International. Anixter and Wesco announced that their boards of directors unanimously approved a definitive merger agreement under which Wesco will acquire Anixter in a transaction valued at approximately $4.5 billion. Anixter's prior agreement to be acquired by Clayton, Dubilier & Rice, LLC ("CD&R") has been terminated, following CD&R's waiver of its equivalent rights under the agreement.
Wesco International, Inc. is a provider of electrical, industrial and communications MRO and OEM products, building materials, advanced supply chain management and logistics services.
Under the terms of the agreement, each share of Anixter's common stock will become the right to receive $70.00 in cash (subject to increase as described below), 0.2397 Wesco shares and preferred stock valued at $15.89, based on the value of its settlement preference. Based on the closing price of Wesco's common stock on January 10, 2020 and the settlement preference of Wesco's preferred stock consideration, the total consideration represents approximately $100 per Anixter share, giving effect to the downside protection described below. Based on the structure of the transaction and the number of common shares of Wesco and Anixter currently outstanding, it is anticipated that Wesco shareholders will own 84% and Anixter shareholders 16% of the combined company.
Mr. John J. Engel, President, President and Chief Executive Officer of Wesco, commented, "The transformative combination of Wesco and Anixter will create a leading electric data distribution and supply chain services company. With increased scale and complementary capabilities, we will be ideally positioned to digitize our business, expand our broad portfolio of supply chain services and offerings, and deliver solutions to our customers when and where they need them around the world. Given the enhanced strategic profile and competitiveness of the combined company, we are confident that we will deliver improved growth and earnings, and exceptional cash flow generation. We look forward to welcoming Anixter's talented associates to the Wesco team as we embark on this next chapter and create substantial value for our shareholders, customers, suppliers and individuals."
"This is the result of a very thorough process for determining the value of our company," said Bill Galvin, President and Chief Executive Officer of Anixter. "It is also a recognition of the enormous value created by our talented people, Anixter's deep industry relationships, innovative technology solutions and global reach. Looking to the future, the combination with Wesco will enable the combined company to develop our complementary capabilities and create new ways to serve customers and partners."
Objectives of the acquisition:
Improve scale and global position: The combined company will have 2019E pro forma revenues of approximately $17 billion and will be a leading distributor of electrical and data communications in North America. With a broad global reach and increased international exposure, approximately 12% of revenue will be generated outside of North America. The increased scale will enable the combined company to accelerate digitalization strategies and provide a platform for growth in attractive emerging markets.
Expand and diversify the portfolio of products and services: The combined company will have a comprehensive and balanced portfolio that unites Wesco's capabilities in industry, construction and utilities with Anixter's expertise in data communications, security and wire and cable. Bringing together the companies' complementary products, services, technologies and solutions is expected to create significant cross-selling opportunities, strengthening the combined customer value proposition and supplier relationships.
It offers substantial synergies: Wesco expects to achieve annualized run rate cost synergies of more than $200 million by the end of the third year through efficiencies in corporate and regional overhead, including duplicate costs of public companies, optimization of branches and distribution centers, and productivity in purchasing, field operations and supply chain. In addition, Wesco expects incremental sales growth opportunities to emerge by cross-selling the companies' complementary product and service offerings to an expanded customer base and capitalizing on the enhanced capabilities in both networks.
Provide immediate earnings accretion and significant free cash flow generation: The combination is expected to increase Wesco's earnings in the first full year of ownership and, with the realization of synergies, increase substantially thereafter. Wesco also expects the transaction to generate significant margin expansion and EPS growth. The combined company will have strong free cash flow generation, supporting continued investments in the business and enabling a return on capital to shareholders in the future.
Ability to unlock quickly: At closing, Wesco estimates that its pro forma leverage on a net debt-to-EBITDA basis will be approximately 4.5x. Wesco intends to use the strength of the combined company's cash flows, including significant synergies, to reduce its leverage rapidly and ultimately intends to be within its long-term target leverage range of 2.0x to 3.5x within 24 months of closing.
