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ams Launches New Takeover Offer for OSRAM with Acceptance Threshold Lowered to 55%

ams announced that it intends to launch a new all-cash takeover offer for OSRAM Licht AG for 100% of the share capital of OSRAM at a price of €41.00 per share (Offer). The Offer which represents a premium of 42% to the undisturbed OSRAM share price of €28.92 as of 2 July 2019 will be launched by ams Offer GmbH, a newly incorporated, wholly owned subsidiary of ams. ams is the largest shareholder in OSRAM with a direct shareholding of 19.99% which ams will not exceed outside of the Offer. As a result of ams’ shareholder position, ams has lowered the minimum acceptance threshold to 55%.

The combination of ams and OSRAM allows ams to create a global leader in sensor solutions and photonics with approximately €5 billion of revenue. This accelerates ams to win in new breakthrough optical solutions, expedites the diversification of ams’ revenue mix, enhances its manufacturing footprint with clear scale and cost advantages, and leverages the complementary go-to-market strengths of both companies.

This combination is a winning way forward for OSRAM, its employees and shareholders as it creates a compelling technology platform and a stronger combined company. Designed to enable profitable growth, the combination will accelerate time-to-market for new solutions and increase content opportunities across end markets.

In addition, the Offer is also consistent with the criteria ams has publicly stated for large transactions, i.e. it is strategically compelling, demonstrably value enhancing, financially accretive, achievable with a sustainable capital structure, and fits with ams’ financial model.

Summary of the offering

  • Combination of ams and OSRAM to create a global leader in sensor solutions and photonics with tangible benefits for customers
  • Step change for both companies, leveraging European sensor and photonics technology to drive growth, margin improvement and continued investment
  • As the largest shareholder in OSRAM with a direct shareholding of 19.99%, ams is confident in succeeding with its highly attractive and fully valued offer – the best option for OSRAM shareholders
  • Reflecting on its position as the pre-eminent shareholder, ams has lowered the minimum acceptance threshold to 55%
  • €41.00 offer price reflects a premium of 42% to the undisturbed share price of OSRAM as of 2 July 2019 (€28.92)
  • Constructive discussions with OSRAM based on Cooperation Agreement with stakeholder commitments and protective covenants for OSRAM employees and manufacturing sites in Germany
  • Cost and revenue synergies with an expected annual pre-tax run-rate in excess of €300 million, representing significant value creation
  • €4.4bn committed bridge facility and €1.6bn underwritten equity issuance, resulting in pro-forma Dec-2019 net debt/EBITDA ratio of 4.5x or 3.4x adjusted for run-rate synergies

“We are pleased to announce the launch of the new takeover offer to acquire OSRAM, delivering on our stated intention,” said Alexander Everke, CEO of ams. “We are convinced that our Offer will be successful as it provides a highly attractive, fully valued price at a straightforward acceptance threshold. As the pre-eminent OSRAM shareholder at 19.99%, we are furthermore convinced that this Offer is the best available option for OSRAM’s shareholders. The strategic rationale of creating a global leader in sensor solutions and photonics, with strong European roots, is unchanged and offers a compelling opportunity for OSRAM, ams and our shareholders.

We are in constructive discussions with OSRAM to update the existing Cooperation Agreement, clearly underpinning our commitments to employees and manufacturing locations in Germany. We appreciate the fruitful discussions with the Management and Supervisory Board of OSRAM and look forward to working alongside the present OSRAM Management Board to realize our strategic vision.”

Comprehensive stakeholder commitments

ams and OSRAM seek to update the existing Cooperation Agreement, building upon the binding, comprehensive commitments aimed at safeguarding OSRAM employees and manufacturing sites in Germany. ams re-affirms all existing commitments entered into on 21 August 2019, including that ams will continue to operate OSRAM’s existing German production sites for a minimum period of 3 years (Standortsicherung), create jobs in manufacturing and engineering in Germany, designate Munich to serve as a co-headquarter of the combined group with a strong presence for global corporate functions, continue existing shop agreements (Betriebsvereinbarungen), collective bargaining agreements (Tarifverträge) and similar agreements in Germany, and ensure existing OSRAM pension plans will remain unchanged. At the same time, ams’ concept for the successful integration of both companies encompasses OSRAM and its stakeholders, including unions and employee representatives.

Financially attractive transaction

The Offer results in significant value creation from cost and revenue synergies with an expected annual pre-tax run-rate in excess of €240 million and €60 million, respectively. The expected COGS synergies of more than €120 million, primarily relate to the streamlining and optimization of the combined global manufacturing footprint. The expected operating expense synergies of more than €120 million, primarily relate to the alignment of corporate functions, IT and R&D programs. The expected revenue synergies resulting in a pre-tax value of more than €60 million are driven by leveraging joint go-to-market opportunities.

ams expects the majority of these synergies to be delivered within the first 24 months post completion independent of ams’ final ownership level. In order to realize these synergies, ams expects to incur one-off integration costs of approx. €400 million. In the longer term, ams anticipates significant additional revenue synergies from accelerating roadmaps in new optical solution and photonic areas.

The Offer values OSRAM at an enterprise value of €4.6 billion, equivalent to 8.1x Sep-2019 adjusted EBITDA after run-rate cost and revenue synergies (€565 million), and 17.3x Sep-2019 adjusted EBITDA based on consensus estimates (€265 million). The Offer is expected to be accretive to ams’ earnings per share from the first year post completion adjusted for cost synergies. The returns from the transaction including cost synergies are expected to exceed the weighted average cost of capital of ams from the second year post completion.

Sustainable financing structure

The financing of the Offer has been secured through a €4.4 billion bridge facility fully underwritten by HSBC, UBS and BAML which will be refinanced through a combination of equity and debt issuances. ams intends to raise €1.6 billion (issue currency CHF) of new equity, which is fully underwritten by HSBC and UBS, primarily in the form of a rights issue and other equity-linked instruments. Pro-forma for the €1.6 billion equity issuance, ams expects that the transaction will result in a pro-forma Dec-2019 leverage of approximately 4.5x net debt/EBITDA or approximately 3.4x net debt/EBITDA adjusted for run-rate cost and revenue synergies. ams expects to de-leverage quickly based on the expected strong cash flow profile of the combined group.

Timeline

Subject to approval by BaFin, ams intends to commence the four week offer period for the Offer by the end of October. The Offer will be subject to customary closing conditions, including regulatory clearances. ams expects to complete the transaction in the first half of next year.

ams AG , Osram AG
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