425: JBT and Marel Announce Progress Towards Combination, Voluntary Takeover Offer Expected to Launch Next Week

JBT and Marel are moving forward with their combination plans, with a voluntary takeover offer for Marel shares expected to launch next week.

Summary

• JBT and Marel are progressing towards a combination of their businesses, aiming to create a leading global food and beverage solutions company.
• The voluntary takeover offer for all outstanding shares of Marel is expected to launch next week, following approval of the offer document by the Icelandic Financial Supervisory Authority (FSA).
• The transaction is structured with a proration feature, allowing Marel shareholders to elect to receive cash, stock, or a combination, resulting in an overall consideration mix of approximately 65% stock and 35% cash.
• Marel shareholders will receive approximately EUR 950 million in cash and hold approximately 38% interest in the combined company.
• The combined company will be named JBT Marel Corporation and will have a secondary listing on Nasdaq Iceland, recognizing the cultural importance of Marel's facility in Gardabaer, Iceland.
• The Board of Directors will consist of five independent directors from the pre-closing JBT Board, four independent directors from the Marel Board, and the CEO of the company.
• The combined company is forecasted to grow revenue from about USD 3.5 billion in 2023 to about USD 4 billion for 2025, with nearly half of that revenue expected to come from recurring revenue streams.
• The combined company expects to generate annual run rate cost savings of approximately $70 million by the end of the first 12 months post-close, growing to more than $125 million by the end of year three.
• Revenue synergies are expected to be greater than $75 million by the end of the third year post-close.
• The transaction is expected to generate cash EPS accretion within the first year post-transaction close and a double-digit ROIC within five years post-close.
• The combined company is expected to delever quickly to well below 3x by the end of 2025.
• An internal integration office and Boston Consulting Group have been engaged to promote successful integration.

Sentiment

Score: 8

Explanation: The document presents a positive outlook on the combination of JBT and Marel, highlighting the strategic rationale, synergy potential, and financial benefits. The management commentary is optimistic, and the overall tone suggests confidence in the success of the transaction.

Positives

• The combination creates a leading global food and beverage solutions company with greater scale and a broader range of solutions.
• The combined company will have greater exposure to resilient and growing end markets.
• The transaction is expected to generate significant cost efficiencies and revenue synergies.
• The combined company is expected to maintain financial flexibility to support continued investment in organic and inorganic growth.
• The transaction is expected to be cash EPS accretive within the first year post-transaction close and generate a double-digit ROIC within five years post-close.
• The combined company is expected to delever quickly.
• The integration process is being carefully managed with dedicated resources and external support.
• The combined company will have a strong corporate governance structure with diverse board representation.
• The combined company will have enhanced digital offerings to support customers' efficient operations.
• The combined company will have deeper customer relationships, greater density and quality of service.

Negatives

• The integration of the two businesses may present challenges and may not be as effective and efficient as expected.
• The combined company may be unable to achieve cost-cutting synergies or it may take longer than expected to achieve those synergies.
• The regulatory review process could take several months.
• There is a risk that the offer and its announcement could have an adverse effect on the ability of JBT and Marel to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers and on their operating results and businesses generally.

Risks

• The occurrence of any event, change or other circumstances that could give rise to the termination or abandonment of the offer.
• The expected timing and likelihood of completion of the proposed transaction with Marel, including the timing, receipt and terms and conditions of any required governmental and regulatory approvals for the offer that could reduce anticipated benefits or cause the parties to abandon the transaction.
• The possibility that JBT's stockholders may not approve the issuance of new shares of common stock in the offer.
• The risk that Marel and/or JBT may not be able to satisfy the conditions to the offer in a timely manner or at all.
• The risk that the offer and its announcement could have an adverse effect on the ability of JBT and Marel to retain customers and retain and hire key personnel and maintain relationships with their suppliers and customers and on their operating results and businesses generally.
• The risk that problems may arise in successfully integrating the businesses of Marel and JBT, which may result in the combined company not operating as effectively and efficiently as expected.
• The risk that the combined company may be unable to achieve cost-cutting synergies or that it may take longer than expected to achieve those synergies.
• Fluctuations in JBT's financial results.
• Unanticipated delays or accelerations in our sales cycles.
• Deterioration of economic conditions, including impacts from supply chain delays and reduced material or component availability.
• Inflationary pressures, including increases in energy, raw material, freight and labor costs.
• Disruptions in the political, regulatory, economic and social conditions of the countries in which we conduct business.
• Changes to trade regulation, quotas, duties or tariffs.
• Fluctuations in currency exchange rates.
• Changes in food consumption patterns.
• Impacts of pandemic illnesses, food borne illnesses and diseases to various agricultural products.
• Weather conditions and natural disasters.
• The impact of climate change and environmental protection initiatives.
• Acts of terrorism or war, including the ongoing conflicts in Ukraine and the Middle East.
• Termination or loss of major customer contracts and risks associated with fixed-price contracts, particularly during periods of high inflation.
• Customer sourcing initiatives.
• Competition and innovation in our industries.
• Difficulty in implementing our pure play food and beverage strategy, including our ability to execute on strategic investments, merger or acquisition opportunities.
• Our ability to develop and introduce new or enhanced products and services and keep pace with technological developments.
• Difficulty in developing, preserving and protecting our intellectual property or defending claims of infringement.
• Catastrophic loss at any of our facilities and business continuity of our information systems.
• Cyber-security risks such as network intrusion or ransomware schemes.
• Loss of key management and other personnel.
• Potential liability arising out of the installation or use of our systems.
• Our ability to comply with U.S. and international laws governing our operations and industries.
• Increases in tax liabilities.
• Work stoppages.
• Fluctuations in interest rates and returns on pension assets.
• A systemic failure of the banking system in the United States or globally impacting our customers financial condition and their demand for our goods and services.
• Availability of and access to financial and other resources.
• The risk factors discussed in the Registration Statement on Form S-4, including the preliminary proxy statement/prospectus contained therein, filed by JBT in connection with the offer; and other factors described under the captions Risk Factors and Management's Discussion and Analysis of Financial Condition and Results of Operations in JBT's most recent Annual Report on Form 10-K filed with the U.S. Securities and Exchange Commission (the SEC) and in any subsequently filed Quarterly Reports on Form 10-Q.

Future Outlook

The combined company is focused on attractive markets with healthy growth prospects and aims to grow faster than the end consumer markets by providing integrated solutions and services to meet customer requirements around the globe, targeting a mid-single-digit growth rate through the cycle.

Management Comments

• Brian Deck: 'Were excited to leverage the full power of JBT and Marel to ultimately have a greater impact on the global food supply chain by transforming and fortifying the way food is processed and prepared.'
• Arni Sigurdsson: 'By combining our businesses, well have greater scale and offering to be a partner of choice for our customers.'
• Matthew Meister: 'This combination's enhanced scale will create a diverse and significant global provider of technology solutions to the food and beverage processing industry.'

Industry Context

The combination of JBT and Marel reflects a broader trend in the food and beverage industry towards consolidation and the creation of larger, more integrated solutions providers. This is driven by the need to address evolving consumer demands, improve operational efficiency, and enhance sustainability.

Comparison to Industry Standards

• The combined company aims for a 16% EBITDA margin, placing it among the top performers in the food processing equipment industry.
• Companies like Tetra Laval and GEA Group are also major players in this space, but the JBT-Marel combination aims to offer a more comprehensive and integrated suite of solutions, particularly in the poultry and pet food sectors.
• The targeted revenue synergies of $75 million within three years are ambitious but achievable, given the complementary nature of the two businesses and the potential for cross-selling and enhanced service offerings.

Corporate Governance

Stakeholder Impact

• Shareholders are expected to benefit from the increased value creation potential of the combined company.
• Customers are expected to benefit from the broader range of solutions and enhanced service offerings.
• Employees are expected to benefit from the increased opportunities for growth and development.
• The combination aims to have a greater impact on the global food supply chain and support customers' sustainability efforts.

Next Steps

• Launch the voluntary takeover offer for all outstanding shares of Marel next week.
• Complete the regulatory review process.
• Finalize the financing structure for the transaction.
• Implement the integration plan and achieve cost and revenue synergies.
• Continue to invest in organic and inorganic growth.

Key Dates