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Item 1.01
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Entry into a Material Definitive Agreement.
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On September 4, 2019, Prudential Financial, Inc. (“Prudential” or the “Company”) entered into an Agreement and Plan of Merger (the “Merger Agreement”) with Rain Merger Sub, LLC, a wholly-owned subsidiary of the Company (“Merger Sub”), Assurance IQ, Inc. (“Assurance”), Gulliver Swenson (the “Shareholder Representative”), solely in his capacity as representative of the shareholders of Assurance, and Michael Rowell and Michael Paulus (together with Michael Rowell, the “Founders”), solely for certain purposes described in the Merger Agreement. Pursuant to the terms and conditions of the Merger Agreement, Merger Sub will merge with and into Assurance, with Assurance surviving as a wholly-owned subsidiary of the Company, on the closing date (the “Closing”).
Merger Consideration
The merger consideration to be paid at Closing is $1.88 billion in cash and $470 million in restricted Prudential common stock and equity awards. A portion of the cash merger consideration is expected to settle in Prudential equity awards.
In addition, subject to the terms and conditions in the Merger Agreement, up to $1.15 billion in a mix of cash and Prudential common stock will be payable in 2023 (subject to acceleration of the maximum payment under certain circumstances) contingent upon Assurance’s achievement of certain targets for gross revenues net of associated selling expenses (“Variable Profits”) over the period from January 1, 2020 through December 31, 2022, as further described below:
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If Variable Profits are less than $900 million, no additional merger consideration is payable.
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If Variable Profits are greater than $1.3 billion, $1.15 billion in cash and stock is payable.
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If Variable Profits are greater than $900 million but less than or equal to $1.3 billion, additional cash and stock is payable in an amount equal to the product of (i) the quotient of (A) an amount equal to (1) Variable Profits achieved minus (2) $900 million divided by (B) $400 million and (ii) $1.15 billion.
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The cash portion of the merger consideration is expected to be paid with a combination of available cash and additional debt financing.
The number of shares of Prudential common stock issued as merger consideration in the foregoing transactions, including the contingent consideration payable in 2023, will be determined based on the daily volume weighted average price of Prudential common stock for the 15 trading days before, and 15 trading days beginning, the date of the Merger Agreement. Accordingly, the market value of Prudential common stock issued as described above may differ from the foregoing amounts.
Additional Terms of the Merger Agreement
The Merger Agreement contains customary representations, warranties and covenants of the Company, Merger Sub and Assurance and its Founders. From the date of the Merger Agreement until the Closing, Assurance is required to comply with certain covenants regarding the operation of its business. The Founders are severally and not jointly liable to the Company for breach of any covenant required to be performed by Assurance or a Founder under the Merger Agreement, as well as certain other agreed items. Breaches of Assurance’s and the Founders’ representations and warranties will generally be covered by a representation and warranty insurance policy.
The Closing is expected to occur early in the fourth quarter of 2019 and is subject to customary closing conditions, including the expiration or termination of the applicable waiting periods under the Hart-Scott-Rodino Antitrust Improvements Act of 1976, as amended.
The Merger Agreement provides for certain termination rights of the Company and Assurance, including termination by the Company or Assurance if the Closing has not been consummated on or before February 1, 2020, provided that the Merger Agreement may not be terminated by a party whose action or failure to act has been a material cause of or resulted in the failure to consummate the transaction or prior to such date.
The foregoing description of the Merger Agreement and the transactions contemplated thereby does not purport to be complete and is subject to, and qualified in its entirety by reference to, the full text of the Merger Agreement, a copy of which is filed herewith as Exhibit 2.1. The representations and warranties in the Merger Agreement have been made solely for the benefit of the other parties to such agreement and (i) may have been qualified by disclosures made to such other parties, (ii) were made only as of the date of such agreement or such other dates as may be specified in such agreement and are subject to more recent developments, which may not be fully reflected in the Company’s public disclosure, (iii) may reflect the allocation of risk among the parties to such agreement and (iv) may apply materiality standards different from what may be viewed as material to investors. Accordingly, these representations and warranties may not describe the actual state of affairs and should not be relied upon.