8-K: Coursera to Acquire Udemy in All-Stock Merger

Udemy, Inc. will merge with Coursera, Inc. in an all-stock transaction, with Udemy shareholders receiving 0.800 shares of Coursera common stock for each Udemy share.

Summary

• Udemy, Inc. will merge with Coursera, Inc., with Udemy surviving the merger as a wholly-owned subsidiary of Coursera.
• Each share of Udemy Common Stock issued and outstanding immediately prior to the Effective Time will be converted into the right to receive 0.800 shares of Coursera Common Stock.
• The boards of directors of both Udemy and Coursera have unanimously approved the Merger Agreement and the transactions contemplated thereby.
• Outstanding Udemy equity awards, including restricted stock units (RSUs), performance stock units (PSUs), stock options, and stock appreciation rights (SARs), will be converted into corresponding Coursera equity awards based on the exchange ratio and original terms.
• Post-merger, Coursera's board of directors will consist of nine directors, including six current Coursera directors and three current Udemy directors, with Coursera's Chairman and CEO retaining their roles.
• The transaction is intended to qualify as a reorganization within the meaning of Section 368(a) of the U.S. Internal Revenue Code for U.S. federal income tax purposes.
• The merger is subject to customary closing conditions, including adoption of the Merger Agreement by Udemy's stockholders and approval of the share issuance and a charter amendment by Coursera's stockholders, as well as regulatory approvals.
• Udemy's 2021 Employee Stock Purchase Plan (ESPP) will be terminated no later than immediately prior to the Effective Time, with restrictions on new participants and increased contributions prior to termination.
• Significant stockholders of Coursera (approximately 12% of outstanding shares) and Udemy (approximately 26% of outstanding shares) have entered into voting agreements to support the transaction.

Sentiment

Score: 7

Explanation: The filing announces a strategic merger between two significant players in the online education sector, which is generally positive for long-term growth and market consolidation. The all-stock nature allows for shared future upside. However, the inherent risks of integration, regulatory hurdles, and potential termination fees introduce some caution. The unanimous board approvals and fairness opinions provide a strong foundation, but the success hinges on execution and market acceptance.

Positives

• Unanimous board approval from both companies indicates strong internal support for the strategic combination.
• The all-stock nature of the transaction allows Udemy shareholders to participate in the future growth and potential synergies of the combined entity.
• The transaction is structured to qualify as a tax-free reorganization for U.S. federal income tax purposes, which is beneficial for shareholders.
• The integration of three Udemy directors onto Coursera's board ensures representation and continuity from Udemy's leadership.
• Commitment to maintaining employee compensation, benefits, and flexible work policies for at least one year post-merger aims to ensure a smooth transition for employees.
• Voting agreements from significant stockholders (approximately 12% of Coursera and 26% of Udemy) increase the likelihood of obtaining necessary stockholder approvals.

Negatives

• Potential for integration challenges and difficulties in attracting and retaining qualified personnel due to the business combination.
• Risk of business disruptions following the merger, which could impact operational continuity.
• Termination fees of $40.5 million are payable by either party under certain circumstances (e.g., alternative transactions or board recommendation changes), and an $8.0 million expense reimbursement is due if stockholder approvals fail, representing potential costs.
• The requirement for Coursera to increase its authorized shares of common stock indicates potential dilution for existing Coursera shareholders.

Risks

• General economic, market, or business conditions, including competition and risks related to online learning solutions and AI innovations, could impact the combined company.
• Risks related to the business combination itself, such as the effect of the announcement on the ability to retain and hire key personnel and maintain relationships with customers, vendors, and other business partners.
• Potential difficulties in attracting and retaining qualified personnel as a result of the business combination.
• The outcome of any legal proceedings related to the business combination.
• The ability of the parties to consummate the proposed transaction on a timely basis or at all, including securing regulatory approvals on the terms expected.
• The ability to successfully integrate Coursera's and Udemy's operations and business on a timely basis or otherwise in accordance with applicable standards.
• Coursera's and Udemy's ability to implement plans, forecasts, and other expectations with respect to the combined company's business and realize expected synergies and other benefits.
• The amount of the costs, fees, expenses, and charges related to the proposed combination.
• Fluctuations in the prices of Coursera or Udemy stock.
• Potential business disruptions following the business combination.
• Failure to obtain the requisite stockholder approvals from either Udemy or Coursera.
• Failure to obtain required regulatory approvals, including under the Hart-Scott-Rodino Antitrust Improvements Act of 1976 and other Competition Laws.
• Risk that the merger (or Two-Step Merger) does not qualify as a reorganization within the meaning of Section 368(a) of the U.S. Internal Revenue Code.

Future Outlook

The combined company intends to continue providing charitable contributions and community support at levels substantially comparable to those provided by Udemy and Coursera individually prior to the merger. The parties will also cooperate in good faith to develop new benefit plans for employees, aiming for substantially equivalent treatment and non-discrimination between legacy employees.

Management Comments

• The board of directors of Udemy unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Merger, are fair to, and in the best interests of, Udemy and its stockholders; approved and declared advisable the Merger Agreement and the transactions contemplated by the Merger Agreement, including the Merger; and recommended that Udemy's stockholders vote in favor of adopting the Merger Agreement.
• The Board of Directors of Coursera unanimously determined that the Merger Agreement and the transactions contemplated thereby, including the Charter Amendment, the Share Issuance and the Merger, are advisable to, and in the best interests of, Coursera, taking into account the pecuniary interests of holders of Coursera Common Stock, the best interests of those materially affected by Coursera's conduct, including holders of Coursera Common Stock, employees of Coursera, community, educators and learners, and Coursera's specific public benefit purpose to provide global access to flexible affordable high-quality education that supports personal development, career advancement, and economic opportunity.

Industry Context

This merger represents a significant consolidation within the online learning and EdTech sector, bringing together two prominent platforms, Udemy and Coursera. The combination could lead to increased market share, expanded course offerings, and potentially enhanced competitive positioning against other major players in the rapidly evolving digital education landscape, especially with references to AI innovations.

Comparison to Industry Standards

• The all-stock merger structure is common in large-scale strategic combinations, aiming to preserve cash and allow shareholders of the acquired company to participate in the future upside of the combined entity.
• The specified exchange ratio of 0.800 shares of Coursera for each Udemy share will be evaluated by investors against prevailing market prices and historical trading multiples of comparable EdTech companies.
• The commitment to maintaining D&O insurance for six years post-merger with a premium cap is a standard practice to protect former directors and officers, aligning with corporate governance best practices in M&A.
• The inclusion of directors from the acquired company (Udemy) on the acquirer's (Coursera's) board is a common strategy to facilitate integration and leverage expertise from both entities.

Management Changes

Corporate Governance

Legal Proceedings

• No specific legal proceedings are detailed beyond general statements about potential litigation related to the business combination, which is customary for merger announcements.

Related Party Transactions

• Voting Agreement with certain stockholders of Coursera affiliated with New Enterprise Associates and Andrew Ng (representing approximately 12% of total outstanding shares of Coursera Common Stock) to vote in favor of the Stock Issuance and Charter Amendment.
• Voting Agreement with certain stockholders of Udemy affiliated with Insight Venture Partners (representing approximately 26% of total outstanding shares of Udemy Common Stock) to vote in favor of the adoption of the Merger Agreement.

Stakeholder Impact

• Shareholders (Udemy): Will receive 0.800 shares of Coursera Common Stock for each Udemy share, allowing them to participate in the combined company's future performance.
• Shareholders (Coursera): Will experience dilution due to the issuance of new shares but are expected to benefit from the strategic combination and potential synergies.
• Employees (Both Companies): Will receive comparable annual base salary/wage rates and severance benefits for at least one year post-merger. Flexible work policies will be honored, and equity awards will be converted to Coursera awards.
• Customers/Learners (Both Companies): The merger is expected to expand course offerings and potentially enhance the overall online learning experience.
• Educators/Content Partners (Both Companies): The combined entity intends to continue providing charitable contributions and community support, which may benefit the broader educational ecosystem.
• Creditors (Udemy): Udemy's Credit Agreement will be repaid in full at closing, resolving its existing debt obligations.

Next Steps

• Coursera and Udemy will prepare and file a Form S-4 registration statement, including a joint proxy statement, with the SEC.
• Both companies will use reasonable best efforts to have the Form S-4 declared effective under the Securities Act.
• Udemy will call a meeting of its stockholders to obtain the Requisite Udemy Vote for adopting the Merger Agreement.
• Coursera will call a meeting of its stockholders to obtain the Requisite Coursera Vote for approving the Share Issuance and the Charter Amendment.
• The parties will seek to obtain all necessary regulatory approvals, including the expiration or termination of the waiting period under the HSR Act.
• Coursera will use reasonable best efforts to cause the shares of Coursera Common Stock to be issued in the Merger to be approved for listing on the NYSE.
• Udemy will cooperate to delist its common stock from Nasdaq and deregister it under the Exchange Act after the Effective Time.
• Udemy will take necessary actions to terminate its 2021 Employee Stock Purchase Plan (ESPP) prior to the Effective Time.
• Udemy will facilitate the termination and repayment of its Credit Agreement on the Closing Date.
• Coursera will file a resale shelf registration statement covering the resale of the Merger Consideration received by Udemy Stockholders post-merger.

Key Dates

Recommendation

The all-stock merger between Udemy and Coursera presents a strategic consolidation in the EdTech sector, offering potential long-term benefits through expanded market reach and synergies. The unanimous board approvals and fairness opinions suggest a well-considered transaction. However, the immediate outlook involves integration risks, regulatory hurdles, and potential short-term business disruptions, which are common in mergers of this scale. While the long-term prospects of the combined entity could be strong, the near-term uncertainties warrant a 'hold' recommendation until more clarity emerges on integration execution and synergy realization. Investors should monitor regulatory approvals and the combined company's performance post-merger.

Keywords

Udemy, Coursera, Merger, Acquisition, Online Learning, EdTech, Stock-for-Stock, SEC Filing, Corporate Governance, Equity Awards, Reorganization, Stockholder Vote, Regulatory Approval, Business Combination