Acquisition

12 Months Ended

Dec. 29, 2018

On April 13, 2018, we completed the acquisition of Cedar Creek Holdings, Inc. (“Cedar Creek”) for a purchase price of approximately $361.8 million. The acquisition was completed pursuant to the terms of an Agreement and Plan of Merger (the "Merger Agreement"), dated as of March 9, 2018, by and among BlueLinx Corporation, one of our wholly owned subsidiaries, Panther Merger Sub, Inc., a wholly-owned subsidiary of BlueLinx Corporation ("Merger Sub"), Cedar Creek, and CharlesBank Equity Fund VII, Limited Partnership (“CharlesBank”). Upon closing the transactions contemplated by the Merger Agreement, among other things, Merger Sub was merged with and into Cedar Creek, with Cedar Creek surviving the acquisition as one of our indirect wholly-owned subsidiaries. As a result of the acquisition, we increased the number of our distribution facilities to approximately 70 facilities, and increased the number of our full-time employees to approximately 2,600. The merger allowed us to expand our product offerings while expanding our existing geographical footprint.

Cedar Creek was established in 1977 as a wholesale building materials distribution company that distributes wood products across the United States. Its products include specialty lumber, oriented strand board, siding, cedar, spruce, engineered wood products and other building products.

The acquisition is being accounted for under the acquisition method of accounting. The assets acquired, liabilities assumed and the results of operations of the acquired business are included in our consolidated results since April 13, 2018.

We estimate that the acquired business contributed net sales and a net loss of approximately $1.0 billion and approximately $2.5 million, respectively, to the Company for the period from April 13, 2018, to December 29, 2018. The net income for the period from April 13, 2018, to December 29, 2018, included integration-related costs and the negative impact of selling a higher cost Cedar Creek inventory recorded at fair value. The following unaudited consolidated pro forma information presents consolidated information as if the acquisition had occurred on January 1, 2017:



	Pro forma
(In thousands, except per share data)	Fiscal 2018			Fiscal 2017
Net sales	$	3,262,433		$	3,235,923
Net income (loss)	(18,129		)	32,690
Earnings (loss) per common share:
Basic	$	(1.83	)	$	3.61
Diluted	(1.83		)	3.54

The pro forma amounts above have been calculated in accordance with U.S. GAAP after applying the Company's accounting policies and adjusting the fiscal years ended December 29, 2018, and December 30, 2017 to reflect charges related to an inventory step-up adjustment for $11.8 million and transaction costs for $44.3 million. Due to the net loss for fiscal year ended December 29, 2018, 61,894 incremental shares from share-based compensation arrangements were excluded from the computation of diluted weighted average shares outstanding because their effect would be anti-dilutive. The pro forma amounts do not include any potential synergies, cost savings or other expected benefits of the acquisition, are presented for illustrative purposes only, and are not necessarily indicative of results that would have been achieved had the acquisition occurred as of January 1, 2017, or of future operating performance.

The purchase price of Cedar Creek consisted of the following items:



	(In thousands)
Consideration paid to shareholders and amounts paid to creditors:
Payments to Cedar Creek shareholders^[1]	$	166,447
Subordinated unsecured note (due to shareholder)^[2]		13,743
Seller’s transaction costs paid by Company		7,349
Add: pay off of Cedar Creek debt^[3]		174,213
Total preliminary cash purchase price	$	361,752

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[1]	Payments to Cedar Creek’s shareholders include the purchase of common stock and certain escrow adjustments.



[2]	The Cedar Creek note payable to a shareholder of $13.7 million was paid in full upon the acquisition of Cedar Creek and included $10 million in subordinated debt and $3.7 million in accrued interest.



[3]	To finance the acquisition of Cedar Creek, the Company amended and restated its Revolving Credit Facility to increase the availability thereunder to $600.0 million and also entered into a new $180.0 million senior secured Term Loan Facility (See Note 9).

The excess of total purchase price, which includes the aggregate cash consideration paid in excess of the fair value of the tangible and intangible assets acquired, was recorded as goodwill. The goodwill recognized is attributable to the expected operating synergies and growth potential that the Company expects to realize from the acquisition. None of the goodwill generated from the acquisition is deductible for tax purposes.

When determining the fair values of assets acquired and liabilities assumed, management made significant estimates, judgments and assumptions. The following table summarizes the values of the assets acquired and liabilities assumed at the date of the acquisition:



(In thousands)	Preliminary Allocation as of December 29, 2018
Cash and net working capital assets (excluding inventory)	$	88,318
Inventory	159,227
Property and equipment	71,203
Other, net	(1,395		)
Intangible assets and goodwill:
Customer relationships	25,500
Non-compete agreements	8,254
Trade names	6,826
Favorable leasehold interests	800
Goodwill	47,772
Capital leases and other liabilities	(44,753		)
Cash purchase price	$	361,752