Tax-Free Transaction Allows MVC to
List U.S. Gas & Electric on
NYSE
MVC Capital, Inc. (NYSE:MVC) (“MVC” or the “Fund”), a
publicly-traded business development company that makes private
debt and equity investments, announced today that Equus Total
Return, Inc. (NYSE:EQS) (“Equus”), a publicly-traded business
development company that previously announced its intention to
become an operating company, has entered into a definitive
agreement (the “Purchase Agreement”) to acquire MVC’s largest
portfolio holding, U.S. Gas & Electric, Inc. (“USG&E”), a
commercial and residential energy services company.
The acquisition of USG&E by Equus (hereafter
referred to as the “Consolidation”) represents the final step of
Equus’s plan of reorganization within the meaning of Section
2(a)(33) of the Investment Company Act of 1940 (“1940 Act”), as
adopted by Equus on May 13, 2014. The Consolidation will be
effected in two stages. The first stage (“the Initial
Closing”) consists of Equus’s acquisition of more than 90% of
USG&E’s common and convertible preferred stock from MVC and
certain other USG&E stockholders in exchange for shares of
Equus. In the second stage, a wholly-owned subsidiary of
Equus (formed to hold all such common and convertible preferred
shares of USG&E) will be merged with and into USG&E (the
“Second Closing”), with USG&E as the surviving corporation and
wholly-owned by Equus, which will change its name to USG&E,
Inc.
The transaction has been approved by the Boards of
Directors of USG&E, MVC and Equus, and will not be subject to
further shareholder approvals. In connection with the
transaction, Equus has obtained the necessary consent of a majority
of its stockholders, including MVC, which currently holds 33% of
Equus’s common stock.
Following the Consolidation, Equus intends to
monetize and liquidate certain of its assets that are inconsistent
with its planned change in strategy to focus on commercial and
retail energy marketing.
Upon completing the Consolidation, the combined
company will be among the largest energy service companies in the
United States, with over 375,000 residential customer equivalents
(‘‘RCEs’’) across 11 states and the District of Columbia. As
a publicly-listed company with access to the capital markets, the
combined company will be better positioned to pursue organic and
other growth opportunities to drive future value creation for all
stakeholders. John Hardy, CEO of Equus, will continue to
serve as CEO of the public parent company; David Weinberg and Kevin
McMinn, USG&E’s CFO and COO, respectively, who have
successfully led USG&E to date, will continue in their
positions at the USG&E subsidiary; and Michael Tokarz, Chairman
and Portfolio Manager of MVC, will be appointed Executive Chairman
of Equus’s Board of Directors.
“The transaction is a significant milestone in our
investment in USG&E and allows the opportunity for it to grow
in value and for MVC to potentially benefit from receiving
consistent dividend payments,” said Michael Tokarz, Chairman and
Portfolio Manager of MVC. “It also will provide greater
visibility and transparency into the operations and performance of
MVC’s largest asset. Lastly, it demonstrates our commitment
to the reorganization of Equus and provides Equus stockholders with
an attractive opportunity to participate in the potential upside
and growth of USG&E.”
“We are pleased with the transaction and the
prospects for USG&E to operate as a publicly-traded company
with access to the capital markets, providing opportunities for
growth and strategic acquisitions,” said John Hardy, CEO of
Equus. “We believe the transaction structure will deliver
value to all key stakeholders, who will benefit from a stronger and
more financially flexible partner. We look forward to
continuing to work closely with the USG&E management team to
realize long-term growth and strong financial results.”
Additional Transaction Details
Pursuant to the Purchase Agreement, based on
the deemed transaction price of $3.28 per share of Equus
common stock, USG&E stockholders will receive on a pro rata
basis an aggregate of: (i) 32,606,539 shares of Equus common stock;
and, (ii) $40 million in par value of 5-year mandatory convertible
Equus preferred stock (“Preferred Stock”) that is entitled to
dividends at the rate of 7.5% per annum. The Preferred Stock
may be converted at any time into Equus common stock at conversion
prices ranging from $3.28 to $4.10 per share, and automatically
converts into common stock in December 2022. At the deemed
transaction stock price of $3.28 per share of Equus common stock,
the shares of Equus common stock and Preferred Stock to be issued
in the first stage of the Consolidation would be valued together at
$150.5 million (the “Equity Value”), which would imply a total
enterprise value for USG&E of approximately $167.5 million
(including other indebtedness of $22.4 million and excluding
estimated cash at closing of $5.5 million). Based on MVC’s
current 76.4% ownership stake in USG&E, MVC’s share of the
Equity Value would be valued at $115.1 million (excluding any
illiquidity discount that would be applied), as compared to MVC’s
fair value estimate for its equity investment in USG&E of $89.4
million as of January 31, 2017.
As a result of the Consolidation, and assuming
conversion of the Preferred Stock at $3.28 per share, MVC will own
66.3% of the combined company (inclusive of MVC’s existing 33%
ownership in Equus on a fully-diluted basis), with other Equus
stockholders owning 15.6% on a fully-diluted basis and other
USG&E stockholders owning 18.1% on a fully-diluted basis.
The number of shares of the common stock and Preferred Stock of
Equus to be issued to USG&E stockholders in the Consolidation
is based in part on the deemed transaction stock price of
$3.28 per share of Equus common stock. The actual value of
the shares of Equus common stock and Preferred Stock to be issued
upon the closing of the Initial Stage and the Second Closing will
be dependent upon the market value of Equus’s common stock at such
time. As of 4:00 pm ET on Friday, April 21, 2017, the market
value of Equus’s common stock was $2.46 per share.
The Consolidation is intended to qualify as a
tax-free reorganization for U.S. federal income tax purposes, and
USG&E stockholders are not expected to recognize a gain or loss
to the extent of the stock consideration received.
The Initial Closing is subject to certain
conditions, including regulatory approvals, and is expected to
occur approximately 60 days from the signing date. The Second
Closing is subject to the effectiveness of a registration statement
on Form S-4, which is to be filed with the Securities and Exchange
Commission (“SEC”) following the Initial Closing, covering the
Equus common stock and Preferred Stock to be issued to the
remaining USG&E stockholders at the Second Closing. Prior
to the Initial Closing, Equus will finalize its termination of its
election to be classified as a business development company under
the 1940 Act.
JMP Securities LLC served as financial advisor to
USG&E, and Jefferies LLC served as financial advisor to Equus.
Kramer Levin Naftalis & Frankel LLP served as legal counsel to
MVC, Locke Lord LLP served as legal counsel to USG&E, and
Orrick, Herrington & Sutcliffe LLP served as legal counsel to
Equus.
Additional Information
In connection with the first stage of the
Consolidation, Equus intends to file with the SEC an information
statement on Schedule 14C (the “Information Statement”) in
preliminary and definitive form, as well as other relevant
documents concerning the Consolidation. In connection with
the second stage of the Consolidation, Equus intends to file with
the SEC a registration statement on Form S-4 registering the shares
of Equus common stock and Preferred Stock to be issued to USG&E
stockholders at the Second Closing, as well as other relevant
documents concerning the Consolidation. INVESTORS AND
SECURITY HOLDERS ARE URGED TO READ THESE DOCUMENTS, INCLUDING THE
INFORMATION STATEMENT AND PROSPECTUS AND ANY OTHER RELEVANT
DOCUMENTS, WHEN THEY BECOME AVAILABLE, BECAUSE THEY WILL CONTAIN
IMPORTANT INFORMATION ABOUT MVC, EQUUS, USG&E, THE
CONSOLIDATION AND RELATED MATTERS. Investors and security holders
will be able to obtain these materials (when they are available)
and other documents filed with the SEC free of charge at the SEC’s
website, www.sec.gov. In addition, copies of these materials
(when they become available) may be obtained free of charge by
accessing Equus’s website at www.equuscap.com, and documents filed
with the SEC by MVC may be obtained free of charge by accessing
MVC’s website at www.mvccapital.com. Shareholders may also
read and copy any reports, statements and other information filed
by Equus or MVC with the SEC, at the SEC public reference room at
100 F Street, N.E., Washington D.C. 20549. Please call the SEC at
1-800-SEC-0330 or visit the SEC’s website for further information
on its public reference room.
This communication shall not constitute an offer to
sell or the solicitation of an offer to buy securities, nor shall
there be any sale of securities in any jurisdiction in which such
solicitation or sale would be unlawful prior to registration or
qualification or exemption under the securities laws of such
jurisdiction.
About MVC Capital, Inc.
MVC Capital, Inc. is a business development company
traded on the New York Stock Exchange that provides long-term debt
and equity investment capital to fund growth, acquisitions and
recapitalizations of companies in a variety of industries.
About U.S. Gas & Electric,
Inc.
Founded in 2002, U.S. Gas & Electric, Inc. is a
leading provider of energy supply to commercial and residential
customers. As of January 31, 2017, USG&E served over
375,000 residential customer equivalents (‘‘RCEs’’) in 64 utility
markets, including the District of Columbia and across the
following 11 states: Connecticut, Illinois, Indiana, Kentucky,
Maryland, Massachusetts, Michigan, New Jersey, New York, Ohio, and
Pennsylvania.
About Equus Total Return, Inc.
Founded in 1991, Equus Total Return, Inc. is a
business development company that trades as a closed-end fund on
the New York Stock Exchange, under the symbol “EQS”.
Forward-Looking Statements
This press release contains certain statements
about MVC, Equus and USG&E that are “forward-looking
statements” within the meaning of Section 27A of the Securities Act
of 1933, as amended, and Section 21E of the Securities Exchange Act
of 1934, as amended. These matters involve risks and
uncertainties as discussed in MVC’s and Equus’s respective periodic
reports on Form 10-K and Form 10-Q and current reports on Form 8-K,
filed from time to time with the SEC. The forward-looking
statements contained in this press release may include statements
about the expected effects on MVC, Equus and USG&E of the
Consolidation, including the future performance of the combined
company and its impact on MVC; the ability of Equus, USG&E and
the combined company to pay any dividends in the future to
stockholders, which is uncertain; the price or trading volume of
Equus’s common stock, which can fluctuate and is subject to
volatility risk; the anticipated timing and benefits of the
Consolidation; the ability to close and consummate the
Consolidation; and MVC’s, Equus’s and USG&E’s anticipated
financial results; and also include all other statements in this
press release that are not historical facts. Without
limitation, any statements preceded or followed by or that include
the words “targets,” “plans,” “believes,” “expects,” “intends,”
“will,” “likely,” “may,” “anticipates,” “estimates,” “projects,”
“should,” “would,” “could,” “positioned,” “strategy,” “future,” or
words, phrases, or terms of similar substance or the negative
thereof, are forward-looking statements. These statements are
based on the current expectations of the management of MVC, Equus
and USG&E (as the case may be), and are subject to uncertainty
and to changes in circumstances and involve risks and uncertainties
that could cause actual results to differ materially from those
expressed or implied in such forward-looking statements. In
addition, these statements are based on a number of assumptions
that are subject to change. Such risks, uncertainties and
assumptions include: the satisfaction of the conditions to each
stage of the Consolidation and other risks related to the
completion of the Consolidation and actions related thereto; MVC’s,
Equus’s and USG&E’s ability to complete the Consolidation on
the anticipated terms and schedule, including the ability to obtain
regulatory, stock exchange or other approvals and the anticipated
tax treatment of the Consolidation and related transactions; risks
relating to any unforeseen liabilities, future capital
expenditures, revenues, expenses, earnings, synergies, economic
performance, indebtedness, financial condition, losses, and future
prospects; the risk that benefits from the Consolidation may not be
fully realized or may take longer to realize than expected;
business and management strategies and the expansion and growth of
Equus’s and USG&E’s operations; failure to pay dividends to
holders of Equus’s common or preferred stock; impairment charges
for goodwill; the outcome of any legal proceedings that may be
instituted related to the Consolidation; the performance of
USG&E and Equus’s existing portfolio investments and Equus’s
ability to successfully monetize non-retail energy assets; and the
risk that disruptions from the Consolidation will harm Equus’s or
USG&E’s businesses. However, it is not possible to
predict or identify all such factors. Consequently, while the
list of factors presented here is considered representative, no
such list should be considered to be a complete statement of all
potential risks and uncertainties. Unlisted factors may
present significant additional obstacles to the realization of
forward-looking statements. Forward-looking statements
included herein are made as of the date hereof, and neither MVC,
Equus nor USG&E undertakes any obligation to update publicly
such statements to reflect subsequent events or circumstances.
Contacts
Investor Relations:
Jackie Rothchild
MVC Capital
914.510.9400
OR
Jeffrey Goldberger / Allison Soss
KCSA Strategic Communications
212.896.1249 / 212.896.1267
Media Inquiries:
Patrick Scanlan
Sard Verbinnen & Co.
212.687.8080
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