A new regulatory filing by Tech Data Corp. details the corporate intrigue that served as a background for the $6 billion acquisition of the Clearwater IT company by funds associated with Apollo Global Management.
Tech Data (Nasdaq: TECD), the largest company headquartered in the Tampa-St. Pete area based on revenue, will become a private company if shareholders approve the deal, which calls for Apollo to buy all of Tech Data’s stock for $145 a share.
A proxy filed early Thursday by Tech Data gave shareholders background information about how the deal came about. Among the revelations are:
• Tech Data confirmed Berkshire Hathaway Inc. wanted to buy the company but was outbid by Apollo.
• At least three other suitors were interested in Tech Data as well and one of them made a purchase offer.
• Apollo started talking to Tech Data more than a year-and-a-half before the deal was announced.
Robert Dutkowsky was still CEO at Tech Data when Apollo representatives first reached out to the company, in late March 2018, to discuss the possibility of an investment by the Apollo funds in Tech Data. Apollo’s first offer to buy the company for between $105 and $110 a share came on June 1, 2018, just five days before Dutkowsky became Tech Data’s executive chairman and turned the CEO job over to Rich Hume.
After consulting with financial advisor BofA Securities, and outside legal advisor Cleary Gottlieb Steen & Hamilton, Tech Data told Apollo it would only consider moving forward if it got $120 or more a share. Apollo initially indicated it would meet that price, but after additional due diligence, Apollo backed off from the offer, and talks ended in August 2018.
Fast forward 11 months to July 2019. Dutkowsky had dinner with representatives of Apollo, which was still interested in a deal. On Sept. 24, Apollo offered $120 a share.
Tech Data’s stock price had gone up significantly over the past year. It was trading around $72 a share when talks broke off in August 2018 and was over $100 a share by the time talks resumed. Tech Data said no to Apollo’s $120 a share offer, but wanted to keep talking.
Apollo came back with a $130 a share offer in October, a nearly 25 percent stock price premium. Tech Data said it was interested, but the Apollo offer had to be firm and Tech Data wouldn’t accept a reduction in price.
On Oct. 15, Reuters and the Financial Times reported on rumors that Apollo wanted to buy Tech Data. Tech Data decided not to respond to the rumors. Within a few days, however, three other potential suitors, identified only as Financial Sponsor A, B and C, came forward. Financial Sponsor A, which was working with St. Petersburg-based Raymond James Financial, made a $130 a share purchase offer, but needed equity co-investors and debt financing.
Tech Data was still talking to Apollo and decided in late October that it wanted to include a “go-shop” provision, allowing it to look for better offers, in any agreement between the two companies. Apollo initially balked, but by Nov. 9 said that provision could be included. Four days later, Tech Data and Apollo announced a $5.4 billion deal.
The go-shop process got underway at the same time, with BofA Securities contacting four potential strategic bidders and 56 potential financial sponsors, including the unidentified A, B and C, as well as Berkshire Hathaway (NYSE: BRK.A, BRK.B), the conglomerate headed by Warren Buffet.
Berkshire wanted to talk, and after meeting with Tech Data, offered $140 a share. Tech Data’s board decided on Nov. 24 that Berkshire had a better offer and told Apollo it was going to terminate its deal, but Apollo came back on Nov. 27 with its $145 a share offer. After Tech Data announced it was going to take the revised Apollo offer, Berkshire told Tech Data it wasn’t going to raise its bid.
The go-shop period ended Monday. The proxy filing does not indicate that there were any other offers.
As is typical in most buyouts, Tech Data executives and board members are in line for millions of dollars when the deal closes.
In addition to selling the common stock they hold to Apollo, they also will get cash for their restricted stock units and performance-based restricted stock units. Dutkowsky is in line for $15.36 million, while Hume will get $9.7 million. Other payments spelled out in the proxy for the restricted and performance-based stock units are for Chuck Dannewitz, chief financial officer, $5 million; Joe Quaglia, president, the Americas, $4.17 million, David Vetter, chief legal officer, $3.48 million, and Patrick Zammit, president, Europe, $4.95 million.
Tech Data also has a change in control plan that would award additional golden parachute payments if any of the executives are terminated without cause after the deal closes. As of the proxy filing today, there aren’t any new employment agreements between the executive officers or directors and Apollo, but Hume told Tech Data workers last month that management would stay in place.
Tech Data shareholders will be asked to approve the merger and executive compensation arrangements. A date for the shareholders’ meeting has not yet been set.
The deal is expected to close in the first half of 2020.