8-K: Steel Connect to be Acquired by Steel Partners in Short-Form Merger

Steel Connect will be acquired by Steel Partners in a short-form merger, with minority shareholders receiving $11.45 per share in cash and a contingent value right (CVR) related to potential litigation proceeds.

Summary

• Steel Partners Holdings L.P., which already owns over 90% of Steel Connect, Inc., is set to acquire the remaining shares through a short-form merger.
• The merger was approved by the Audit Committee of Steel Connect on November 27, 2024.
• Minority shareholders will receive $11.45 in cash per share.
• Shareholders will also receive one contingent value right (CVR) per share, entitling them to a portion of the net proceeds from the Reith litigation if a settlement is reached and funds are distributed.
• The CVRs are not transferable except in limited circumstances and do not represent any equity or ownership interest.
• The merger is expected to result in Steel Connect becoming a wholly-owned subsidiary of Steel Partners and its shares being delisted from the NASDAQ.

Sentiment

Score: 7

Explanation: The document outlines a merger that provides a cash payout to minority shareholders and a potential future payout through a CVR. While the CVR is not guaranteed, the overall sentiment is positive due to the certainty of the cash payment and the potential for additional value.

Positives

• Minority shareholders will receive a cash payment of $11.45 per share.
• Shareholders will also receive a CVR, providing potential upside from the Reith litigation settlement.
• The merger provides a clear path for the company's future under the ownership of Steel Partners.

Negatives

• The CVRs are not transferable except in limited circumstances, limiting their liquidity.
• The CVRs do not represent any equity or ownership interest in Steel Partners or Steel Connect.
• The delisting of shares from the NASDAQ will remove the ability to trade the shares on a public exchange.

Risks

• The merger may not be completed if certain conditions are not met.
• Legal proceedings related to the merger could delay or prevent its completion.
• The Reith litigation settlement is not guaranteed, and the CVRs may not result in any payment.
• The amount of any payment from the Reith CVRs is dependent on the outcome of the litigation and the deduction of expenses.

Future Outlook

The merger is expected to be completed, resulting in Steel Connect becoming a wholly-owned subsidiary of Steel Partners and its shares being delisted from the NASDAQ. The CVRs will provide a potential future payment to shareholders if the Reith litigation is settled and funds are distributed.

Management Comments

• The Audit Committee approved the Short-Form Merger on November 27, 2024, subject to certain conditions.
• Management has agreed to waive any right to receive any portion of the Net Reith Litigation Proceeds with respect to any shares of Common Stock they hold.

Industry Context

This transaction is an example of a controlling shareholder taking a company private. This is not uncommon in situations where a single entity holds a significant portion of the outstanding shares. The delisting of the company is a common outcome of such transactions.

Comparison to Industry Standards

• The cash consideration of $11.45 per share is a premium to the recent trading price of Steel Connect's stock, which is typical in going-private transactions.
• The use of a Contingent Value Right (CVR) is a common mechanism in mergers and acquisitions to address uncertain future payments, such as litigation proceeds.
• Similar transactions include the acquisition of companies by their majority shareholders, often involving a cash payment and sometimes a CVR or similar instrument.

Legal Proceedings

• The document references the Reith Litigation, a class and derivative action filed in the Delaware Court of Chancery.
• The merger is contingent on the terms of the Stockholders Agreement and the approval of the Audit Committee.

Related Party Transactions

• The merger is a related-party transaction as Steel Partners already owns a majority of Steel Connect's shares.
• The Stockholders Agreement outlines the relationship between Steel Partners and Steel Connect.

Stakeholder Impact

• Shareholders will receive $11.45 per share in cash and a CVR.
• Employees will likely see no immediate change in their employment status.
• Customers and suppliers will likely see no immediate change in their relationships with the company.
• Creditors will likely see no immediate change in their relationship with the company.

Next Steps

• A Schedule 13E-3 will be prepared, filed, and disseminated to the company's stockholders.
• The merger will be completed, and the shares will be delisted from the NASDAQ.
• The Reith litigation will continue, and if settled, the CVR holders will receive a payment.

Key Dates

Keywords

merger, acquisition, short-form merger, Steel Connect, Steel Partners, contingent value right, CVR, Reith litigation, delisting, shareholders