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Seven things to know about the Tech Data deal

Margie Manning

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Rich Hume, CEO of Tech Data, was Jim Cramer's guest on CBNC's Mad Money on Dec. 10, 2018. (photo courtesy of Tech Data)

The former CEO of Tech Data Corp. will be one of the biggest winners following the announcement early Wednesday that Apollo Global Management plans to buy the Clearwater-based IT distribution firm for $5.4 billion.

Tech Data (Nasdaq:TECD), the largest company headquartered in the Tampa-St. Pete area with $37.2 billion in sales last year, will stay in Clearwater and CEO Rich Hume will continue to lead the company, a news release said.

Apollo, a private equity firm, said it would pay $130 a share for Tech Data stock, about a 25 percent premium over the average stock price in the past 30 days. A year ago today, the stock closed at $73.60 a share.

Here are seven things to know about the deal:

Bob Dutkowsky, executive chairman, Tech Data, and a member of the board of directors of Raymond James Financial

• Robert Dutkowsky, executive chairman and former CEO, is in line for about $26.4 million if the Apollo deal goes through. Dutkowsky controlled 202,973 shares of Tech Data stock as of Sept. 11, according to the most recent regulatory filing. The 128,019 shares he holds directly would be worth $16.6 million at Apollo’s $130 a share purchase price. Dutkowsky controls another 75,000 restricted shares.

Dutkowsky is far and away the largest individual stockholder. Three investment funds —BlackRock, The Vanguard Group and Dimensional Funds — each hold millions of shares of Tech Data stock as well.

• Within hours of the early-morning announcement, Tech Data’s stock price was trading above the $130 a share in the Apollo offer. That’s a sign that investors think the company may get a better offer during the nearly month-long “go shop” period that’s included in the agreement with Apollo.

• The agreement provides for significant break-up fees. If Apollo fails to close the deal by Aug. 12, 2020, Tech Data would be entitled to a termination fee of $283 million. If Tech Data accepts a better offer from another buyer before Dec. 10, Tech Data would pay Apollo $80.3 million. If the Tech Data board changes its mind about the deal or otherwise breaches the agreement, Tech Data would pay Apollo $165.3 million.

• Apollo has up to $5 billion in debt financing for the deal from “certain financial institutions,” but it didn’t identify them. Many private equity transactions are done through debt financing.

• Apollo is one of the world’s largest alternative investment managers. Some of its other holdings include The Fresh Market, security company ADT, University of Phoenix, managed cloud computing company RackSpace and ClubCorp, the owner of Centre Club in Tampa.

• Twitter was buzzing about the deal. While most of the posts rehashed the basics in a press release, a couple of commentators weighed in as well.

“Our gut says this was not solicited by [Tech Data], ” Adam Tindle, an analyst at Raymond James & Associates, wrote in a company brief after the deal was announced.  “We wonder if our continued soft checks on [Europe, Middle East and Africa] (50%+ of total revenue for TECD) created a scenario where further deterioration in end markets makes what appears to be a fair (but not overly attractive) offer from Apollo look more interesting to short-sighted shareholders.”

It’s premature to call for further transactions like this, Tindle said, but it puts a spotlight on the industry. The most similar candidates would Synnex Corp. (NYSE: SNX), Arrow Electronics (NYSE: ARW), and ScanSource (Nasdaq: SCSC), he said. “We don’t think any of these are imminent, but rather, highlights that there are levers for value creation in these assets. We don’t think any of these public companies make sense to top Apollo’s bid, so a higher offer would likely need to come from another private buyer which is obviously difficult to handicap.”

• The Tech Data deal is one of several that could dramatically shake up the landscape of public companies in the Tampa-St. Pete area. WellCare Health Plans (NYE: WCG), a Tampa managed healthcare firm and the third largest public company in the area, has agreed to be bought by Centene Corp. (NYSE: CNC) for $17 billion in a deal expected to close in the first half of 2020. Bloomin’ Brands Inc. (Nasdaq: BLMN),  the Tampa-based parent of Outback Steakhouse and other brands, said last week it is exploring strategic options including a potential sale. Bloomin’ is the sixth largest public company in the Tampa-St. Pete area.

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