8-K: Steel Connect Completes Merger, Shareholders to Receive Contingent Value Rights

Steel Connect, Inc. has completed a short-form merger with a subsidiary of Steel Partners, resulting in shareholders receiving cash and contingent value rights related to a litigation settlement.

Summary

• Steel Connect, Inc. has completed a merger with Steel Excel Sub I, LLC, a subsidiary of Steel Partners Holdings L.P., on January 2, 2025.
• As a result of the merger, Steel Connect is now an indirect, wholly-owned subsidiary of Steel Partners.
• Shareholders of Steel Connect received $11.45 per share in cash.
• Shareholders also received one contingent value right (CVR) per share, entitling them to a portion of the proceeds from the Reith litigation settlement.
• Certain shareholders, including Steel Partners and company directors and officers, have waived their rights to the CVR payment for specific shares.
• The company estimates that shareholders entitled to receive a Reith CVR will receive approximately $1.15 per share, assuming the court settlement is not appealed and all conditions are met.
• The CVRs are not transferable except in limited circumstances and do not represent any equity or ownership interest in Steel Partners or Steel Connect.

Sentiment

Score: 7

Explanation: The merger provides a clear exit for shareholders with a cash payment and a potential additional payout through the CVR. While the CVR is contingent and illiquid, the overall outcome is positive for shareholders.

Positives

• Shareholders received a cash payment of $11.45 per share.
• Shareholders have the potential to receive an additional $1.15 per share through the CVRs.
• The merger simplifies the corporate structure, making Steel Connect a wholly-owned subsidiary of Steel Partners.

Negatives

• The CVRs are not transferable except in limited circumstances, limiting their liquidity.
• The CVR payout is contingent on the Reith litigation settlement and could be delayed or not paid if the settlement is overturned.
• The CVRs do not represent any equity or ownership interest in Steel Partners or Steel Connect.

Risks

• The CVR payout is dependent on the final resolution of the Reith litigation, which could be subject to appeals or other delays.
• The estimated CVR payout of $1.15 per share is not guaranteed and could be lower if litigation expenses are higher than expected.
• The CVRs are not registered with the SEC and have limited transferability, making them illiquid.

Future Outlook

The company will be delisted from Nasdaq and will no longer be subject to SEC reporting requirements. The CVR payout is contingent on the Reith litigation settlement.

Management Comments

• The company's Audit Committee approved the merger in accordance with the Stockholders Agreement.
• The company notified Nasdaq of its intent to delist the Common Stock.

Industry Context

This merger is part of a trend of companies being taken private by their majority shareholders. The use of contingent value rights is a mechanism to provide some value to minority shareholders related to ongoing litigation.

Comparison to Industry Standards

• The cash consideration of $11.45 per share is a typical buyout price in a going-private transaction.
• The use of CVRs is not uncommon in mergers involving ongoing litigation, similar to the CVRs issued in the Dell-EMC merger.
• The estimated CVR payout of $1.15 per share is within the range of payouts seen in similar CVR agreements, but the actual amount is dependent on the specific litigation outcome.

Management Changes

Legal Proceedings

• The CVR payout is contingent on the resolution of the Reith litigation.

Related Party Transactions

• The merger was between Steel Connect and a subsidiary of Steel Partners, a related party.

Stakeholder Impact

• Shareholders received cash and CVRs as a result of the merger.
• Employees may experience changes due to the company becoming a wholly-owned subsidiary.
• Customers and suppliers are unlikely to be significantly impacted by the merger.

Next Steps

• The company will file a Notification of Removal from Listing on Form 25 with the SEC.
• The company will file a certification on Form 15 with the SEC suspending reporting obligations.
• The Rights Agent will distribute the CVR payment to eligible shareholders upon final resolution of the Reith litigation.

Key Dates

Keywords

merger, contingent value rights, CVR, litigation settlement, Steel Connect, Steel Partners, shareholders, acquisition