Posted April 12, 2018

Essendant to merge with GP's S.P. Richards

Essendant and Genuine Parts Company announced that the companies have entered into a definitive agreement to combine Essendant and Genuine Parts Company's S.P. Richards business.

The transaction, which has been unanimously approved by the boards of Essendant and Genuine Parts Company, is expected to close before the end of 2018.

"By bringing together two businesses with long histories, complementary product lines and a shared customer-centric approach, we are creating a much stronger, better positioned company," said Ric Phillips, Essendant president and chief executive officer, who will lead the combined company. "Combining resources, leadership and operational expertise from both teams, and the unique strengths of both businesses will enhance our ability to compete and help our customers succeed in the face of a rapidly evolving market. In addition, through increased scale, improved service capabilities and an enhanced financial profile – including significant cost savings, increased free cash flow and a stronger balance sheet – we will be able to drive more profitable growth and create meaningful value for shareholders."

Paul Donahue, Genuine Parts Company president and chief executive officer, added, "This transaction is the result of a comprehensive process to maximize the value of S.P. Richards and represents a key step in the execution of Genuine Parts Company's long-term strategy by enabling us to increase our focus on our larger, core global automotive and industrial businesses."

The transaction creates a company with 2017 net sales of approximately $7 billion. 

The combination is expected to unlock more than $75 million in annual run-rate cost synergies and more than $100 million in working capital improvements, according to a statement announcing the merger. The cost synergies will primarily be driven by sourcing, supply chain and selling, general and administrative efficiencies. 

The transaction combining Essendant and S.P. Richards is structured as a Reverse Morris Trust, in which Genuine Parts Company will separate S.P. Richards into a standalone company and spin off that standalone company to Genuine Parts Company shareholders, immediately followed by the merger of Essendant and the spun-off company. The transaction implies a valuation of S.P. Richards of approximately $680 million, reflecting the value of the Essendant shares to be issued at closing plus one-time cash payments to Genuine Parts Company of approximately $347 million, subject to adjustments at closing. Upon closing, Genuine Parts Company shareholders will own approximately 51 percent and Essendant shareholders will own approximately 49 percent of the combined company on a diluted basis, with approximately 80 million diluted shares expected to be outstanding. 

The combined company, which will be called Essendant, will be led by Essendant president and CEO Ric Phillips, and Janet Zelenka will serve as CFO. S.P. Richards president and CEO Rick Toppin will be appointed chief operating officer of the combined company. Additional leadership roles will be mutually determined as part of the integration process.

Charles K. Crovitz, current chairman of the board of Essendant, will serve as chairman of the board of the combined company. He will be joined by three Essendant-appointed directors, four Genuine Parts Company-appointed directors, and four directors appointed by mutual agreement.

The combined company will maintain headquarters in both Deerfield, Illinois, and Atlanta.