Quartet Merger Corp. (NASDAQ:QTET, QTETU and QTETR) (“Quartet”)
and privately-held Pangaea Logistics Solutions Ltd. (“Pangaea” or
the “Company”) today jointly announced that they have entered into
a merger agreement whereby Pangaea will become a publicly listed
company through a merger transaction with Quartet.
Pangaea Logistics Solutions Overview
- Global provider of comprehensive
maritime logistics solutions
- Continuous market leadership for 18
years
- Value-added backhaul specialization and
ice-class 1A dominance
- Embedded, loyal customer base
- Asset-light strategy ensures ownership
only when needed based on demand
- Consistent, acyclical growth: 70%+ Net
Income CAGR (‘10-’13)
- Attractive Return on Equity: 19.5%
(3-year average)
- Close alignment of interests -
Management owns approximately 60% of Pangaea before merger and will
roll 100% of its equity into the merger
- After the merger, the resulting company
intends to pay an annual cash dividend of 10 cents per share,
payable quarterly
Pangaea is an established, growth-oriented global logistics
company dedicated to providing seaborne dry bulk transportation
services. Pangaea is headquartered in Newport, Rhode Island with
offices in Copenhagen, Athens, Rio de Janeiro and Singapore.
Since its predecessor’s founding in 1996, Pangaea has built a
global roster of clients that includes many of the world’s leading
industrial and agricultural suppliers, helping these clients to
manage risk and providing them with consultative solutions and
expert execution. Pangaea has become the recognized world leader in
ice-class 1A ocean-going trading and is an advisor to the European
Commission on this expanding class of service, while simultaneously
parlaying its extensive experience and network to establish itself
as a preeminent backhaul operator in the marine logistics
space.
The Transaction
Upon the consummation of the transactions contemplated by the
merger agreement, (i) Quartet will be merged with and into a newly
formed Bermuda company (“Holdco”), with Holdco surviving the merger
and (ii) a wholly owned subsidiary of Holdco (“Merger Sub”) will
merge with and into Pangaea, with Pangaea surviving the merger and
becoming the wholly-owned subsidiary of Holdco (collectively, the
“Mergers”).
The shareholders of Pangaea, in exchange for all Pangea’s
outstanding shares immediately prior to the Mergers, will receive
from Holdco:
- $300 million of Holdco common stock and
cash (the cash component will range from $0-$10 million at the
option of Pangaea shareholders); and
- Up to an additional $75 million in
Holdco stock (valued at $10.20 per share) over the next 3 years, if
the following net income targets are met:
Contingent Consideration
Schedule
Net Income Target Contingent Value1
Contingent Shares1 Fiscal Year Ending December 31,
2014 $27,300,000 $35,000,000 3,431,373 Fiscal Year Ending December
31, 2015 $34,000,000 $20,000,000 1,960,784 Fiscal Year Ending
December 31, 2016 $41,000,000 $20,000,000 1,960,784 Cumulative
Target2 $102,300,000 $75,000,000
7,352,941 Notes: 1 Contingent payment will be made in shares
of Holdco Common Stock (valued at $10.20 per share). 2 If the
cumulative net income target is met by the end of fiscal 2015, all
three contingent payments will be deemed earned.
The Holdco shares issued to Pangaea shareholders in the
Transaction will be subject to lockup provisions identical to those
applicable to Quartet’s founders (12 months, with 50% subject to
potential early release).
Following the Mergers, the board of directors of Holdco will
consist of 8 members, 6 of whom will be nominated by Pangaea’s
current shareholders and two of whom will be nominated by
Quartet.
The closing of the transaction is subject to approval by the
stockholders of Quartet, holders of no more than 9,169,603 shares
of Quartet Common Stock issued in Quartet’s initial public offering
of securities exercising their rights to convert their shares into
a pro rata share of the Trust Fund in accordance with Quartet’s
charter documents, and customary closing conditions for
transactions of this nature.
About Pangaea Logistics Solutions and Its Markets
Pangaea provides logistics services to a broad base of
industrial customers who require the transportation of a wide
variety of dry bulk cargoes, including grains, pig iron, hot
briquetted iron, bauxite, alumina, cement clinker, dolomite, and
limestone. The Company addresses the transportation needs of its
customers with a comprehensive set of services and activities,
including cargo loading, cargo discharge, vessel chartering, and
voyage planning.
The Company continues to innovate. In 2010, for example, Pangaea
was the first non-Russian vessel operator to carry dry bulk cargoes
from Europe to Asia via the Northern Sea Route. Similarly, in 2013,
Pangaea was the first vessel operator to carry dry bulk cargo from
the West Coast of Canada to Europe via the Northwest Passage. The
Company’s experience in carrying a wide range of cargoes,
pioneering new routes, and serving less common ports increases its
opportunities to secure higher margins than in more commoditized
cargoes and routes. Pangaea believes that providing such
specialized transportation logistics services, together with its
long-term commercial and contractual relationships and asset-light
business strategy, makes the Company less sensitive to industrial
and economic cycles as compared to other bulk-shipping
operators.
Eric Rosenfeld, Chairman and CEO of Quartet, commented, “We are
pleased that Quartet’s Board of Directors, as well as our Special
Advisor, Joel Greenblatt, unanimously approved this transaction. We
believe that Pangaea is without parallel in its sector, making it
an extremely attractive merger partner. The Company has a very
appealing growth profile and a compelling valuation, with a price
to forward earnings multiple that is more than 30% below its
publicly traded peers. We expect that its numerous competitive
advantages will enable the company to continue to prosper.”
Mr. Rosenfeld continued, “We believe the dedicated management
team and expertise that Pangaea has demonstrated, particularly in
the ice-class trade and in backhaul, clearly indicate that this
Company not only has the vision to be a global leader for years to
come, but also maintains a worldwide network to execute in a way
its peers cannot. As a result, it is our belief that Pangaea is
well-positioned to provide long-term value to stockholders.”
Joel Greenblatt, Quartet’s Special Advisor, said, “An attractive
valuation, an experienced management team, and a global leader in
its sector are some of the attributes that make this a unique
investment opportunity. This is a quality company with significant
growth prospects and I am excited about its future.”
Peter Yu, Managing Partner of Cartesian Capital Group, a
significant Pangaea stockholder, stated, “This is a defining moment
in Pangaea’s evolution and we are proud of our involvement in
helping the company reach this critical milestone. Management has
positioned the company for long-term sustained growth by becoming
the leader in several key areas with limited competition and high
barriers to entry. We look forward to continuing our partnership
with Pangaea and facilitating its continued growth.”
For the purposes of this transaction, Quartet is being
represented by Graubard Miller and Pangaea is being represented by
Willkie Farr & Gallagher LLP. For additional information on the
transaction, see Quartet’s Current Report on Form 8-K, which will
be filed promptly and which can be obtained, without charge, at the
Securities and Exchange Commission's internet site
(http://www.sec.gov). Pangaea’s website is
http://www.PangaeaLS.com.
About Quartet Merger Corp.
Quartet was incorporated in Delaware on April 19, 2013 as a
blank check company whose objective is to effect a merger,
capital stock exchange, asset acquisition or other similar
business combination with an operating business. On November 1,
2013, Quartet consummated its initial public offering (“IPO”) of
8,400,000 units, each unit consisting of one share of common stock
and one right to automatically receive one-tenth of one share of
common stock upon consummation of an Initial Business Combination.
The units were sold at an offering price of $10.00 per unit,
generating gross proceeds of $84,000,000. On November 5, 2013,
Quartet consummated the sale of an additional 1,260,000 units that
were subject to the underwriters’ over-allotment option, for
aggregate additional proceeds of $12,600,000. Simultaneously with
each of the consummation of the IPO and the exercise of the
over-allotment option, Quartet consummated a private placement of
an aggregate of 608,125 units to its Sponsors and EarlyBirdCapital,
Inc., the representative of the underwriters of its IPO, and their
respective designees. The private units were sold at an offering
price of $10.00 per unit, generating gross proceeds of $6,081,250.
Of the net proceeds from Quartet’s IPO (including the exercise of
the over-allotment option), $92,410,500, plus $6,081,250 received
from the Private Placement for an aggregate of $98,491,750, was
place in a trust account. As of December 31, 2013, Quartet held
$98,503,058 in a trust account maintained by an independent
trustee, which will be released upon the consummation of the
transaction with Pangaea.
Quartet and its directors and executive officers may be deemed
to be participants in the solicitation of proxies for the special
meeting of Quartet stockholders to be held to approve the merger.
Stockholders are advised to read, when available, Quartet’s
preliminary proxy statement/registration statement and definitive
proxy statement/registration statement in connection with the
solicitation of proxies for the special meeting because these
statements will contain important information. The definitive proxy
statement/registration statement will be mailed to stockholders as
of a record date to be established for voting on the merger.
Stockholders will also be able to obtain a copy of the proxy
statement/registration statement, without charge, by directing a
request to: Quartet Merger Corp., 777 Third Avenue,
37th Floor, New York, NY 10017. The preliminary proxy
statement/registration statement and definitive proxy
statement/registration statement, once available, can also be
obtained, without charge, at the Securities and Exchange
Commission's internet site (http://www.sec.gov).
Safe Harbor Language
This press release includes certain forward-looking statements
within the meaning of the Private Securities Litigation Reform Act
of 1995, including statements regarding future financial
performance, future growth and future acquisitions. These
statements are based on Pangaea’s and Quartet’s managements’
current expectations or beliefs and are subject to uncertainty and
changes in circumstances. Actual results may vary materially from
those expressed or implied by the statements herein due to changes
in economic, business, competitive and/or regulatory factors, and
other risks and uncertainties affecting the operation of Pangaea’s
business. These risks, uncertainties and contingencies include:
business conditions; weather and natural disasters; changing
interpretations of GAAP; outcomes of government reviews; inquiries
and investigations and related litigation; continued compliance
with government regulations; legislation or regulatory
environments; requirements or changes adversely affecting the
business in which Pangaea is engaged; fluctuations in customer
demand; management of rapid growth; intensity of competition from
other providers of logistics and shipping services; general
economic conditions; geopolitical events and regulatory changes;
the possibility that the merger does not close, including due to
the failure to receive required security holder approvals or the
failure of other closing conditions; and other factors set forth in
Quartet’s filings with the Securities and Exchange Commission. The
information set forth herein should be read in light of such risks.
Further, investors should keep in mind that certain of Pangaea’s
financial results are unaudited and do not conform to SEC
Regulation S-X and as a result such information may fluctuate
materially depending on many factors. Accordingly, Pangaea’s
financial results in any particular period may not be indicative of
future results. Neither Quartet nor Pangaea is under any obligation
to, and expressly disclaims any obligation to, update or alter its
forward-looking statements, whether as a result of new information,
future events, changes in assumptions or otherwise.
(U.S dollars in thousands)
As of and for
the years ended December 31, 2011
2012 2013 (Figures derived from audited
statements)
Income Statement
Data:
Revenue $ 409,644 $ 387,058 $ 392,471 Direct operating expenses
389,621 349,206 349,873 Gross profit 20,023 37,852 42,598
Selling, general, and administrative expense 7,244 11,028 11,599
Depreciation and amortization 5,197 7,180 9,615 Loss of vessel sale
1,096 - - Income from operations 6,485 19,644 21,384
Interest and other expense, net (2,636) (3,731) (5,869) Income
attributable to non-controlling interests (83) (2,059) (62)
Net
income attributable to Pangaea $ 3,766 $ 13,854
$ 15,452
Balance Sheet
Data:
Cash $ 18,738 $ 19,696 $ 18,928 Total assets 126,556 232,216
330,373 Total third party debt (current and long-term)
31,963 84,876 102,368
Quartet Merger Corp.David Sgro, 212-319-7676Chief Financial
OfficerorProsek PartnersThomas Rozycki, 212-279-3115Managing
Director
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