Private investment firm Apollo Management IV L.P. will also enter the merger with an exchange of its Building One convertible debt and $150 million of cash for $255 million of GroupMAC stock.
Each outstanding share of Building One common stock will be exchanged for 1.25 shares of GroupMAC common stock, according to the terms of the merger. GroupMAC shareholders may elect to receive cash for up to 50 percent of their shares at $13.50 per share. If that option is fully subscribed, up to 11 million GroupMAC shares will be cancelled in the merger. The agreement is expected to close in the first quarter of 2000 pending approval of both companies and Apollo.
The combined, yet-to-be named company will be headquartered in Houston, Texas, and will be led by new chairman J. Patrick Millinor Jr., current CEO of GroupMAC, and new president and CEO Joseph Ivey, current CEO of Building One. The board of directors will include representatives from both companies as well as Apollo and outside directors. It will have operations in more than 250 locations nationwide with 27,000 employees, and will be able to provide its mechanical, electrical and janitorial services in 43 of the top 100 markets.
"The merger creates the undisputed leader in providing facilities services in the United States," said Ivey.
"The combined company will benefit from enhanced financial and operational resources, enabling us to compete more effectively within the major U.S. markets," Millinor added. "It's a win-win for the customers, employees and shareholders of both companies."
It is expected that Building One's $200 million of senior subordinate debt will be assumed by GroupMAC and remain outstanding. GroupMAC will refinance its senior subordinate notes as a result of change in control provisions in that indenture.
"From a financial perspective, this transaction will put the combined company in a strong position to build on its industry leadership," Ivey said. "It will result in a company with significantly increased market capitalization, increased liquidity and the ability to attract new sources of debt and equity investors."
GroupMAC, with annual revenues of approximately $1.5 billion, reported record third quarter earnings of $0.39 per diluted share and a revenue of $437 million, an increase of 106 percent compared to the same period in 1998. The company purchased several companies in 1999, and has operations in 110 locations in 28 states. It was ranked sixth in PM's "Pipe Trade Giants" list in August.
Building One's annual revenue is near $1.8 billion. The company earned $0.54 per diluted share for the third quarter and had a net income of $15.4 million, an increase of 59 percent over the same period of 1998. It also reported record revenues of $477.9 million, which compares to $252.3 million from the third quarter of 1998.
On the day of the merger announcement, both companies saw a slight stock increase.