albemarle and Rockwood On July 22, 2014, a putative class action complaint was filed in the Chancery Division of the Superior Court of New Jersey, Mercer County relating to the merger. On July 24, 2014, an additional putative class action complaint was filed in the Chancery Division of the Superior Court of New Jersey, Mercer County relating to the merger. Both suits name the same plaintiff but were filed by different law firms. On August 1, 2014 and August 12, 2014, three additional putative class action complaints were filed in the Court of Chancery of the State of Delaware relating to the merger. The lawsuits filed in New Jersey, Thwaites v. Rockwood Holdings Inc., et al. (Thwaites I), Thwaites v. Rockwood Holdings, Inc., et al. (Thwaites II), and the lawsuits filed in Delaware, Rudman Partners, L.P. v. Rockwood Holdings, Inc., et al., Riley v. Rockwood Holdings, Inc., et al., and North Miami Beach Police Officers & Firefighters’ Retirement Plan v. Rockwood Holdings, Inc., et al., each name Rockwood, its directors and Albemarle as defendants. Thwaites II and the cases filed in Delaware also name Albemarle Holdings Corporation, a wholly-owned subsidiary of Albemarle, as a defendant. The lawsuits, which contain substantially similar allegations, include allegations that the Rockwood board of directors breached their fiduciary duties in connection with the merger by failing to ensure that Rockwood shareholders will receive the maximum value for their shares, failing to conduct an appropriate sale process and putting their own interests ahead of Rockwood shareholders. Rockwood and Albemarle are alleged to have aided and abetted the alleged fiduciary breaches. The lawsuits seek a variety of equitable relief, including enjoining the Rockwood board of directors from proceeding with the proposed merger unless and until they have acted in accordance with their fiduciary duties to maximize shareholder value and rescission of the merger to the extent implemented, in addition to damages arising from the defendants’ alleged breaches and attorneys’ fees and costs. The defendants intend to vigorously defend the lawsuits. On August 12, 2014, the plaintiff in Thwaites I filed a Notice of Voluntary Dismissal Without Prejudice as to all defendants. On August 27, 2014, the Delaware Court of Chancery ordered the three Delaware cases consolidated and appointed co-lead counsel. The court also ordered that no response to the complaints shall be due until after plaintiffs in the cases filed in Delaware file an amended consolidated complaint. Plaintiffs in the cases filed in Delaware have yet to file an amended consolidated complaint. On September 19, 2014, the plaintiff in Thwaites II filed an amended complaint including additional allegations that the registration statement failed to disclose material information.

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