ADTRAN HOLDINGS, INC. Item 8.01. Other Events.
As previously disclosed, onAugust 30, 2021 ,ADTRAN, Inc. , aDelaware corporation ("ADTRAN"), and ADVA Optical Networking SE, a company organized and existing under the laws ofGermany ("ADVA"), entered into a business combination agreement (the "Business Combination Agreement"), pursuant to which both companies agreed to combine their respective businesses and each become subsidiaries of a new holding company,Acorn HoldCo, Inc. , aDelaware corporation and currently a wholly-owned direct subsidiary of ADTRAN ("AcornHoldCo "). Under the terms of the Business Combination Agreement,Acorn MergeCo, Inc. , a newly formedDelaware corporation and wholly-owned direct subsidiary of Acorn HoldCo ("Merger Sub"), will merge with and into ADTRAN, with ADTRAN surviving the merger (the "Merger") as a wholly-owned direct subsidiary of AcornHoldCo . AcornHoldCo has also made a public exchange offer to exchange each issued and outstanding no-par value bearer share of ADVA, pursuant to which each ADVA share tendered and accepted for exchange will be exchanged for 0.8244 shares of common stock of Acorn HoldCo (the "Exchange Offer", and together with the Merger, the "Business Combination"). OnNovember 26, 2021 , Acorn HoldCo filed a Registration Statement on Form S-4 (No. 333-259251) (the "Registration Statement") with theU.S. Securities and Exchange Commission ("SEC") that includes (1) a proxy statement of ADTRAN in connection with the special meeting of the stockholders of ADTRAN to consider and vote on a proposal to adopt the Business Combination Agreement that also constitutes a prospectus for Acorn HoldCo (the "Proxy Statement/Prospectus") and (2) an offering prospectus of Acorn HoldCo to be used in connection with Acorn HoldCo's offer to acquire ADVA shares held byU.S. holders. OnDecember 2, 2021 , the Registration Statement was declared effective by theSEC and ADTRAN filed the definitive Proxy Statement/Prospectus with theSEC and commenced mailing the Proxy Statement/Prospectus to ADTRAN stockholders. OnOctober 12, 2021 ,October 18, 2021 ,December 17, 2021 ,December 20, 2021 ,December 22, 2021 andDecember 23, 2021 , respectively, ADTRAN received six letters (collectively, the "Demands") from purported stockholders alleging that the Proxy Statement/Prospectus was materially false and/or misleading. Two of the letters attached draft complaints. ADTRAN believes that the disclosures set forth in the Proxy Statement/Prospectus comply fully with applicable law and that the allegations contained in the Demands are without merit. However, in order to preclude any efforts to delay the closing of the Business Combination, avoid nuisance and alleviate the costs, distractions, risks and uncertainties inherent in litigation, ADTRAN has determined to voluntarily supplement the Proxy Statement/Prospectus with certain supplemental disclosures (the "Supplemental Disclosures") as described in the following section entitled "Supplemental Disclosures to the Proxy Statement/Prospectus" in this Current Report on Form 8-K ("Current Report"). Nothing in this Current Report shall be deemed an admission of the legal necessity or materiality under applicable laws of any of the disclosures set forth herein. To the contrary, ADTRAN specifically denies all allegations by the purported ADTRAN stockholders in the Demands that any additional disclosure was or is required. ADTRAN's board of directors continues to recommend that ADTRAN stockholders vote "FOR" each proposal being submitted to a vote of the ADTRAN stockholders at the special meeting.
Supplemental Disclosures to the Proxy Statement/Prospectus
The following supplemental information should be read in conjunction with the Proxy Statement/Prospectus, which should be read in its entirety. All page references are to pages in the Proxy Statement/Prospectus, and terms used below, unless otherwise defined, have the meanings set forth in the Proxy Statement/Prospectus. Underlined text shows text being added to a referenced disclosure in the Proxy Statement/Prospectus, and deleted text is stricken through. -------------------------------------------------------------------------------- The third full paragraph on page 90 of the Proxy Statement/Prospectus under the section "The Business Combination -Background of the Business Combination" is amended and supplemented to read as follows: Following a discussion betweenMr. Stanton andMr. Protiva onJuly 11, 2019 on the merits of combining ADTRAN and ADVA to create a stronger network solutions vendor, it was determined that ADTRAN and ADVA should enter into a mutual nondisclosure agreement to further enable detailed exploration of a potential combination of the two companies. OnJuly 16, 2019 , ADTRAN and ADVA entered into a mutual nondisclosure agreement, governing the terms and conditions under which the parties would exchange information in order to further assess the merits and risks of a potential business combination. The mutual nondisclosure agreement did not include a standstill provision. Neither ADTRAN nor ADVA executed any other nondisclosure agreement with a third party in connection with a potential alternate business combination.
The third and fourth full paragraphs on page 92 of the Proxy Statement/Prospectus under the section "The Business Combination -Background of the Business Combination" are amended and supplemented to read as follows:
OnJanuary 13, 2021 , the ADTRAN board of directors held a special virtual meeting attended by senior management of ADTRAN, and representatives ofBofA Securities to discuss continuing discussions with ADVA. At the meeting, management andBofA Securities reviewed with the ADTRAN board of directors the potential benefits of a business combination with ADVA, including the opportunity for significant synergies, as well as the potential risks of the business combination, including integration and synergy realization risks. The ADTRAN board of directors also discussed with management and representatives ofBofA Securities the pro forma ownership levels discussed betweenMr. Stanton and the representatives of Jefferies at theJanuary 5, 2021 meeting. The ADTRAN board of directors expressed support for, and authorized representatives of ADTRAN management, includingMr. Stanton , to continueing discussions with ADVA management. Following authorization from the ADTRAN Board, OonJanuary 15, 2021 , senior management of ADTRAN and ADVA, and representatives ofBofA Securities and Jefferies, held a virtual meeting to continue discussions of the proposed transaction between the parties. At the virtual meeting, representatives ofBofA Securities and ADTRAN presented illustrative transaction terms for a stock-for-stock merger between ADTRAN and ADVA and provided an overview of the potential benefits of the business combination to the combined company and each company's shareholders. The terms presented included (i) a 10% implied premium, resulting in ADVA pro forma ownership of 42% of the combined company, (ii) a management team led byMr. Stanton , as chief executive officer and (iii) board representation at the combined company for each of ADTRAN and ADVA. The first full paragraph on page 94 of the Proxy Statement/Prospectus under the section "The Business Combination -Background of the Business Combination" is amended and supplemented to read as follows: OnMay 28, 2021 , the term sheet, which was substantially similar to the term sheet presented to the ADTRAN Board at theApril 28 meeting, was executed by ADTRAN and ADVA. The disclosure in the section entitled "Certain Unaudited Prospective Financial Information", beginning on page 102 of the Proxy Statement/Prospectus, is hereby modified by replacing the sub-sections titled "Summary of the Prospective Financial Information" on pages 105 and 106 of the Proxy Statement/Prospectus with the tables and text below. -------------------------------------------------------------------------------- Summary of the Prospective Financial Information(1) (in millions, expect per share data) Year Ending December 31, 2021E 2022E 2023E 2024E 2025E 2026E Revenue$ 563 $ 620 $
684
Plus: Stock-Based Compensation$ 7 $ 7 $ 7 $ 7 $ 7 $ 7 Plus: Acquisition Related Expenses, Amortizations and Adjustments$ 4 $ 4 $ 3 $ 3 $ 3 $ 3 Plus: Restructuring$ 0 - - - - - Plus: Deferred Compensation Adjustments$ 1 - - - - - Plus: Pension$ 1 $ 1 $ 1 $ 1 $ 1 $ 1 Adjusted Income Before Provision for Income Taxes(2)$ 37 $ 56 $
80
Plus: Other Expenses / (Income) ($ 6 ) ($ 4 ) ($ 4 ) ($ 5 ) ($ 7 ) ($ 8 ) Plus: D&A$ 11 $ 11 $ 11 $ 11 $ 13 $ 14 Adjusted EBITDA(2)$ 41 $ 63 $ 87 $ 95 $ 104 $ 113 Year Ending December 31, 2021E 2022E 2023E 2024E 2025E 2026E Adjusted Income Before Provision for Income Taxes(2)$ 37 $ 56 $ 80 $ 89 $ 98 $ 107 Less: Taxes ($ 8 ) ($ 13 ) ($ 18 ) ($ 20 ) ($ 23 ) ($ 25 ) Adjusted Net Income(2)$ 29 $ 44 $ 62 $ 68 $ 76 $ 83 Shares Outstanding 49.4 49.4 49.4 49.4 49.4 49.4 Adjusted Earnings Per Share(2)$ 0.59 $ 0.88 $ 1.24 $ 1.38 $ 1.53 $ 1.67 (1) ADTRAN unaudited prospective financial information was prepared as ofAugust 17, 2021 .
(2) Adjusted EBITDA, adjusted income before provision for income taxes,
adjusted net income and adjusted earnings per share are not GAAP
measures. For purposes of the prospective financial information,
(i) adjusted EBITDA is defined as earnings before interest, taxes,
depreciation and amortization, excluding stock-based compensation expense
and certain non-recurring items and (ii) adjusted earnings per share is
defined as earnings per share, plus tax-effected stock-based compensation
expense, acquisition-related expenses, amortizations and adjustments,
restructuring expenses, amortization of pension actuarial losses,
non-cash deferred compensation, change in valuation allowance related to
our deferred tax assets, and certain other non-recurring items.
Additional ADTRAN Prospective Financial Information. At the direction of ADTRAN
management, BofA Securities prepared a calculation of unlevered, after-tax cash
flow figures for use in BofA Securities' discounted cash flow analysis based on
the ADTRAN forecasts summarized above under the heading "ADTRAN Prospective
Financial Information". The results of this calculation, as approved for BofA
Securities' use by ADTRAN management, are set forth in the following table. They
do not form part of the ADTRAN forecasts.
Year Ending December 31,
2H
2021E 2022E 2023E 2024E 2025E 2026E
Adjusted EBITDA $ 23 $ 63 $
87
Less: D&A ($ 5 ) ($ 11 ) ($ 11 ) ($ 11 ) ($ 13 ) ($ 14 ) Adjusted EBIT$ 18 $ 52 $
76
Less: Tax Expense ($ 4 ) ($ 12 ) ($ 17 ) ($ 19 ) ($ 21 ) ($ 23 ) Effective Tax Rate 21.0 % 22.5 % 22.9 % 23.1 % 23.0 % 23.0 % Tax-Effected Adjusted EBIT$ 14 $ 41 $
58
Plus: D&A$ 5 $ 11 $ 11 $ 11 $ 13 $ 14 Less: Capital Expenditures ($ 8 ) ($ 10 ) ($ 11 ) ($ 11 ) ($ 12 ) ($ 12 ) Less: Increase in Net Working Capital$ 19 $ 3 ($ 7 ) ($ 2 ) ($ 3 ) ($ 3 ) Unlevered Free Cash Flow(1)$ 30 $ 45 $ 51 $ 62 $ 68 $ 75
(1) Unlevered free cash flow is not a GAAP measure. For purposes of the
prospective financial information unlevered free cash flow is defined
as tax-effected operating income, plus depreciation and amortization,
less capital expenditures, less changes in working capital.
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ADVA Prospective Financial Information. The following prospective financial information used byBofA Securities in performing its financial analyses with respect to ADVA on a stand-alone basis, was provided by ADVA to ADTRAN, and provided by ADTRAN management toBofA Securities and approved by ADTRAN for use byBofA Securities : Summary of the Prospective Financial Information(1) (in millions, expect per share data) Year Ending December 31, 2021E 2022E 2023E 2024E 2025E 2026E Revenue € 600 € 640 € 672 € 700 € 730 € 760 Net Income (IFRS) € 44 € 45 € 47 € 52 € 57 € 61 Plus: Taxes € 3 € 5 € 11 € 12 € 13 € 14 Plus: Financial Result € 1 € 3 € 2 € 2 € 2 € 2 Plus: FX Effect (€ 1 ) - - - - - Plus: D&A € 69 € 70 € 73 € 77 € 80 € 80 EBITDA (IFRS) € 117 € 123 € 133 € 143 € 152 € 158 Plus: Compensation € 1 € 2 € 2 € 2 € 2 € 2 Plus: Amortization of Intangibles excl. Goodwill € 4 € 6 € 6 € 6 € 6 € 6 Adjusted EBITDA (IFRS) € 123 € 130 € 140 € 151 € 160 € 165 Less: R&D Capitalization (€ 43 ) (€ 45 ) (€ 47 ) (€ 48 ) (€ 49 ) (€ 50 ) Adjusted EBITDA(2) € 80 € 85 € 94 € 103 € 111 € 115 Year Ending December 31, 2021E 2022E 2023E 2024E 2025E 2026E Net Income (IFRS) € 44 € 45 € 47 € 52 € 57 € 61 Plus: FX Effect (€ 1 ) - - - - - Plus: Compensation € 1 € 2 € 2 € 2 € 2 € 2 Plus: Amortization of Intangibles excl. Goodwill € 4 € 6 € 6 € 6 € 6 € 6 Plus: R&D Amortization € 44 € 45 € 47 € 48 € 49 € 50 Less: R&D Capitalization (€ 43 ) (€ 45 ) (€ 47 ) (€ 48 ) (€ 49 ) (€ 50 ) Adjusted Net Income(2) € 51 € 53 € 54 € 59 € 64 € 69 Shares Outstanding 50.8 50.8 50.8 50.8 50.8 50.8 Adjusted Earnings Per Share(2) € 1.00 € 1.04 € 1.06 € 1.16 € 1.27 € 1.36 (1) ADVA projections were provided by ADVA management to ADTRAN on aU.S.
GAAP basis. ADVA reports on an IFRS basis, however, the IFRS projections
were adjusted for any known differences to
related to capitalized R&D effects. ADVA unaudited prospective financial
information was prepared as of
(2) Adjusted EBITDA, adjusted net income and adjusted earnings per share are
not GAAP measures. For purposes of the prospective financial information,
(i) adjusted EBITDA is defined as earnings before interest, taxes,
depreciation and amortization, excluding stock-based compensation expense
and certain non-recurring items; (ii) adjusted net income is calculated
as net income adjusted to exclude stock based compensation expense,
amortization of intangible assets and foreign exchange effects and
(iii) adjusted earnings per share was arrived at by dividing the adjusted
net income provided by ADVA by the ADVA share count. 2021- 2026 Adjusted
EPS projections are based on diluted shares outstanding implied by 2020
Net Income and Adjusted EPS.
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Additional ADVA Prospective Financial Information. At the direction of ADTRAN management,BofA Securities prepared a calculation of unlevered, after-tax cash flow figures for use inBofA Securities' discounted cash flow analysis based on the ADVA forecasts summarized above under the heading "ADVA Prospective Financial Information". The results of this calculation, as approved forBofA Securities' use by ADTRAN management, are set forth in the following table. They do not form part of the ADVA forecasts. Year Ending December 31, 2H 2021E 2022E 2023E 2024E 2025E 2026E Adjusted EBITDA € 40 € 85 € 94 € 103 € 111 € 115 Less: D&A (€ 13 ) (€ 25 ) (€ 26 ) (€ 29 ) (€ 31 ) (€ 30 ) Adjusted EBIT € 27 € 60 € 68 € 73 € 80 € 86 Less: Tax Expense (€ 2 ) (€ 6 ) (€ 13 ) (€ 14 ) (€ 15 ) (€ 16 ) Effective Tax Rate 6.6 % 10.0 % 19.2 % 18.9 % 18.9 % 18.9 %
Tax-Effected Adjusted EBIT € 25 € 54 € 55 € 60 € 65 € 69 Plus: D&A € 13 € 25 € 26 € 29 € 31 € 30 Less: Capital Expenditures (€ 18 ) (€ 32 )
(€ 29 ) (€ 21 ) (€ 22 ) (€ 23 )
Less: Increase in
(€ 5 ) (€ 6 ) (€ 5 ) (€ 6) Unlevered Free Cash Flow(1)
€ 17 € 47 € 47 € 61 € 69 € 71
(1) Unlevered free cash flow is not a GAAP measure. For purposes of the
prospective financial information unlevered free cash flow is definedas tax-effected operating income, plus depreciation and amortization,
less capital expenditures, less changes in working capital.
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The disclosure on page 112 of the Proxy Statement/Prospectus under the section "The Business Combination-Opinion of Financial Advisor to ADTRAN-Summary of Material Financial Analyses-ADTRAN Financial Analyses-Discounted Cash Flow Analysis" is amended and supplemented to read as follows:
Discounted Cash Flow Analysis.BofA Securities performed a discounted cash flow analysis of ADTRAN to calculate the estimated present value of the standalone unlevered, after-tax free cash flows Unlevered Free Cash Flows as described in the section entitled "The Business Combination-Certain Unaudited Prospective Financial Information" that ADTRAN was forecasted to generate during the third and fourth quarters of calendar year 2021 and calendar years 2022 through 2026 based on the ADTRAN forecasts.BofA Securities calculated terminal values for ADTRAN by applying perpetuity growth rates of 2.0% to 3.0%, based onBofA Securities' professional judgment and experience, to ADTRAN's calendar year 2026 estimated normalized unlevered free cash flow. The cash flows and terminal values were then discounted to present value as ofJune 30, 2021 , assuming a mid-year convention, using discount rates ranging from 8.0% to 11.0%, which were based on an estimate of ADTRAN's weighted average cost of capital, derived using the capital asset pricing model (which takes into account the risk free rate, ADTRAN's levered beta and the applicable equity market risk premium) andBofA Securities' professional judgement and experience. To the resulting enterprise values,BofA Securities added net cash projected as ofJune 30, 2021 of$128 million to derive equity values. This analysis indicated the following approximate implied per share equity value reference ranges for ADTRAN (rounded to the nearest$0.25 ) as compared to the closing share price of the ADTRAN shares onAugust 27, 2021 : The disclosure on page 113 of the Proxy Statement/Prospectus under the section "The Business Combination-Opinion of Financial Advisor to ADTRAN-Summary of Material Financial Analyses-ADTRAN Financial Analyses-Selected Publicly Traded Companies Analysis" is amended and supplemented by adding columns for 2022 and 2023 EV/Revenue, EV/EBITDA and Adjusted EPS multiples to the list of selected publicly traded companies as follows: EV/Revenue EV/Revenue EV/EBITDA EV/EBITDA Adj. EPS Adj. EPS 2022 2023 2022 2023 2022 2023 ADVA 1.00x 0.96x 8.2x 7.5x 15.3x 15.0x Ciena Corporation 2.11x NA 10.9x NA 17.4x NA Infinera Corporation 1.48x 1.37x 11.2x 8.9x 26.0x 12.8x Ribbon Communications, Inc. 1.32x 1.31x 7.7x 7.6x 11.6x 12.1x Casa Systems, Inc. 1.64x 1.54x 9.4x 8.4x 15.9x 13.1x Tejas Networks Ltd. 3.31x NA 14.9x NA 26.4x NA NeoPhotonics Corporation 1.22x 1.02x 10.9x 9.2x 35.4x 20.1x
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The disclosure on page 114 of the Proxy Statement/Prospectus under the section
"The Business Combination-Opinion of Financial Advisor to ADTRAN-Summary of
Material Financial Analyses-ADVA Financial Analyses-Selected Publicly Traded
Companies Analysis" is amended and supplemented by adding columns for 2022 and
2023 EV/Revenue, EV/EBITDA and Adjusted EPS multiples to the list of selected
publicly traded companies as follows:
EV/Revenue EV/Revenue EV/EBITDA EV/EBITDA Adj. EPS Adj. EPS
2022 2023 2022 2023 2022 2023
ADTRAN 1.81x 1.66x 19.2x 14.6x 30.5x 19.2x
Ciena Corporation 2.11x NA 10.9x NA 17.4x NA
Infinera Corporation 1.48x 1.37x 11.2x 8.9x 26.0x 12.8x
Ribbon Communications, Inc. 1.32x 1.31x 7.7x 7.6x 11.6x 12.1x
Casa Systems, Inc. 1.64x 1.54x 9.4x 8.4x 15.9x 13.1x
Tejas Networks Ltd. 3.31x NA 14.9x NA 26.4x NA
NeoPhotonics Corporation 1.22x 1.02x 10.9x 9.2x 35.4x 20.1x
The disclosure on page 114 of the Proxy Statement/Prospectus under the section
"The Business Combination-Opinion of Financial Advisor to ADTRAN-Summary of
Material Financial Analyses-ADVA Financial Analyses-Selected Precedent
Transactions Analysis" is amended and supplemented by adding columns for the
announcement date, transaction value and LTM EBITDA to the list of selected
precedent transactions as follows:
Transaction
Announcement Value (in LTM
Date Acquiror Target millions) EBITDA
11/14/19 Ribbon Communications Inc. ECI Telecom Ltd. $ 460 20.0x
6/24/19 Rudolph Technologies, Inc. Nanometrics Incorporated $ 713 15.8x
11/9/18 II-VI Incorporated Finisar Corporation $ 2,912 16.7x
11/8/18 CommScope Inc. ARRIS International plc $ 7,145 8.0x
3/12/18 Lumentum Holdings Inc. Oclaro, Inc. $ 1,481 9.4x
Cree, Inc. Infineon Technologies AG's
7/14/16 RF Power Assets $ 850 8.7x
2/22/17 ARRIS International plc Ruckus Wireless, Inc. $ 877 9.7x
Broadcom Limited Brocade Communications
11/2/16 Systems Inc. $ 5,936 9.6x
Inphi Corp. ClariPhy Communications
11/1/16 Inc. $ 275 NA
Corning Incorporated Alliance Fiber Optic
4/7/16 Products, Inc. $ 262 10.5x
Coherent, Inc. ROFIN-SINAR Technologies,
3/16/16 Inc. $ 789 10.3x
2/23/16 MKS Instruments, Inc. Newport Corporation $ 985 10.5x
Microchip Technology Atmel Corporation
1/13/16 Incorporated $ 3,282 15.1x
Uphill Investment Co. Integrated Silicon
6/23/15 Solution, Inc. $ 627 16.9x
Lattice Semiconductor Silicon Image, Inc.
1/27/15 Corporation $ 450 12.8x
The disclosure on page 115 of the Proxy Statement/Prospectus under the section "The Business Combination-Opinion of Financial Advisor to ADTRAN-Summary of Material Financial Analyses-ADVA Financial Analyses-Discounted Cash Flow Analysis" is amended and supplemented to read as follows:
Discounted Cash Flow Analysis.BofA Securities performed a discounted cash flow analysis of ADVA to calculate the estimated present value of the standalone unlevered, after-tax free cash flows Unlevered Free Cash Flows as described in the section entitled "The Business Combination-Certain Unaudited Prospective Financial Information" that ADVA was forecasted to generate during the third and fourth quarters of calendar year 2021 and calendar years 2022 through 2026 based on the ADVA forecasts.BofA Securities calculated terminal values for ADVA by applying perpetuity growth rates of 2.0% to 3.0%, based onBofA Securities' . . .
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