Item 8.01 Other Events.
Update Regarding Litigation Related to the Mergers
As previously announced, on October 16, 2022, Archaea Energy Inc., a Delaware
corporation (the "Company"), and LFG Acquisition Holdings LLC, a subsidiary of
the Company ("Opco"), entered into an Agreement and Plan of Merger (the "Merger
Agreement") with BP Products North America Inc., a Maryland corporation
("Parent"), Condor RTM Inc., a Delaware corporation and a wholly owned
subsidiary of Parent ("Merger Sub"), and Condor RTM LLC, a Delaware limited
liability company and a wholly owned subsidiary of Parent ("Opco Merger Sub").
Pursuant to the Merger Agreement, upon the terms and subject to the conditions
thereof, Merger Sub will be merged with and into the Company with the Company
continuing as the surviving corporation and a wholly owned subsidiary of Parent
(the "Company Merger"), and Opco Merger Sub will be merged with and into Opco
with Opco continuing as the surviving company and a wholly owned subsidiary of
Parent (the "Opco Merger" and, together with the Company Merger, the "Mergers").
Litigation Related to the Mergers
The Company is aware of three complaints having been filed with respect to the
Mergers, two in the United States District Court for the Southern District of
New York and one in the United States District Court for the District of
Delaware. The three matters are captioned as follows: O'Dell v. Archaea Energy
Inc. et al., No. 1:22-cv-09418 (S.D.N.Y.), commenced on November 3, 2022; Smith
v. Archaea Energy Inc. et al., No. 1:22-cv-09844 (S.D.N.Y.), commenced on
November 18, 2022; McDaniels v. Archaea Energy Inc. et al., No. 1:22-cv-01510
(D. Del.), commenced on November 18, 2022 (collectively, the "Stockholder
Actions"). The Stockholder Actions were each filed as individual actions by
purported Company stockholders against the Company and the members of the
Company's board of directors (the "Board of Directors"). In addition to the
Stockholder Actions, the Company has received six demand letters from purported
Company stockholders with respect to the Mergers, one of which enclosed a draft
complaint, and a standalone draft complaint from another purported stockholder
of the Company (collectively, the "Demand Letters").
The Stockholder Actions all generally allege that the Company and the Board of
Directors violated Sections 14(a) and 20(a) of the Securities Exchange Act of
1934, as amended, by purportedly omitting to include supposedly material
information in the Company's preliminary proxy statement filed with the U.S.
Securities and Exchange Commission (the "SEC") on November 2, 2022 and the
Company's definitive proxy statement (the "Proxy Statement") filed with the SEC
on November 14, 2022. The Stockholder Actions seek injunctive relief enjoining
the closing of the Mergers and damages and costs, among other remedies. The
Demand Letters contain the same basic allegations.
The Company believes that the allegations in the Stockholder Actions and the
Demand Letters are meritless.
Supplemental Proxy Statement Disclosure
The Company does not believe that supplemental disclosures are required or
necessary under any applicable laws. However, solely in order to minimize
expense and distraction and avoid the uncertainty of any litigation, the Company
is electing to make the supplemental disclosures to the Proxy Statement set
forth below in response to the Stockholder Actions and the Demand Letters. The
Company denies the allegations in the Stockholder Actions and the Demand
Letters, and denies that any violation of law has occurred. The Company believes
that the Proxy Statement disclosed all material information required to be
disclosed therein, and denies that any of the supplemental disclosures are
material or are otherwise required to be disclosed. Nothing in the supplemental
disclosures should be deemed an admission of the legal necessity or materiality
of any supplemental disclosures under applicable laws.
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SUPPLEMENT TO PROXY STATEMENT
This supplemental information should be read in conjunction with the Proxy
Statement, which should be read in its entirety. Page references in the below
disclosures are to the pages in the Proxy Statement, and defined terms used but
not defined herein have the meanings set forth in the Proxy Statement. Without
admitting in any way that the disclosures below are material or otherwise
required by law, the Company makes the following amended and supplemental
disclosures. For clarity, new text within amended and restated paragraphs from
the Proxy Statement is highlighted with bold, underlined text.
The section of the Proxy Statement entitled "The Merger - Background of the
Merger" is amended and supplemented as follows:
The disclosure on page 31 of the Proxy Statement is modified by amending and
restating the first paragraph in its entirety as follows:
On June 24, 2022, given the increasing interest from the various parties noted
above in a wide range of transactions with the Company, the Board met with
members of Company management and representatives of Kirkland & Ellis LLP
("Kirkland"), legal advisor to the Company, in attendance to discuss the
interest of such parties, including whether any engagement with such parties in
respect of strategic transactions was appropriate at the time in light of the
Board's fiduciary duties. During this meeting, the Board discussed the outreach
from Party A, Party B, Party C and Parent. Representatives of Kirkland also
provided the Board with a review of the Board's fiduciary duties under Delaware
law, including in the context of the interest expressed by third parties in
exploring strategic alternatives with the Company and the Board's potential
consideration of strategic alternatives. Following discussion, the Board
determined that a special committee was not necessary given that all of the
Company's directors were aligned with the public stockholders to maximize the
value of the Company's shares. The Board further determined that, prior to
receiving approval from the Board, Company management, including Messrs. Stork,
Walton and McCarthy, would not engage in discussions with any bidders regarding
post-closing employment or other matters that might dis-align the interests of
such management members from the Company's stockholders in a potential
transaction. Next, the Board discussed and considered the potential benefits and
risks of conducting a targeted assessment to help the Board determine how best
to maximize value for stockholders, including considerations such as the
relative scarcity of RNG assets at the Company's scale, which could drive
further interest in the Company as part of a marketed process given the overall
market dynamics. The Board also discussed and considered the risks to the
Company and its business inherent in a potential market check, including demands
on management's time and attention and the risk of leaks. Taking into
consideration the foregoing, the Board determined that an initial step of
engaging with a financial advisor to assist the Board in considering the
benefits and risks of a targeted market check was warranted, including to
provide additional perspective for the Board and the Company's management in
ongoing interactions with the various parties expressing interest in engaging
with the Company. At the end of the meeting, the Board authorized Company
management and Mr. Rice to engage with potential financial advisors to meet with
the Board.
The disclosure on page 37 of the Proxy Statement is modified by amending and
restating the seventh paragraph in its entirety as follows:
On October 8, 2022, as instructed by the Board, representatives of BofA
Securities contacted representatives of Party J to determine its ability to
complete its diligence and announce a transaction on an accelerated basis. The
parties discussed considerations relating to Party J's expected due diligence
timeline, and representatives of Party J informed representatives of BofA
Securities that Party J would require at least four weeks to announce a
transaction. On October 11, 2022, representatives of BofA Securities sent a
draft non-disclosure agreement to Party J, which was never executed by Party J.
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The section of the Proxy Statement entitled "The Merger - Opinion of the
Company's Financial Advisor" is amended and supplemented as follows:
The disclosure on pages 45 and 46 of the Proxy Statement below the subheading
"Discounted Cash Flow Analysis" is modified by amending and restating the first
paragraph in its entirety as follows:
BofA Securities performed a discounted cash flow analysis of the Company to
calculate the estimated present value of the standalone Unlevered Free Cash
Flows (as defined in the section of this proxy statement titled "- Certain
Financial Projections") that the Company was forecasted to generate during the
Company's calendar years 2023 through 2032 based on the September Forecasts (as
defined in the section of this proxy statement titled "- Certain Financial
Projections"). BofA Securities calculated terminal values for the Company by
applying a perpetuity growth rate of 4.0% to 5.0%, based on BofA Securities'
professional judgement and experience, to the Company's projected standalone
Unlevered Free Cash Flows in the terminal year of $632 million, which was
obtained by extrapolating the Company's 2032 projected standalone Unlevered Free
Cash Flows of $833 million at an assumed growth rate of 4.5%, as provided by the
management of the Company. BofA Securities subtracted, from the range of
terminal values, net debt of $624 million as of October 7, 2022, as provided by
the management of the Company. The cash flows and terminal values were then
discounted to present value as of December 31, 2022 using discount rates ranging
from 10.75% to 13.25%, which were based on an estimate of the Company's weighted
average cost of capital, which was calculated by multiplying the estimated cost
of each capital source (debt and equity) by its relevant weight, and then adding
the products together. The estimated cost of equity was obtained using the
capital asset pricing model (which takes into account the risk-free rate, the
levered beta and the applicable equity market risk premium) and the estimated
cost of debt was based on the Company's estimated borrowing cost. For reference,
applying a perpetuity growth rate of 4.0% to 5.0% resulted in implied EBITDA
multiples in the range of 7.9x to 9.2x based on a discount rate of 12%. The
number of fully-diluted shares outstanding was 125.9 million as of October 13,
2022, based on information provided by the management of the Company. This
analysis indicated the following approximate implied per share equity value
reference ranges for the Company as compared to the Merger Consideration:
Merger
Implied Per Share Equity Value Reference Range for the Company Consideration
$20.66 - $39.43
$ 26.00
The disclosure on page 46 of the Proxy Statement below the subheading "Other
Factors" is modified by amending and restating the second bullet point in its
entirety as follows:
· price targets for the Class A common stock in the following publicly available
research analyst reports as of June 17, 2022, which indicated stock price
targets for the Company of a range of approximately $25.00 to $35.00 per share;
Price
Broker Target
Tudor Pickering Holt $ 27.00
Wells Fargo Securities $ 25.00
Stifel Nicolaus $ 34.00
Jefferies $ 27.00
U.S. Capital Advisors $ 35.00
Barclays $ 26.00
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Important Information and Where to Find It
This Current Report on Form 8-K is being made in respect of the pending Mergers
involving the Company, Opco and Parent. On November 14, 2022, the Company filed
with the SEC a proxy statement on Schedule 14A relating to its special meeting
of stockholders, which has been mailed to the Company's stockholders, and may
file or furnish other documents with the SEC regarding the pending Mergers.
INVESTORS ARE URGED TO CAREFULLY READ THE PROXY STATEMENT REGARDING THE PENDING
MERGERS BECAUSE IT CONTAINS IMPORTANT INFORMATION ABOUT THE PENDING MERGERS.
The Company's stockholders may obtain free copies of the documents the Company
files with the SEC from the SEC's website at www.sec.gov or through the
Investors portion of the Company's website at www.archaeaenergy.com.
Participants in the Solicitation
The Company and its directors and executive officers may be deemed to be
participants in the solicitation of proxies from the Company's stockholders in
connection with the pending Mergers. Information regarding the Company's
directors and executive officers, including a description of their direct
interests, by security holdings or otherwise, is contained in the Company's
Post-Effective Amendment No. 1 to Form S-1 filed with the SEC on August 24,
2022. Other information regarding the participants in the proxy solicitation and
a description of their interests is contained in the proxy statement for the
Company's special meeting of stockholders in respect of the proposed Mergers,
which was filed with the SEC on November 14, 2022 and can be obtained free of
charge from the sources indicated above.
Cautionary Statement Regarding Forward-Looking Statements
This Current Report on Form 8-K contains forward-looking statements, which
include all statements that do not relate solely to historical or current facts.
Forward-looking statements may relate to expectations for future financial
performance, business strategies or expectations for the Company's business.
Forward-looking statements are typically identified by words such as "plan,"
"believe," "expect," "anticipate," "intend," "outlook," "estimate," "forecast,"
"project," "continue," "could," "may," "might," "possible," "potential,"
"predict," "should," "would" and other similar words and expressions, but the
absence of these words does not mean that a statement is not forward-looking.
These forward-looking statements are based on the current expectations of the
Company's management and are inherently subject to uncertainties and changes in
circumstances and their potential effects and speak only as of the date of any
such statement. There can be no assurance that future developments will be those
that have been anticipated. These forward-looking statements involve a number of
risks, uncertainties or other assumptions that may cause actual results or
performance to be materially different from those expressed or implied by these
forward-looking statements. These risks and uncertainties include, but are not
limited to, the following: (i) the risk that the proposed Mergers may not be
completed in a timely manner or at all, which may adversely affect the Company's
business and the price of the Company Common Stock; (ii) the failure to satisfy
any of the conditions to the consummation of the proposed Mergers, including the
receipt of certain regulatory approvals; (iii) the failure to obtain the
Requisite Stockholder Approval; (iv) the occurrence of any event, change or
other circumstance or condition that could give rise to the termination of the
Merger Agreement, including in circumstances requiring the Company to pay a
termination fee; (v) the effect of the announcement or pendency of the proposed
transaction on the Company's business relationships, operating results and
business generally; (vi) risks that the proposed transaction disrupts the
Company's current plans and operations; (vii) the Company's ability to retain
and hire key personnel and maintain relationships with key business partners and
customers and others with whom it does business, in light of the proposed
transaction; (viii) risks related to diverting management's attention from the
Company's ongoing business operations; (ix) unexpected costs, charges or
expenses resulting from the proposed Mergers; (x) potential litigation relating
to the Mergers that could be instituted against the parties to the Merger
Agreement or their respective directors, managers or officers, including the
effects of any outcomes related thereto; (xi) continued availability of capital
and financing and rating agency actions; (xii) certain restrictions during the
pendency of the Mergers that may impact the Company's ability to pursue certain
business opportunities or strategic transactions; (xiii) unpredictability and
severity of catastrophic events, including, but not limited to, acts of
terrorism, war or hostilities or the COVID-19 or other pandemic, as well as
management's response to any of the aforementioned factors; (xiv) the impact of
adverse general and industry-specific economic and market conditions; and (xv)
other risks described in the Company's filings with the SEC, including the risks
and uncertainties described in the sections entitled "Risk Factors" in the
Company's Annual Report on Form 10-K for the fiscal year ended December 31, 2021
or in the Company's subsequent Quarterly Reports on Form 10-Q. Should one or
more of these risks or uncertainties materialize, or should any of the
assumptions made by the Company's management prove incorrect, actual results may
vary in material respects from those projected in the forward-looking statements
contained herein. Consequences of material differences in results as compared
with those anticipated in the forward-looking statements could include, among
other things, business disruption, operational problems, financial loss, legal
liability to third parties and similar risks, any of which could have a material
adverse effect on the completion of the Mergers and/or the Company's
consolidated financial condition, results of operations or liquidity. You should
not place undue reliance on these forward-looking statements.
Forward-looking statements speak only as of the date they are made. Except to
the extent required by applicable law or regulation, the Company undertakes no
obligation to update any forward-looking statements, whether as a result of new
information, future events or otherwise.
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