Merisel, Inc. to Be Acquired by an Affiliate of American Capital Strategies for $5.75 per Share in Cash
Merisel, Inc. Announces Earnings for Fourth Quarter and Fiscal 2007; Fourth Quarter EPS of $4.13; Full Year EPS of $4.22
(PressMethod) - vMerisel, Inc. (Other OTC:MSEL.PK - News), a leading provider of visual communications and brand imaging solutions to the consumer products, retail, advertising and entertainment industries, today announced that it has entered into a definitive agreement pursuant to which it will be acquired by TU Holdings, Inc., a wholly owned portfolio company of American Capital Strategies, Ltd. (NasdaqGS:ACAS - News), for $5.75 per share in cash.
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Donald R. Uzzi, Chairman and Chief Executive Officer of Merisel, said, "We believe that this transaction delivers substantial value to our stockholders. For over a year, our Board of Directors has examined numerous strategic alternatives focused on enhancing value and has determined that a transaction with American Capital is the best alternative for our stockholders." Ronald P. Badie, lead director, added, "We look forward to working with American Capital to close this transaction quickly and to smoothly transition the Merisel business to its new owners."
Dean Anderson, Managing Director of American Capital, said, "Merisel is a leader in the visual communications and brand imaging solutions business. We are excited about this opportunity and anticipate closing this acquisition in the second quarter of 2008."
The transaction has been unanimously approved by Merisel's Board of Directors, which will recommend that Merisel's stockholders approve the transaction. Affiliates of Stonington Partners, L.P., Merisel's largest stockholder, who collectively own approximately 60% of the company's outstanding common stock, have entered into an agreement to vote in favor of the transaction. Approval of the transaction requires the affirmative vote of a majority of the outstanding Merisel shares and is subject to certain other customary closing conditions. The shares held by the affiliates of Stonington Partners represent more than a majority of Merisel's outstanding shares of common stock. The transaction is expected to close during the second quarter of 2008. The exact timing of the closing of the transaction is dependent on the review and clearance of necessary filings with the Securities and Exchange Commission and satisfaction of other customary closing conditions.
Robert W. Baird & Co. Inc. acted as financial advisor to Merisel, Houlihan Lokey Howard & Zukin Financial Advisors, Inc. acted as financial advisor to the Special Committee of the Board of Directors of Merisel, and Weil, Gotshal & Manges LLP, and Rosner & Napierala, LLP provided legal advice. O'Melveny & Myers LLP acted as legal counsel to American Capital.
Financial Results (in thousands except for per share amounts)
Merisel also reported today financial results for the Fourth Quarter and year ended December 31, 2007.
Merisel reported Fourth Quarter 2007 earnings of $4.13 per share (diluted) versus income of $.55 per share for the Fourth Quarter of 2006, and Full Year 2007 earnings of $4.22 per share versus income of $.66 per share in 2006. Excluding Discontinued Operations, Merisel reported earnings of $4.13 per share in the Fourth Quarter of 2007 versus income of $.58 per share in the Fourth Quarter of 2006 and Full Year 2007 earnings of $4.20 per share versus income of $.56 per share in fiscal 2006.
In the Fourth Quarter of 2007, the Company further reduced the valuation allowance against its deferred tax asset by $31,375 on the belief that it will earn sufficient future income from operations to be able to utilize its Net Operating Loss Carryforwards ("NOLs"). The Company utilizes the liability method of accounting for income taxes as set forth in Statement of Financial Accounting Standard No. 109, "Accounting for Income Taxes." Under SFAS 109, when a Company believes that it may not have sufficient income to be able to utilize its deferred tax assets, (NOLs in the Company's case) a valuation allowance is recorded. This reduced valuation allowance resulted in an income tax benefit of $30,594 for the Full Year of 2007 compared to a benefit of $3,280 in 2006 when a smaller reduction of the valuation allowance was made.
"We're pleased with our results for the quarter and full year," stated Donald. R. Uzzi, Chairman and CEO. "Revenues increased by 10% fueled by a full year of sales from our 2006 acquisitions as well as solid organic revenue growth. We continue to increase client service offerings and expand our client base. Concurrently we improved gross margin by 240 basis points through continuing production labor efficiencies and lower raw material costs driven by centralized procurement. Merisel is a stronger enterprise today and a leading service provider to the Visual Communications and Brand Imaging Solutions market."
Results of Operations (In thousands except per share amounts)
2007 2006
---------------------------- ----------------------------
Existing Expanded Total Existing Expanded Total
Operati- Operati- Operati- Operati- Operati- Operati-
ons ons ons ons ons ons
Net sales $ 79,713 $ 13,468 $ 93,181 $ 78,452 $ 6,268 $ 84,720
Gross profit 37,183 6,707 43,890 34,061 2,938 36,999
Selling,
general, and
administrative 33,141 5,175 38,316 30,484 2,179 32,663
Restructuring
charge - - - 724 - 724
Interest
expense (828) (31) (859) (1,054) (12) (1,066)
Interest income 448 25 473 481 - 481
For the purposes of the above table and the following discussion, "Existing Operations" refers to the Company's businesses acquired during the fiscal year ended December 31, 2005, and "Expanded Operations" refers to the Company's businesses acquired during the fiscal year ended December 31, 2006, specifically DCS and AdProps which were acquired in May 2006 and Fuel, which was acquired in October 2006. The above table represents the key financial statement areas of operations.
The Company reported net income to common stockholders of $33,848 for 2007 compared with $5,135 for 2006. These results include a gain on the sale of discontinued operations of $145 and $748 for 2007 and 2006, respectively.
Comparison of Fiscal Years Ended December 31, 2007 and December 31, 2006
Net Sales -- Net sales increased by $8,461, or 10.0%, from $84,720 for the year ended December 31, 2006, to $93,181 for the year ended December 31, 2007. Net sales from Existing Operations increased $1,261, or 1.6%, from $78,452 for the year ended December 31, 2006, to $79,713 for the year ended December 31, 2007.
Gross Profit -- Gross profit increased $6,891, or 18.6%, from $36,999 for the year ended December 31, 2006, to $43,890 for the year ended December 31, 2007. Gross profit from Existing Operations increased $3,122, or 9.2%, from $34,061 for the year ended December 31, 2006, to $37,183 for the year ended December 31, 2007. Gross profit as a percentage of sales, or gross margin, increased 3.4% from 43.7% for the year ended December 31, 2006 to 47.1% for the year ended December 31, 2007. The increase in gross margin is attributable to production labor efficiencies at Color Edge and Crush Creative, and a reduction in raw material costs and production supplies driven by centralized procurement.
Selling, General and Administrative -- Selling, general and administrative expenses increased $5,653, or 17.3%, from $32,663 for the year ended December 31, 2006, to $38,316 for the year ended December 31, 2007. Selling, general and administrative expenses from Existing Operations increased $2,657 or 8.7% from $30,484 for the year ended December 31, 2006 to $33,141 for the year ended December 31, 2007. Part of the increase in selling, general, and administrative expenses from Existing Operations is attributed to $1,827 incurred in connection with the Company's decision to explore strategic alternatives.
Restructuring Costs -- The Company recorded a restructuring charge of $724 related to the restructuring of the wet processing film business for the year ended December 31, 2006. There was no restructuring charge for the year ended December 31, 2007.
Interest Expense -- Interest expense for the Company decreased by $207, or 19.4%, from $1,066 for the year ended December 31, 2006 to $859 for the year ended December 31, 2007. The change primarily reflects a decrease in loan balances due to payments of principal on capital leases and installment notes.
Interest Income -- Interest income for the Company decreased by $8, or 1.6%, from $481 for the year ended December 31, 2006, to $473 for the year ended December 31, 2007.
Income Taxes -- The Company recorded an income tax benefit of $3,280 in the year ended December 31, 2006 and an income tax benefit of $30,594 for the year ended December 31, 2007. The Company further reduced its valuation allowance and recorded a deferred tax benefit in the amount of $34,972 for the year ended December 31, 2007.
Discontinued Operations Income -- On April 17, 2006, the Company was notified that a deed for real property securing a note receivable had been transferred back to the Company in settlement of the note receivable. The underlying real property was valued at $914 and recorded as assets held for sale at December 31, 2006. On March 28, 2007, the Company sold the real property for $1,192, net of expenses. The Company recorded income from discontinued operations of $145 for the year ended December 31, 2007. This figure consists of the sale price of $1,192, net of its cost basis of $914, taxes of $112, and other expenses of $21.
Income from discontinued operations for the year ended December 31, 2006 was $748. On June 19, 2006, the Company recorded a gain of $1,250 on the sale of an unsecured claim, net of other expenses of $342 and tax of $160.
Net Income -- As a result of the above items, the Company reported net income available to common stockholders of $5,135 in the year ended December 31, 2006 and reported net income available to common stockholders of $33,848 for the year ended December 31, 2007.
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