Acquisition of BWAY Parent by Platinum

9 Months Ended

Sep. 30, 2013

2. Acquisition of BWAY Parent by Platinum

Effective November 5, 2012, pursuant to an Agreement and Plan of Merger dated as of October 2, 2012, (the “Merger Agreement”) BOE Merger Corporation (“BOE Merger”) merged with and into BWAY Parent, with the latter surviving (the “Platinum Merger”). The merger resulted in the acquisition of BWAY Parent from investment entities affiliated with Madison Dearborn Partners, LLC, a private equity investment firm based in Chicago, Illinois (“MDP”), and other shareholders.

As a result of the merger, BWAY Parent is a wholly-owned subsidiary of BOE Intermediate Holding Corporation (“BOE Intermediate”), a holding company and itself a wholly owned subsidiary of BOE Holding Corporation (“BOE Holding”). BOE Holding is owned by Platinum and certain members of management. BOE Holding and BOE Merger were formed solely to complete the Platinum Merger.

BOE Merger was determined to be the acquirer company for accounting purposes and therefore, the Platinum Merger was accounted for using the acquisition method of accounting in accordance with the accounting guidance for business combinations. Accordingly, the purchase price of the Platinum Merger has been allocated to our assets and liabilities based upon their estimated fair values at the acquisition date. Periods before November 6, 2012 reflect the financial position, results of operations and changes in financial position of the company before the Platinum Merger (the predecessor periods) and periods after November 5, 2012 reflect the financial position, results of operations, comprehensive income (loss), and changes in financial position of the Company after the Platinum Merger (the successor periods). For accounting purposes, the purchase price allocation was applied on November 6, 2012.

BWAY Parent and its subsidiaries were acquired for $1,012.4 million, which represents merger consideration of $394.3 million, seller expenses of $25.9 million and the repayment of historical debt of $592.2 million, inclusive of accrued interest and repayment premiums. In addition, BWAY Holding’s outstanding senior notes due 2018 with an outstanding aggregate principal amount of $205.0 million were assumed (the “2018 senior notes”). The purchase price was funded through the net proceeds of a $470.0 million term loan ($467.7 million, net of original issue discount (“OID”)), the issuance of $335.0 million of senior PIK toggle notes by BWAY Parent (successor) and a cash equity contribution of $267.4 million.

In connection with the Platinum Merger, the following transactions occurred:


•	Platinum, together with certain other shareholders, capitalized BOE Intermediate (through BOE Holding) with an aggregate equity contribution of $267.4 million, net of a $1.8 million working capital adjustment from the seller;


•	BWAY Parent issued $335.0 million aggregate principal amount of 9.50%/10.25% Senior PIK Toggle Notes due 2017 (the “2017 PIK Notes”);

•

BWAY Holding entered into senior secured credit facilities (the “new senior secured credit facilities”) consisting of (a) a senior secured asset-based revolving credit facility with commitments of up to $150.0 million (the “new ABL facility”), which was undrawn on the closing date of the Platinum Merger and (b) a senior secured term loan facility of $470.0 million (the “new term loan facility”);


•	on October 12, 2012, BWAY Holding entered into a supplemental indenture to the indenture governing the 2018 senior notes to amend certain provisions (including amending the definition of “Change of Control”) to provide that the Platinum Merger would not constitute a Change of Control;


•	immediately prior to the effective time of the Platinum Merger, the amendments to the indenture governing the 2018 senior notes became operative;


•	on October 16, 2012, BWAY Parent (predecessor) launched a tender offer and consent solicitation to purchase for cash any and all of BWAY Parent’s outstanding PIK Notes due 2015 (the “2015 PIK Notes”);


•	at closing, $185.0 million of the 2015 PIK Notes were tendered for $195.4 million, including a tender premium and consent payment;


•	the Company redeemed $0.7 million of outstanding 2015 PIK Notes not tendered at closing;


•	at closing, $394.6 million of outstanding indebtedness under predecessor’s senior secured credit facility was repaid and all liens there under were released; and


•	the merger of BOE Merger with and into BWAY Parent, with BWAY Parent as the surviving corporation, became effective.

For a discussion of debt instruments used to fund the Platinum Merger, see Note 7, “Long-Term Debt.”

Merger Transaction Costs

In the period ended November 5, 2012, BWAY Intermediate recognized merger transaction costs of $10.9 million, which included a $10.0 million bonus to certain members of management related to the sale of BWAY Parent and $0.4 million of employer payroll taxes related to the bonus and to compensation resulting from the settlement of share options, and BWAY Parent recognized merger transaction costs of $25.9 million, inclusive of BWAY Intermediate’s $10.9 million. In the successor period ended December 31, 2012, BWAY Parent recognized merger transaction costs of $16.0 million.

Purchase Price Allocation

The Platinum Merger is accounted for as a business combination using the acquisition method of accounting. As a result, the financial statements reflect a new basis of accounting based on our estimate of the fair value of net assets acquired as of the acquisition date. See “Business Combinations” under Note 2, “Summary of Significant Accounting Polices” of the Notes to Consolidated Financial Statements included in the Annual Report.

We utilized our knowledge of our business and contractual relationships and took into consideration information provided by independent third-party specialist in our valuation of certain tangible and intangible assets acquired and liabilities assumed. The specialists did not act as experts, and management has assumed full responsibility for determining the fair value of the assets acquired and liabilities assumed in the purchase price allocation.

The following table summarizes the purchase price and allocation of the purchase price based on our determination of the fair value for the net assets acquired in the Platinum Merger:



	Acquisition of Bway Parent
($ in millions)
Purchase Price
Merger consideration	$	394.3
Seller expense	25.9
Debt repaid at closing	592.2
Total purchase price	$	1,012.4

Purchase price allocation
Cash and cash equivalents	$	12.7
Accounts receivable	125.7
Inventories	127.8
Other current assets	44.5
Property, plant and equipment	246.6
Other intangible assets:
Customer relationships	537.8
Trade names	122.8
Other assets	4.2
Unfavorable lease intangible liabilities	(2.6		)
Current liabilities	(148.0		)
Other liabilities	(42.6		)
Deferred taxes, net	(290.5		)
Fair value of $205.0 million senior notes assumed	(227.6		)
Net assets acquired at fair value	510.8
Goodwill	501.6
	$	1,012.4

Cash and cash equivalents, accounts receivable, other current assets and current liabilities were stated at their historical carrying values, which approximate their fair value given the short-term nature of these assets and liabilities. Inventories were recorded at fair value, based on computations which considered many factors, including the estimated selling price of the inventory, the cost to dispose of the inventory, as well as the replacement cost of the inventory, where applicable.

The Company has allocated $122.8 million to trade names that have been determined to have indefinite lives. Management considered numerous factors in its determination to account for these assets as indefinite-lived intangible assets, including the current market position of the names as well as their recognition in the industry. Indefinite-lived intangible assets are not amortized, but are instead tested for impairment at least annually (more frequently if certain conditions are present).

Goodwill resulting from the Platinum Merger consists largely of value associated with the Company’s ability to generate future “free cash flow” and not otherwise associated with the other identified tangible or intangible assets. The goodwill recognized is not deductible for U.S. income tax purposes. The estimated useful life of the acquired customer relationships is 21 years.

For additional information related to the Company's estimates of the fair value of assets acquired and liabilities assumed in the Platinum Merger and revisions to those estimates subsequent to November 6, 2012, see Note 4 - Merger/Acquisition Measurement Period Revisions.

- Definition

The entire disclosure for a business combination (or series of individually immaterial business combinations) completed during the period, including background, timing, and recognized assets and liabilities. The disclosure may include leverage buyout transactions (as applicable).

+ References

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+ Details

BWAY INTERMEDIATE COMPANY, INC. 10-Q