JZ CAPITAL PARTNERS LIMITED (the
"Company")
(a closed-ended investment company incorporated with limited
liability under the laws of Guernsey with registered number
48761)
LEI 549300TZCK08Q16HHU44
Proposed disposal of a 35.45 per
cent. ownership interest in
TWH Water Treatment Industries, Inc.
3 September 2018
The Company today announces that TWH Water Treatment Industries,
Inc. ("Water Treatment Industries"), a subsidiary of one of the
Company's portfolio companies, Triwater Holdings LLC ("Triwater
Holdings") agreed to enter into a merger agreement with a newly
incorporated subsidiary (incorporated for the purposes of the
merger) of DuBois Chemicals, Inc. ("DuBois") in relation to the
proposed merger between Water Treatment Industries and DuBois (the
"Merger").
The shareholders of Water Treatment Industries, including
Triwater Holdings, will receive for the Merger, in aggregate,
initial gross consideration of approximately US$148 million in cash on completion of the
Merger, subject to post-closing adjustments for net working capital
of Water Treatment Industries and to reflect the amount of cash,
indebtedness and transaction expenses of the company at the time of
closing (the "Initial Consideration") and additional contingent
earn-out consideration of up to US$17
million in cash based on certain revenue targets of Water
Treatment Industries (the "Earn-Out Consideration"). The Company
holds a 35.45 per cent. ownership interest in Water Treatment
Industries by way of both its 35.43 per cent. ownership interest in
Triwater Holdings (which owns 89.91 per cent. of Water Treatment
Industries) and its 3.59 per cent. ownership interest directly in
Water Treatment Industries. Accordingly, the Merger effectively
involves the Company disposing of its ownership interest in Water
Treatment Industries. For its ownership interest, the Company
expects to receive approximately US$32
million from the Initial Consideration, subject to the
post-closing adjustments, and potentially up to approximately
US$5 million from the Earn-Out
Consideration (together, the "Transaction"). The amount expected to
be received by the Company reflects that the aggregate Initial
Consideration and Earn-Out Consideration (if any) is to be paid out
first in respect of senior debt and transaction fees, as well as
preferred equity which as between investors including the Company
is held (directly or indirectly) in different percentages than the
common stock.
The Transaction would be considered a related party transaction
under Chapter 11 of the Listing Rules (with which the Company
voluntarily complies and insofar as the Listing Rules are
applicable to the Company by virtue of its voluntary compliance)
and therefore shareholder approval is required for the Transaction.
The Merger through which the Company is proposing to realise its
investment in Water Treatment Industries is subject to a number of
conditions customary for US-style mergers (including a no material
adverse effect condition) as well as obtaining such shareholder
approval in relation to the Transaction in order to complete the
Merger.
Shareholder approval for the Transaction will be sought at an
Extraordinary General Meeting ("EGM") of the Company which the
Company intends to convene by giving notice of the EGM as soon as
practicable. A shareholder circular containing further details of
the Transaction and the notice convening the EGM will also be sent
to shareholders as soon as practicable. A further announcement will
be made by the Company which will provide details of the date, time
and location of the EGM. This announcement should be read in
conjunction with the following announcement together with the
shareholder circular.
Proposed disposal of Water Treatment
Industries
The Company intends to realise its investment in Water Treatment
Industries through the Merger of Water Treatment Industries with
DuBois which the Board believes currently provides the best
opportunity to realise an attractive and certain value for its
investment.
Water Treatment Industries is a subsidiary of one of the
Company's portfolio companies, Triwater Holdings, which owns 89.91
per cent. of Water Treatment Industries. The Company holds a 35.45
per cent. ownership interest in Water Treatment Industries by way
of both its 35.43 per cent. ownership interest in Triwater Holdings
and its 3.59 per cent. ownership interest directly in Water
Treatment Industries.
Water Treatment Industries is incorporated in Delaware and provides water treatment chemical
supplies and services in the US and Canada. It has a number of subsidiaries,
including Nashville Chemical & Equipment Company Inc., Klenzoid
Canada Inc., Eldon Water Inc. and Chemco Products Inc. Water
Treatment Industries has gross profits of approximately
US$15.4 million and total gross
assets of approximately US$49.2
million (including approximately US$26.7 million of intangible assets) for the 12
months ending 30 June 2018. These
figures, all of which are unaudited, are attributable to the whole
of the Water Treatment Industries business and not the
proportionate 35.45 per cent. ownership interest held and proposed
to be disposed of by the Company through the Merger. Existing
members of the management team of Water Treatment Industries run
the Water Treatment Industries business and the key individual
important to the business is Ted
Kusz who is the President of Water Treatment Industries.
As mentioned above, the shareholders of Water Treatment
Industries, including Triwater Holdings, will receive for the
Merger, in aggregate, approximately US$148
million Initial Consideration in cash on completion of the
Merger, subject to the post-closing adjustments, and additional
contingent Earn-Out Consideration of up to US$17 million in cash based on certain revenue
targets of Water Treatment Industries.
The Initial Consideration is subject to customary financial
adjustments to reflect the amount of working capital in Water
Treatment Industries at completion of the Merger as well as the
amount of cash, indebtedness and transaction expenses of the
company at the same time. Following completion of the Merger,
DuBois and Triwater Holdings will agree or determine the amount of
the adjustments to the Initial Consideration. In the case of the
net working capital adjustment, the adjustment to the Initial
Consideration will be determined by the amount by which the net
working capital of Water Treatment Industries as at the date of
completion is either less than US$9.5
million or greater than US$10.5
million. If the networking capital is less than US$9.5 million the adjustment will be equal to
the amount of the deficit, if it is greater than US$10.5 million the adjustment will be equal to
the amount of the excess, and in any other case the adjustment will
be zero. For the other post-closing adjustments, the adjustments
will be made to reflect the amount of cash, indebtedness and
transaction expenses of the company at the time of closing. Any
upwards or downwards adjustment of the Initial Consideration will
be payable upon final determination of such adjustments in
accordance with the terms of the Merger, which is expected to be
between 60 and 120 days after completion.
The Earn-Out Consideration is based upon the amount by which
Water Treatment Industries' total net sales for the 12-month period
ending 31 December 2018 exceeds
approximately US$65 million provided
that the Earn-Out Consideration shall not exceed US$17 million. The Earn-Out Consideration, if
any, will be paid within 90 days following the publication of the
audited financial statements of DuBois for the calendar year ending
31 December 2018, which is expected
to be in or around May 2019.
For the Company's 35.45 per cent. ownership interest in Water
Treatment Industries, the Company expects to receive in connection
with the Merger approximately US$32
million from the Initial Consideration, subject to the
post-closing adjustments, and potentially up to approximately
US$5 million from the Earn-Out
Consideration. The proceeds that the Company will receive in
connection with the Transaction are intended to be used for the
Company's general corporate purposes.
Related Party Transaction
Further details of the Transaction will be included in the
shareholder circular to be sent to shareholders as soon as
practicable. However, shareholders should note that the Transaction
would be considered a related party transaction under Chapter 11 of
the Listing Rules.
The parent company of the counterparty to the Merger, DuBois is
a portfolio company of Resolute Fund III, L.P. ("Resolute Fund
III") which has a 73.7 per cent. ownership interest in DuBois and
is one of the funds managed by The Jordan Company, L.P. ("The
Jordan Company"). Each of David
Zalaznick and Jay Jordan
(together, the "JZAI Founders") who together are the founders and
principals of the Company's investment adviser, Jordan/Zalaznick
Advisers, Inc. ("JZAI") are also the founders of The Jordan
Company. In addition, Jay Jordan is
the non-executive Chairman of The Jordan Company. Both of the JZAI
Founders have an economic interest in Resolute Fund III or its
affiliated funds by way of certain fee arrangements including
consultancy or similar fees or income, and also receive carried
interest in relation to such funds. As such and as both of the JZAI
Founders are related parties of the Company under the Listing
Rules, the Transaction would be considered a related party
transaction.
Shareholders should also note that, whilst the Listing Rules
provide that for a related party transaction written confirmation
is to be obtained from a sponsor that its terms are fair and
reasonable as far as shareholders are concerned, such a
confirmation has not been received in relation to the Transaction.
Shareholders are reminded that the Company also departed from the
same requirement in relation to the related party transaction of
the Company concerning Deflecto Holdings, LLC (the "Deflecto
Proposal"), as described in the circular to shareholders published
by the Company on 6 June 2018 and
approved at the extraordinary general meeting of the Company that
took place on 26 June 2018.
This is because, as was the case with the Deflecto Proposal, the
Company has been unable to obtain a fair and reasonable written
confirmation for the Transaction at a cost which can be justified
relative to its size and within the time constraints needed to be
met in order to transact on and complete the Transaction on the
terms negotiated. The Company understands that the costs and time
for obtaining such a confirmation can often be greater for a
related party transaction that concerns an acquisition or disposal,
such as the Deflecto Proposal and the Transaction respectively.
Such additional costs and time can be attributed to the additional
due diligence and valuation work that may need to be undertaken on
the target which is the subject of the acquisition or disposal (as
the case may be).
The Company has therefore decided to depart from the requirement
to obtain a fair and reasonable written confirmation on this
occasion but notwithstanding that, and as was also the case with
the Deflecto Proposal, JZAI as the Company's investment adviser has
instead provided written confirmation to the Company that the terms
of the Transaction are fair and reasonable as far as ordinary
shareholders are concerned. Whilst the JZAI Founders do have an
economic interest in Resolute Fund III or its affiliated funds as
described above, the Company notes that the Merger and the
selection of DuBois as the preferred bidder for Water Treatment
Industries was undertaken following a competitive auction process
and an assessment of DuBois as presenting the superior offer as
determined on the basis of price and ability to complete the Merger
in a short time frame with certainty. The Company also notes that
Edgewater Growth Capital Partners ("Edgewater") (which holds a 43.23 per cent.
ownership interest in Water Treatment Industries) is participating
in the Merger (separate to its ownership interest through the
Company) on the same terms, which the Company considers provides
additional support for JZAI's assessment that the terms of the
Transaction are fair and reasonable. Moreover, Edgewater has led the negotiations in relation
to the Transaction on behalf of Triwater Holdings and, as one of
the Company's major shareholders, has interests which are aligned
with the Company's interests.
Shareholders are also reminded that the Company is not subject
to, but rather voluntarily complies with, the Listing Rules and,
save for the absence of a fair and reasonable written confirmation
in a form prescribed by the Listing Rules, the Transaction, like
the Deflecto Proposal, is otherwise being treated in accordance
with the Listing Rules including in respect of the requirement to
obtain shareholder approval. The Directors of the Company, who have
been so advised by JZAI, consider this departure is justified for
the aforementioned reasons and is in the best interests of the
Company and the ordinary shareholders. The Company otherwise
intends to continue to comply voluntarily with the requirements of
the Listing Rules.
______________________________________________________________________________________
The information contained within this
announcement is considered by the Company to constitute inside
information as stipulated under the Market Abuse Regulations (EU)
No. 596/2014. Upon the publication of this announcement, this
inside information is now considered to be in the public domain.
The person responsible for arranging the release of this
announcement on behalf of the Company is David Macfarlane, Chairman.
Ends
For further information:
Ed Berry / Kit
Dunford
FTI Consulting |
+44 (0) 20 3727 1046 /
1143 |
David Zalaznick
Jordan/Zalaznick Advisers, Inc. |
+1 212 485 9410 |
Samuel Walden
Northern Trust International Fund Administration Services
(Guernsey) Limited |
+44 (0) 1481
745385 |
About JZCP
JZ Capital Partners (“JZCP”) is one of the oldest closed-end
investment companies listed on the London Stock Exchange. It seeks
to provide shareholders with a return by investing selectively in
US and European microcap companies and US real estate. JZCP
receives investment advice from Jordan/Zalaznick Advisers, Inc.
(“JZAI”) which is led by David
Zalaznick and Jay Jordan.
They have worked together for more than 35 years and are supported
by teams of investment professionals in New York, Chicago, London and Madrid. JZAI’s experts work with the existing
management of microcap companies to help build better businesses,
create value and deliver strong returns for investors. For more
information please visit www.jzcp.com.