Genuine Parts Co. (GPC) has commented on its previously announced definitive merger agreement to combine GPC’s S.P. Richards business with Essendant in response to the announcement of Staples Inc.’s conditional, non-binding proposal to acquire Essendant for $11.50 per share in cash. Staples is privately owned by Sycamore Partners, which filed a Schedule 13D reporting its acquisition of a 9.9 percent ownership stake in Essendant.

In response to this news, GPC issued the following statement:

“As announced on April 12, 2018, GPC entered into a definitive agreement to combine our S.P. Richards business with Essendant. We are confident that combining the best elements of both businesses will create an even stronger company with the ability to capitalize on opportunities to create value for all of our stakeholders. We continue to make progress on our integration planning, and we remain committed to completing this transaction, which is on track to close before the end of 2018.

“On May 7, 2018, GPC demonstrated its confidence in the upside value creation of this merger by proposing to Essendant enhanced transaction terms under which, in addition to owning 49 percent of the combined company on a diluted basis, Essendant shareholders would receive a Contingent Value Right (CVR) for each Essendant share held immediately prior to the closing of the transaction. Through the CVR, GPC would provide Essendant shareholders with a potential cash payment of up to $4 per CVR based on how Essendant shares trade during a 20-day measurement period at the later of the end of 2019 or 12 months from the closing of the transaction. The cash payment would be equal to $12 minus the greater of the weighted average share price of the combined company during the measurement period or $8.

“We do not believe Staples’ conditional, non-binding proposal to acquire Essendant for $11.50 per share in cash to be a superior proposal nor reasonably likely to lead to a superior proposal as defined under the terms of the Merger Agreement. Indeed, given the proposed enhanced terms and the expected financial benefits of more than $75 million in annual run-rate cost synergies and more than $100 million in working capital improvements, we are confident that the merger between S.P. Richards and Essendant delivers superior value to Essendant’s shareholders. Based on our preliminary analysis, we estimate an implied trading multiple for the combined company of approximately 8.0x EBITDA, in which case these expected synergies would result in an additional $700 million in shareholder value, or approximately $8.75 per share.

“Further, as a stronger, more competitive business products distributor with greater scale and service capabilities, the combined company will have an enhanced ability to support customers, including:

• Greater resources to support and partner with the independent dealer channel and resellers in other sales channels, and to make investments to drive enhanced value for customers, consumers and shareholders;
• Optimized product assortment of branded and private-label products across a broad set of categories;
• Enhanced capability to develop and offer innovative solutions to customers, including value-added marketing and analytics to drive demand; and
• Consolidated distribution network with greater efficiencies throughout the entire supply chain.

“Through increased scale, improved service capabilities and an enhanced financial profile, the combination of S.P. Richards and Essendant will drive more profitable growth and create meaningful value for shareholders over the long term,” GPC concluded in its statement.

J.P. Morgan is acting as financial adviser and Davis Polk & Wardwell LLP is acting as legal counsel to GPC.