NEW HAVEN, CT — Transpro has signed a letter of intent with Modine Manufacturing Co. setting the terms for a proposed merger of Modine’s aftermarket business into Transpro. The proposed merger would be an all-stock transaction to form a new company.
As part of the transaction, Modine plans to acquire Transpro’s heavy duty OEM business for cash. Transpro is a manufacturer and supplier of heating and cooling components and systems, and Modine specializes in thermal management systems and components.
Under the letter of intent, Modine would spin off its aftermarket business on a debt-free basis to its shareholders and the resulting company would immediately be merged into Transpro. Each step of the transaction is expected to be tax-free to the shareholders of both companies. In the merger, Transpro would issue 8.8 million common shares to Modine’s shareholders, who would, as a result, hold 54 percent of the new company’s shares. Transpro’s current shareholders would own 46 percent of the new company’s 16.3 million shares outstanding. Transpro would concurrently sell its heavy duty OEM business to Modine for $17 million in cash.
The new company will be governed by a ten-member board of directors, which will include six members of Transpro’s existing board and four members that will be selected by Modine. One of Transpro’s current outside directors will serve as chair of the new company’s board of directors. Transpro CEO Charles Johnson will serve as the new company’s CEO.
The letter of intent has been approved by Transpro’s board of directors, and closing is subject to the negotiation of definitive documentation, shareholder and regulatory approvals, and customary conditions.
The two companies said they expect to sign definitive documentation during the fourth quarter of 2004 and to close the transaction during the first quarter of 2005.
Transpro believes that the merger offers significant potential benefits to both parties’ customers, employees and shareholders by creating a strategically and financially stronger company.
Charles Johnson, Transpro’s CEO, said, “The combination of these two well respected businesses assures that the new company will have the operational scale and financial flexibility required to compete internationally and positions it to focus on the aftermarket segment of the industry. These benefits will provide long-term growth opportunities for our employees and shareholders and even better service to our customers. At the same time, we are proud of the achievements of our heavy duty OEM business and are pleased to have aligned it with a new business partner that is fully focused on this heat transfer market segment.”
The new company is expected to have net sales in excess of $400 million and is expected to be profitable in the first year before restructuring charges, which are expected to total $10 million to $14 million over the 12- to 18-month integration period. The new company’s debt level will be reduced, compared to Transpro’s current debt level, through the merger by the application of cash in Modine’s aftermarket business and the proceeds from the sale of Transpro’s heavy duty OEM business. As a result of the reduced debt level and the contribution of Modine’s aftermarket business to the merger on a debt-free basis, the new company will be well capitalized and is expected to have significantly improved borrowing capacity at the time of the merger.
Transpro expects to be the acquirer for purchase accounting purposes, which could result in the realization of negative goodwill and a related extraordinary gain in the year the transaction closes. Additionally, the new company will benefit from a gain on the sale of the heavy duty OEM business in the year the transaction closes.
For more information about Transpro, go to: www.transpro.com.
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