WESCO International Inc. — a Pittsburgh-headquartered provider of electrical, industrial and communications MRO and OEM products, construction materials, and advanced supply chain management and logistics services — expects to fund the cash portion of its merger with Anixter with debt and cash-on-hand because of current market conditions. WESCO previously anticipated funding a portion of the cash consideration through the issuance of WESCO common stock or other equity or equity-linked securities, in addition to issuing debt.
“Given current market conditions, we are adjusting our financing plan for the cash portion of the Anixter merger consideration,” WESCO Chairman, President and CEO John Engel stated. “Costs of issuing equity and debt have materially changed since we announced the transaction in January. Our equity is the most valuable component of our capital structure and we are unwilling to use it as a source of financing at the current market value. Issuing debt instead of equity adds approximately one-half turn to our expected leverage at closing. We expect the outstanding cash flow generation of the combined company to service the higher level of debt while retaining our flexibility to invest in the business and de-lever to within our target leverage range within three years.”
The merger agreement, which is unchanged, provides for each share of Anixter common stock to be converted into the right to receive $70 in cash (which amount may be increased by up to $2.82 per Anixter common share at closing), 0.2397 shares of WESCO common stock and preferred stock consideration valued at $15.89, based on the value of its liquidation preference.
Based on current market conditions and WESCO’s expectations for the financing of the cash portion of the merger consideration:
- WESCO expects, in total, to issue $2.2 to $2.4 billion in new long-term debt securities in connection with the merger and to draw on its credit facilities.
- WESCO estimates that its pro forma leverage at closing on a net debt-to-EBITDA basis to be approximately 5x, including assumed first year cost synergies of approximately $68 million.
- WESCO estimates that its post-closing debt would be approximately 70 percent fixed-rate.
WESCO intends to solicit the consent of the holders of Anixter’s senior notes due 2023 and 2025 to waive the change of control, so those notes will remain outstanding following the transaction. The company expects to refinance Anixter’s senior notes due 2021 but does not plan to refinance the WESCO 2021 notes at this time.
WESCO also expects to retain liquidity of at least $800 million through its credit facilities and cash balances. It expects bank credit facility commitments to be $2.2 billion at closing, split approximately evenly between its three-year securitization and a new five-year asset-based revolver that is part of the financing commitment.