8-K: Steel Partners to Acquire Steel Connect in Short-Form Merger

Steel Partners Holdings L.P. will acquire Steel Connect, Inc. in a short-form merger, with shareholders receiving $11.45 per share and a contingent value right.

Summary

• Steel Partners Holdings L.P. is set to acquire Steel Connect, Inc. through a short-form merger.
• The merger was approved by the Audit Committee of Steel Connect on November 27, 2024.
• Shareholders of Steel Connect, excluding Steel Partners and those exercising appraisal rights, will receive $11.45 per share in cash.
• Additionally, shareholders will receive one contingent value right (CVR) per share related to potential proceeds from the Reith litigation.
• The CVRs will not be transferable, have no voting or dividend rights, and do not represent equity in either company.
• The merger is expected to make Steel Connect an indirect, wholly-owned subsidiary of Steel Partners.
• The common stock of Steel Connect will be delisted from the NASDAQ Stock Market upon completion of the merger.

Sentiment

Score: 7

Explanation: The document outlines a clear path for the merger, providing a defined cash payout and a CVR for shareholders. While the CVR's value is uncertain, the overall tone is positive and focused on completing the transaction.

Positives

• Shareholders will receive a cash payment of $11.45 per share.
• Shareholders will receive a contingent value right (CVR) for potential proceeds from the Reith litigation.
• The merger simplifies the corporate structure by making Steel Connect a wholly-owned subsidiary of Steel Partners.
• The merger provides a clear exit strategy for minority shareholders.

Negatives

• The CVRs are non-transferable, limiting their liquidity.
• The CVRs do not represent any equity or ownership interest.
• The common stock of Steel Connect will be delisted from the NASDAQ.
• The value of the CVR is contingent on the outcome of the Reith litigation and may be zero.

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 may not result in any payment to CVR holders.
• The value of the CVRs is uncertain and dependent on the outcome of the Reith litigation.
• There is a risk that the merger could have an adverse effect on the businesses of Steel Connect and Steel Partners.

Future Outlook

The document outlines the steps for the short-form merger and the distribution of CVRs, but it also includes forward-looking statements that are subject to risks and uncertainties. The completion of the merger and the value of the CVRs are not guaranteed.

Management Comments

• The Audit Committee approved the Short-Form Merger, subject to certain conditions.
• Steel Partners has agreed to cause the Company to create and issue in respect of each share of Common Stock outstanding at the Effective Time, other than the Waived Shares, certain rights to any Net Reith Litigation Proceeds.

Industry Context

This merger is a strategic move by Steel Partners to consolidate its ownership of Steel Connect. Such transactions are common in the investment and holding company space, where parent companies often seek to streamline operations and increase control over subsidiaries.

Comparison to Industry Standards

• Short-form mergers are a common method for parent companies to acquire subsidiaries when they already own a significant portion of the stock, as is the case with Steel Partners owning over 90% of Steel Connect.
• The cash consideration of $11.45 per share is a typical approach in such transactions, providing a defined value to minority shareholders.
• The use of contingent value rights (CVRs) is a less common but not unusual mechanism to address uncertain future payouts, such as those from litigation settlements. Similar structures have been used in other mergers and acquisitions where there are pending legal or regulatory issues.
• The delisting of Steel Connect's common stock from the NASDAQ is a standard consequence of a merger where the parent company takes full ownership.

Legal Proceedings

• The document references the Reith litigation, a class and derivative action, which is a key factor in the CVR structure.
• The settlement of the Reith litigation is still pending court approval.

Related Party Transactions

• The merger itself is a related-party transaction, as Steel Partners is acquiring Steel Connect, where it already holds a majority stake.
• The Stockholders Agreement between Steel Partners and Steel Connect is also a related-party transaction.

Stakeholder Impact

• Shareholders of Steel Connect will receive cash and a CVR, impacting their investment.
• Employees of Steel Connect will become part of a wholly-owned subsidiary of Steel Partners.
• The delisting of Steel Connect's stock will affect investors who trade on the public market.

Next Steps

• Preparation, filing, and dissemination of a Schedule 13E-3 to Steel Connect's stockholders.
• Completion of the short-form merger.
• Distribution of the cash consideration and CVRs to eligible shareholders.
• Potential payment of Reith CVRs if the Reith litigation settlement is approved and proceeds are received.

Key Dates

Keywords

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