Berkshire Hathaway Inc. and Pasadena, Calif.-based Wesco Financial Corp. have entered into a definitive merger agreement, whereby Berkshire Hathaway will acquire the remaining 19.9 percent of the shares of Wesco’s common stock that it does not presently own in exchange for cash or shares of Berkshire Hathaway Class B common stock, at the election of each shareholder. Based on the estimated shareholders’ equity of Wesco as of Jan. 31, 2011, the transaction is valued at approximately $547.6 million.
Following the receipt on Sept. 1, 2010, of a proposal from Berkshire Hathaway to acquire the remaining 19.9 percent of the shares, the board of directors of Wesco formed a special committee of independent directors to evaluate the proposal. It determined that the merger agreement and the transactions contemplated thereby, including the merger, are fair to and in the best interests of Wesco and its shareholders other than Berkshire Hathaway and its affiliates.
The merger agreement provides that each share of Wesco common stock not owned by Berkshire Hathaway will be converted into the right to receive an amount, either in cash or Berkshire Class B Common Stock, at the election of the shareholder, equal to:
- $386.55 (which represents Wesco’s per share shareholder’s equity as of Jan. 31, 2011, estimated for purposes of the Merger Agreement), plus
- an earnings factor of $0.98691 per share per month from and after Feb. 1, 2011, through and including the anticipated effective time of the merger (pro rated on a daily basis for any partial month), plus or minus
- the change in net unrealized appreciation of Wesco’s investment securities and the amount of net realized investment gains or losses with respect to Wesco’s investment securities (expressed on a per share basis, net of taxes) from Feb. 1, 2011 to the close of business on the second full trading day prior to the date of the special meeting of the shareholders of Wesco to vote on the transaction, minus
- the per share amount of cash dividends declared with respect to Wesco’s common stock having a record date from and after February 4, 2011 through and including the anticipated effective time of the merger, and minus
- certain fees and expenses incurred by Wesco in connection with the transaction (expressed on a per share basis). From time to time, Wesco will update and make publicly available on its Web site its estimate of the merger consideration per share of Wesco common stock.
For Wesco shareholders electing to receive their merger consideration in shares of Berkshire Class B common stock, the exchange ratio will be based on the average of the volume-weighted average price per share of Berkshire Class B common stock for the period of 20 consecutive trading days ending on the Determination Date. The final merger consideration will be made publicly available through the filing of a Form 8-K by Wesco no later than 9:30 a.m., Eastern time, on the first business day following the determination date.
The transaction requires the affirmative vote of holders of a majority of Wesco’s outstanding shares in favor of the adoption of the merger agreement, which will be sought at a special meeting of the shareholders of Wesco, and is subject to customary closing conditions. The transaction is also subject to a non-waivable condition that a majority of the outstanding shares not owned by Berkshire Hathaway (and excluding certain specified shareholders) vote in favor of the adoption of the merger agreement. Berkshire Hathaway has agreed to vote the Wesco shares it owns in favor of the transaction. Closing is expected to occur before the end of the second quarter of 2011.
Wesco expects that if the merger is consummated prior to early June 2011, there will be no 2011 annual meeting of Wesco’s shareholders.
Greenhill & Co., LLC is acting as financial advisor and Skadden, Arps, Slate, Meagher & Flom LLP is acting as legal advisor to the Special Committee. Munger, Tolles & Olson LLP is serving as Berkshire Hathaway’s transaction counsel.
Since 1983, Wesco has been an indirect 80.1 percent subsidiary of Berkshire Hathaway. Wesco engages in three principal businesses through its own direct or indirect subsidiaries, including the insurance business, the furniture rental business and the steel service center business. Wesco’s operations also include the management of commercial and residential real estate in downtown Pasadena, Calif.
Berkshire Hathaway and its subsidiaries engage in diverse business activities including property and casualty insurance and reinsurance, utilities and energy, finance, manufacturing, retailing and services.
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