Item 1.01
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Entry into a Material Definitive Agreement.
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Agreement and Plan of Merger
On March 2, 2021, The Michaels Companies,
Inc., a Delaware corporation (the “Company”), entered into an Agreement and Plan of Merger (the “Merger
Agreement”) with Magic AcquireCo, Inc., a Delaware corporation (“Parent”), and Parent’s wholly-owned
subsidiary, Magic MergeCo, Inc., a Delaware corporation (“Merger Sub”).
Pursuant to the Merger Agreement, and upon
the terms and subject to the conditions thereof, Merger Sub will commence a tender offer (the “Offer”) to purchase
all of the issued and outstanding shares (the “Shares”) of common stock, par value $0.06775 per share (the “Common
Stock”), of the Company, at a price of $22.00 per Share, net to the holder of such Share, in cash, without interest,
but subject to any applicable withholding taxes (the “Offer Price”). If certain conditions are satisfied and
the Offer closes, Parent will acquire any remaining Shares that are not tendered in the Offer pursuant to a merger of Merger Sub
with and into the Company (the “Merger” and, together with the Offer, the “Transactions”).
The Offer will initially remain open for twenty business days, subject to possible extension on the terms set forth in the Merger
Agreement. The parties currently expect the Offer and the Merger to be completed during the first half of the Company’s fiscal
year, which ends July 31, 2021.
The Merger Agreement contemplates that
the Merger will be effected pursuant to Section 251(h) of the General Corporation Law of the State of Delaware (the “DGCL”),
which permits completion of the Merger without a stockholder vote, as soon as practicable following consummation of the Offer.
The obligation of Parent and Merger Sub to consummate the Offer is subject to various conditions, including that there be validly
tendered and not validly withdrawn that number of Shares that (together with any Shares owned by Parent and its affiliates) represent
at least a majority of the Shares outstanding as of the consummation of the Offer at the expiration of the Offer (the “Minimum
Tender Condition”). The Minimum Tender Condition may not be waived by Parent or Merger Sub without the prior written
consent of the Company. The obligation of Merger Sub to consummate the Offer is also subject to (i) the expiration of a twenty-five
day go-shop period, (ii) the expiration of the waiting period (and any extension thereof) under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976 and approval under (or the expiration or termination of the waiting period and the issuance of a no action
letter under) the Competition Act (Canada), (iii) the completion of a specified marketing
period for the debt financing Parent and Merger Sub are using to fund a portion of the aggregate Offer Price (the “Marketing
Period”) and (iv) other customary closing conditions.
Following the consummation of the Offer
and subject to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into the Company pursuant to the
provisions of Section 251(h) of the DGCL as provided in the Merger Agreement, with the Company being the surviving corporation.
At the effective time of the Merger (the “Effective Time”), each Share (other than (i) Shares irrevocably accepted
for purchase in the Offer, (ii) Shares held by the Company as treasury stock, (iii) Shares owned by any direct or indirect wholly-owned
subsidiary of the Company, (iv) Shares owned by Merger Sub, Parent or any direct or indirect wholly-owned subsidiary of Parent
and (v) Shares owned by a holder who was entitled to demand and who has properly demanded appraisal for such Shares under Section
262 of the DGCL and, as of the Effective Time, has neither effectively withdrawn nor lost such holder’s rights to such appraisal
under DGCL with respect to such Shares), will be cancelled and converted into the right to receive an amount in cash equal to the
Offer Price.
At the Effective Time, each option to purchase
Shares that has an exercise price per Share that is less than the Offer Price, whether or not exercisable or vested, will be canceled
and converted into the right to receive an amount in cash equal to the amount by which the Offer Price exceeds the applicable exercise
price per stock option multiplied by the number of Shares subject to such stock option. At the Effective Time, each option to purchase
Shares that has an exercise price per Share that is equal to or greater than the Offer Price, whether or not exercisable or vested,
shall be canceled without payment.
At the Effective Time, each Share subject
to vesting or other lapse restrictions will vest in full and be converted into the right to receive an amount in cash equal to
the Offer Price.
At the Effective Time, each outstanding
restricted stock unit subject to vesting conditions based solely on continued employment or service (a “Company RSU”)
will be canceled and converted into the right to receive an amount in cash equal to the number of Shares subject to such Company
RSU multiplied by the Offer Price.
At the Effective Time, each
outstanding restricted stock unit subject to performance-based vesting conditions (a “Company PSU”) will
be canceled and converted into the right to receive an amount in cash equal to the number of Shares subject to such Company
PSU, assuming full satisfaction of the performance conditions, multiplied by the Offer Price.
At the Effective Time, each outstanding
restricted stock unit subject to both time and performance-based vesting conditions (a “Company MSU”) will performance
vest based on actual performance as of such time (with the portion of such award that is then performance vested, the “Performance-Vested
MSUs”). Each outstanding Company MSU will be canceled and the Performance-Vested MSUs will be converted into the right
to receive an amount in cash equal to the product of the Offer Price and the number of shares of Common Stock subject to such Performance-Vested
MSU.
At the Effective Time, each outstanding
long-term cash incentive award subject to vesting restrictions (a “Company LTI Award”) will become fully vested
and will be converted into the right to receive the cash bonus amount payable under such Company LTI Award.
The Merger Agreement includes customary
representations, warranties and covenants of the Company, Parent and Merger Sub. Subject to the terms of the Merger Agreement,
the Company has agreed to operate its business in the ordinary course until the Effective Time. Parent and Merger Sub have agreed
to use reasonable best efforts to take actions that may be required in order to obtain regulatory approval of the proposed transaction.
Subject to the terms of the Merger Agreement,
during the period from and after March 2, 2021 until 11:59 pm (New York City time) on March 27, 2021 (such date, the “No-Shop
Period Start Date” and such period, the “Go-Shop Period”), the Company and its representatives may,
among other things, solicit, initiate, propose, facilitate, induce or encourage any alternative acquisition proposals, or the making,
submission or announcement of one or more acquisition proposals from any third parties, and provide non-public information to and
engage in discussions or negotiations with such third parties with respect to alternative acquisition proposals made during the
Go-Shop Period. Starting at 11:59pm (New York City) on March 27, 2021, except with respect to third parties who submitted an alternative
acquisition proposal during the Go-Shop Period that the Board of Directors of the Company (the “Company Board”)
determines is or could reasonably be expected to lead to, result in or constitute a Superior Proposal (any such third parties,
“Excluded Parties”), the Company will become subject to customary “no-shop”
restrictions on its ability to solicit alternative acquisition proposals from third parties and to provide non-public information
to and engage in discussions or negotiations with third parties regarding alternative acquisition proposals. The Company may continue
to engage in discussions or negotiations with any Excluded Parties until 11:59pm (New York City time) on April 6, 2021 (the
“Cut Off Time”), after which time the Company will become subject to such customary “no-shop” restrictions
in respect of such Excluded Parties.
Notwithstanding
the limitations applicable after the No-Shop Period Start Date or the Cut Off Time, as applicable, at any time prior to the time
that Merger Sub accepts for purchase the Shares tendered in the Offer (such time, the “Acceptance Time”), the
Company may under certain circumstances provide information to and participate in discussions or negotiations with third parties
and their representatives, including any Excluded Party, with respect to any unsolicited written alternative acquisition proposal
that the Company Board has determined constitutes or could lead to, result in or constitute a Superior Proposal. A “Superior
Proposal” is a bona fide written acquisition proposal for at least a majority of the outstanding Shares or consolidated
assets of the Company that was not solicited in material breach of certain “no-shop” restrictions in the Merger Agreement
and that that the Company Board determines in good faith is more favorable to the Company’s stockholders from a financial
point of view than the Merger.
The Company Board unanimously (i) determined
that the Merger Agreement and the transactions contemplated thereby are fair to and in the best interests of the Company and its
stockholders, (ii) declared it advisable to enter into the Merger Agreement, (iii) authorized and approved the execution,
delivery and performance by the Company of the Merger Agreement and the consummation of the transactions contemplated thereby,
and (iv) resolved to recommend that the stockholders of the Company accept the Offer and tender their Shares to Merger Sub
pursuant to the Offer (the “Company Board Recommendation”). Prior to the
Acceptance Time, the Company Board may, among other things, (1) change the Company Board Recommendation or (2) terminate the
Merger Agreement to enter into a definitive acquisition agreement providing for a Superior Proposal, subject to complying with
notice and other specified conditions, including giving Parent the opportunity to propose revisions to the terms of the Merger
Agreement during a period following notice.
The Merger
Agreement contains certain termination rights for the Company and Parent, including, among others, the right of (1) the
Company to terminate the Merger Agreement prior to the Acceptance Time in order to enter into a definitive acquisition
agreement concerning a Superior Proposal and (2) Parent to terminate the Merger Agreement if the Company withdraws the
Company Board Recommendation.
Upon termination
of the Merger Agreement under specified circumstances, the Company will be required to pay Parent a termination fee. If the termination
fee becomes payable as a result of the Company terminating the Merger Agreement in order to enter into a definitive acquisition
agreement providing for a Superior Proposal prior to the Cut Off Time, or by Parent as a result of the Company Board changing its
Company Board Recommendation in connection with a Superior Proposal prior to the Cut Off Time, the amount of the termination fee
will be $54.5 million. If the termination fee becomes payable in certain other circumstances, the amount of the termination fee
will be $104 million.
The
Merger Agreement also provides that Parent will be required to pay the Company a reverse termination fee of $220 million in the
event that the Company terminates the Merger Agreement (i) because of Parent’s breach of the Merger Agreement, (ii) if Parent
fails to timely commence the Offer pursuant to the terms of the Merger Agreement or (iii) if, after satisfaction of the Offer conditions,
including the completion of the Marketing Period, Parent fails to accept for payment the Shares tendered in the Offer within two
business days following the expiration of the Offer. In situations in which the Parent termination fee is payable, payment of the
reverse termination fee constitutes the Company’s sole and exclusive monetary remedy and is guaranteed by certain funds managed
by Apollo Management IX, L.P. (the “Sponsor”) pursuant to the terms of a limited guarantee.
Parent
and Merger Sub are beneficially owned by certain funds (the “Apollo Funds”) managed by affiliates of the Sponsor.
Parent and Merger Sub have secured committed financing, consisting of a combination of equity to be provided by the Apollo Funds
and committed debt financing, the aggregate proceeds of which will be sufficient for Parent and Merger Sub to pay the aggregate
Offer Price for the Shares in the Offer and the Merger, and all related fees and expenses. Parent and Merger Sub have committed
to use their reasonable best efforts to obtain the debt financing on the terms and conditions described in the debt commitment
letter entered into as of March 2, 2021. Consummation of the Transactions is not subject to a financing condition.
The foregoing summary of the principal
terms of the Merger Agreement does not purport to be complete and is qualified in its entirety by reference to the full copy of
the Merger Agreement filed as Exhibit 2.1 hereto and incorporated herein by reference. The assertions embodied in the representations
and warranties included in the Merger Agreement were made solely for purposes of the contract among the Company, Merger Sub and
Parent and are subject to important qualifications and limitations agreed to by the Company, Merger Sub and Parent in connection
with the negotiated terms, including being qualified by confidential disclosures made by each contracting party to the other for
the purposes of allocating contractual risk between them that differ from those applicable to investors. Moreover, some of those
representations and warranties may not be accurate or complete as of any specified date, may be subject to a contractual standard
of materiality different from those generally applicable to the Company’s filings with the U.S. Securities and Exchange Commission
(the “SEC”) or may have been used for purposes of allocating risk among the Company, Merger Sub and Parent rather
than establishing matters as facts. Investors should not rely on the representations and warranties or any description of them
as characterizations of the actual state of facts of the Company, Parent, Merger Sub or any of their respective subsidiaries or
affiliates. Moreover, information concerning the subject matter of the representations and warranties may change after the date
of the Merger Agreement, and this subsequent information may or may not be fully reflected in public disclosures by the Company
or Parent.
Tender and Support Agreement
On March 2, 2021, in connection with the
execution and delivery of the Merger Agreement, certain stockholders of the Company affiliated with Bain Capital Private Equity,
L.P. (collectively, the “Supporting Stockholders”), entered into a Tender and Support Agreement with Parent
and Merger Sub (the “Tender and Support Agreement”). The Supporting Stockholders collectively beneficially own
approximately 37% of the outstanding Shares as of March 2, 2021.
The Tender and Support Agreement
provides that the Supporting Stockholders will tender all of the Shares held by such Supporting Stockholder (the
“Subject Shares”) in the Offer. The Tender and Support Agreement also provides that, in connection
with any meeting of stockholders of the Company, or any action by written consent, the applicable Supporting Stockholder will
vote against (a) any action that would (or would be reasonably expected to) directly result in a breach of any covenant,
representation or warranty or any other obligation or agreement of the Company contained in the Merger Agreement, or of any
Supporting Stockholder contained in the Tender and Support Agreement, in either case, that would result in any condition to
the Offer being unsatisfied at the expiration time of the Offer, (b) any other action, transaction, proposal, or agreement
relating to the Company that would (or would reasonably be expected to) prevent, nullify or materially impede, interfere
with, frustrate, delay, postpone or adversely affect the Transactions, (c) any change in the present capitalization of the
Company or any amendment of the certificate of incorporation of the Company prohibited by the Merger Agreement, or (d)
subject to the right of the Supporting Stockholders to terminate the Tender and Support Agreement, any alternative
acquisition proposal. The Tender and Support Agreement terminates upon certain events,
including (i) the effective time of the Merger, (ii) the termination of the Merger Agreement, (iii) a change in the Company
Board Recommendation, (iv) a modification, change or amendment to the Merger Agreement (including any waiver) without the
consent of the Supporting Stockholder that (x) decreases the amount, or changes the form or terms, of consideration
payable in the Offer and Merger or (y) adversely affects the right of any Supporting Stockholder in any material respect
or (v) in certain circumstances where Parent delivers written notice to the Company or any of its representatives that any
fact, event or circumstance has caused the failure of any condition to the Offer or any of the conditions to the Merger, in
each case, set forth in the Merger Agreement, to be satisfied on or prior to the Acceptance Time such that Parent could then
terminate the Merger Agreement as a result of such failure, and such failure is not waived by Parent or cured by the
Company.
The foregoing description of the Tender
and Support Agreements is qualified in in all respects by reference to the full text of the form of the agreements, which is attached
as Exhibit 99.1 hereto and incorporated by reference herein.
Item 5.07. Departure of Directors or Certain Officers; Election
of Directors; Appointment of Certain Officers; Compensatory Arrangements of Certain Officers.
As previously disclosed, on December 26,
2019, the Company and Ashley Buchanan, the Company’ Chief Executive Officer, entered a letter agreement in connection with
Mr. Buchanan’s hire that includes, among other things, a signing bonus equal to $3,667,652 eligible to vest over two years
from his start date, January 6, 2020 (the “Employment Letter”). Also in connection with Mr. Buchanan’s
hire, the Company and Mr. Buchanan entered into a Restricted Stock Unit Agreement (the “RSU Agreement”) which
provides for, among other terms, a minimum holding period before Mr. Buchanan has the right to sell the shares received on settlement
of his Company RSUs and a repurchase right in favor of the Company in the event his employment terminates.
In connection with the Transactions, the
Company and Mr. Buchanan entered into a Letter Agreement, dated March 2, 2021 (the “Side Letter”), pursuant
to which (A) the Employment Letter is amended to provide for (1) the full vesting of Mr. Buchanan’s signing bonus in the
event of a Change of Control (as defined in Employment Letter) and (2) the reimbursement of legal and compensation consultant fees
incurred by Mr. Buchanan in connection with, among other things, arrangements entered into in connection with a Change of Control
(as defined in Employment Letter), and (B) Mr. Buchanan’s RSU Agreement is amended to provide for the lapse of the aforementioned
minimum holding period and repurchase right in the event of a Change of Control (as defined in the RSU Agreement).
The foregoing description of the Side Letter
is qualified in in all respects by reference to the full text of the form of the agreements, which is attached as Exhibit 10.1
hereto and incorporated by reference herein.