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BrightPoint merger talks driven by 'deal certainty'

July 28, 2012
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BrightPoint Inc. had a great run. But when company officials saw conditions in the cell phone distribution business take a turn for the worse, they were quick to cash out while the going was still good.

That’s the picture that emerges from a new regulatory filing that provides a blow-by-blow account of the discussions leading up to the July 2 announcement that the firm was being acquired by California-based Ingram Micro Corp. for $840 million.

The filing says trouble began in early 2011, when major suppliers and customers in the cell industry began pressuring profit margins—a development that coincided with slowing growth in the long-fast-expanding industry.

“Competitors began using predatory tactics and offering irrational and unfavorable economic terms to gain customers and market share,” the filing said.

“The company’s share price was also depressed, which management believes reflects these trends. In light of these factors, among others, the company was not averse to … a merger involving the sale of the company.”

And once the locally based company began talking with suitors, it didn’t want to lollygag, potentially causing the value of the company to erode further.

“The company determined that the consummation of such a transaction could not be contingent upon the consent of customers, suppliers, distributors or partners, or the company’s failure to meet analyst expectations or internal or published forecasts,” the filing said. “The company also determined that ‘deal certainty’ between the signing of any definitive agreement and the closing thereof would be of paramount importance.”

The filing doesn’t make clear exactly when BrightPoint’s brass and board became receptive to a sale, and a company official declined to elaborate. After a private equity firm made an unsolicited overture Jan. 9, the company responded that it was not for sale but would review and consider any serious proposals.

That same day, Mark Howell, president of BrightPoint’s Americas division, met with Ingram Micro executives at the Consumer Electronics Show in Las Vegas to discuss “possible partnership strategies” but not an outright acquisition.

BrightPoint soon weathered a big setback—cell carrier Cricket’s decision to transition its logistics business to a competitor. The move, announced Feb. 21, chopped BrightPoint’s stock price from $10 to $8.88 in a single day.

The swoon worsened in April after BrightPoint announced disappointing first-quarter results. By early June, the stock had tumbled to just $4.50—63 percent off its February high.

Through the spring, wheeling and dealing with potential acquirers shifted into high gear.

In mid-March, a senior executive of an unidentified company—dubbed Party A in the filing—initiated acquisition discussions. And in early April, Howell followed up with Ingram Micro, a giant technology distributor, reporting BrightPoint would not be interested in a partnership because of potential conflicts of interest but would be open to discussions about an outright sale.

Two weeks later, an executive with a second unidentified firm sent a text message to BrightPoint CEO Bob Laikin expressing interest in buying his company.

A third unidentified suitor entered the fray on May 11, contacting BrightPoint’s adviser Blackstone Advisory Partners. A fourth jumped in by early June.

Ultimately, Ingram won the prize—dangling $9 a share after Laikin advised that an offer of $8.50 would not be sufficient. But the filing shows Party A was in the running up to June 28, one day before the board approved the Ingram deal.

Party A’s CEO had told Laikin it was willing to pay $9. But the firm was unable to meet Laikin’s tight time line and was uncomfortable with his insistence that it conduct only limited due diligence.

The hurried process likely spared BrightPoint another hit to its stock price. Just after midnight on July 2, BrightPoint announced more bad news—second-quarter results would be well below expectations, and the company was eliminating guidance for the rest of 2012.

But just minutes later, BrightPoint announced Ingram Micro had agreed to buy the company, with the $9-a-share cash price representing a 66-percent premium to the previous close.

Big payoffs

Ingram Micro believes keeping top BrightPoint managers on board is critical to making the deal a success—so much so that it has agreed to provide the golden parachute payments they would be entitled to if they walked.

The filing said Ingram agreed to the terms so the executives “would not be incentivized” to quit after the acquisition.

The largest payouts are due Laikin ($4.1 million) and Howell ($2.8 million). Laikin agreed to become executive adviser to Ingram Micro’s CEO, a part-time job paying him $900,000 a year and entitling him to a one-time stock grant valued at $2.2 million.

Howell, who is slated to serve as president of the America’s mobile division of Ingram Micro, is set to collect a $660,000 salary and receive a one-time grant of $1.5 million in Ingram Micro stock.

Laikin and Howell must remain with Ingram for at least a couple of years for all their shares to vest.•

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