Item 8.01. Other Events.
As previously announced, on March 25, 2021, II-VI Incorporated, a Pennsylvania
corporation ("II-VI"), Watson Merger Sub Inc., a Delaware corporation and wholly
owned subsidiary of II-VI ("Merger Sub"), and Coherent, Inc., a Delaware
corporation ("Coherent"), entered into an Agreement and Plan of Merger (the
"Merger Agreement"). The Merger Agreement provides for, among other things and
subject to the satisfaction or waiver of specified conditions, the merger of
Merger Sub with and into Coherent (the "Merger"), with Coherent surviving the
Merger as a wholly owned subsidiary of II-VI.
In connection with the Merger, II-VI filed with the Securities and Exchange
Commission (the "SEC") a definitive joint proxy statement of II-VI and Coherent
that also constitutes a prospectus of II-VI, dated May 6, 2021 (the "Joint Proxy
Statement/Prospectus"), which II-VI and Coherent commenced mailing to
shareholders of II-VI and stockholders of Coherent on or about May 10, 2021.
SUPPLEMENTAL DISCLOSURES
The following information supplements the Joint Proxy Statement/Prospectus and
should be read in conjunction with the Joint Proxy Statement/Prospectus, which
should be read in its entirety. All page references are to pages in the Joint
Proxy Statement/Prospectus, and terms used below have the meanings set forth in
the Joint Proxy Statement/Prospectus. Without admitting in any way that the
disclosures below are material or otherwise required by law, II-VI and Coherent
make the following supplemental disclosures:
The disclosure under the heading "Certain Unaudited Prospective Financial
Information" beginning on page 133 of the joint proxy statement/prospectus is
hereby amended by including the following at the end of the eighth paragraph
under that heading (such paragraph being the first full paragraph on page 135):
Financial measures included in forecasts provided to a financial advisor for use
in connection with a business combination transaction are excluded from the
definition of non-GAAP financial measures and therefore, are not subject to SEC
rules regarding disclosures of non-GAAP financial measures, which would
otherwise require a reconciliation of a non-GAAP financial measure to a GAAP
financial measure. Accordingly, we have not provided a reconciliation of the
financial measures included in the company projections which have been provided
to BofA Securities and Credit Suisse for purposes of preparing their financial
analyses and opinions.
The disclosure under the heading "II-VI Adjusted Prospective Financial
Information" on page 138 of the joint proxy statement/prospectus is hereby
amended by including the following at the end of the first paragraph under that
heading:
Financial measures included in forecasts provided to a financial advisor for use
in connection with a business combination transaction are excluded from the
definition of non-GAAP financial measures and therefore, are not subject to SEC
rules regarding disclosures of non-GAAP financial measures, which would
otherwise require a reconciliation of a non-GAAP financial measure to a GAAP
financial measure. Accordingly, we have not provided a reconciliation of the
financial measures included in the company projections which have been provided
to BofA Securities and Credit Suisse for purposes of preparing their financial
analyses and opinions.
--------------------------------------------------------------------------------
The disclosure under the heading "Summary of Material Coherent Financial
Analyses" beginning on page 107 of the joint proxy statement/prospectus is
hereby amended and supplemented by replacing the tenth and eleventh paragraphs
under that heading (such paragraphs beginning on page 109 and continuing on to
page 110) in their entirety with the following:
Discounted Cash Flow Analysis. BofA Securities performed a discounted cash flow
analysis of Coherent to calculate the estimated present value of the standalone
unlevered, after-tax free cash flows that Coherent was forecasted to generate
during Coherent's second, third and fourth quarters of fiscal year 2021 and
fiscal years 2022 through 2026 based on the Coherent forecasts. BofA Securities
calculated terminal values for Coherent by applying to Coherent's estimated
standalone unlevered, after-tax free cash flow of $271 million for the terminal
year a range of perpetuity growth rates of 3.0% to 4.0%, which perpetuity growth
rates were selected based on BofA Securities' professional judgment and
experience. The cash flows and terminal values were then discounted to present
value, assuming a mid-year convention, as of December 31, 2020 using discount
rates ranging from 8.5% to 11.5%, which were based on an estimate of Coherent's
weighted average cost of capital, derived using the capital asset pricing model,
which took into account, among other things, risk free rate, unlevered beta, and
historical equity risk premium and BofA Securities' professional judgment and
experience. From the resulting enterprise values, BofA Securities added net cash
of $85 million to derive equity values.
This analysis indicated the following approximate implied per share equity value
reference ranges for Coherent (rounded to the nearest $0.25) as compared to the
per share price of Coherent common stock implied by the merger consideration:
Implied Per Share Equity Per Share Price
Value Reference Range for Coherent Implied by Merger Consideration
$104.75 - $196.25 $281.21
The disclosure under the heading "Opinions of Coherent's Financial Advisors -
Opinion of BofA Securities" beginning on page 103 is hereby amended and
supplemented by replacing the second, third, fourth and fifth bullet points of
the fourth paragraph under that heading (such paragraph beginning on page 104)
in their entirety with the following:
• reviewed certain internal financial and operating information with
respect to the business, operations and prospects of Coherent furnished
to or discussed with BofA Securities by the management of Coherent,
including certain financial forecasts relating to Coherent prepared by or
at the direction of and approved by the management of Coherent (such
forecasts we refer to as "Coherent forecasts" and are set forth in the
section titled "The Merger-Certain Unaudited Prospective Financial
Information-Coherent Prospective Financial Information-C. Coherent
management case prospective financial information" beginning on page 136
of this joint proxy statement/prospectus);
• reviewed certain internal financial and operating information with
respect to the business, operations and prospects of II-VI furnished to
or discussed with BofA Securities by the management of II-VI, including
certain financial forecasts relating to II-VI prepared by the management
of II-VI (such forecasts we refer to as "II-VI forecasts" and are set
forth in the section titled "The Merger-Certain Unaudited Prospective
Financial Information-II-VI Prospective Financial Information" beginning
on page 137 of this joint proxy statement/prospectus);
• reviewed an alternative version of the II-VI forecasts incorporating
certain adjustments thereto made by the management of Coherent and
certain extrapolations thereto prepared by or at the direction of and
approved by the management of Coherent (such forecasts we refer to as
"adjusted II-VI forecasts" and are set forth in the section titled "The
Merger-Certain Unaudited Prospective Financial
Information-Coherent-Adjusted II-VI Prospective Financial Information"
beginning on page 137 of this joint proxy statement/prospectus) and
discussed with the management of Coherent its assessments as to the
relative likelihood of achieving the future financial results reflected
in the II-VI forecasts and the adjusted II-VI forecasts;
• reviewed certain estimates furnished to BofA Securities by the management
of Coherent as to the amount and timing of cost savings and the costs of
achieving such results (which we refer to as the "cost savings" and are
set forth in the section titled "The Merger-Certain Unaudited Prospective
Financial Information-Certain Potential Combined Company Cost Savings and
Revenue Synergies" beginning on page 139 of this joint proxy
statement/prospectus) anticipated by the managements of Coherent and
II-VI to result from the merger;
The disclosure under the heading "Summary of Material Coherent Financial
Analyses" beginning on page 107 of the joint proxy statement/prospectus is
hereby amended and supplemented by replacing the twelfth paragraph under that
heading (such paragraph beginning on page 110) in its entirety with the
following:
Other Factors. BofA Securities also noted certain additional factors that were
not considered part of BofA Securities' material financial analyses with respect
to its opinion but were referenced for informational purposes, including, among
other things, the following:
• the trading range for the Coherent common stock for the 12-month period
as of January 15, 2021 (the last trading day prior to the public
announcement of the January 18 Lumentum Merger Agreement), which was
$82.09 to $175.70 per share; and
--------------------------------------------------------------------------------
• the following publicly available equity research analyst price targets
for the Coherent common stock available as of January 15, 2021 (the last
trading day prior to the public announcement of the January 18 Lumentum
Merger Agreement), and noted that the range of such price targets
(discounted one year by 10% cost of equity) was $127.25 to $154.50 per
share:
Firm Price Target
Barclays $140.00
Edgewater Research NA
Goldman Sachs $169.00
The Benchmark Company $160.00
Longbow Research NA
Susquehanna Financial Group $160.00
CJS Securities $170.00
Stifel Nicolaus $140.00
Northcoast Research NA
Needham NA
* NA means not available.
The disclosure under the heading "Summary of Material II-VI Financial Analyses"
beginning on page 110 of the joint proxy statement/prospectus is hereby amended
and supplemented by replacing the seventh, eighth and ninth paragraphs under
that heading (such paragraph beginning on page 111 and continuing on to page
112) in their entirety with the following:
Discounted Cash Flow Analysis. BofA Securities performed a discounted cash flow
analysis of II-VI to calculate the estimated present value of the standalone
unlevered, after-tax free cash flows that II-VI was forecasted to generate
during II-VI's third and fourth quarters of fiscal year 2021 and fiscal years
2022 through 2026 based on the adjusted II-VI forecasts. BofA Securities
calculated terminal values for II-VI by applying to II-VI's estimated standalone
unlevered, after-tax free cash flow of $968 million for the terminal year a
range of perpetuity growth rates of 2.5% to 3.5%, which perpetuity growth rates
were selected based on BofA Securities' professional judgment and experience.
The cash flows and terminal values were then discounted to present value,
assuming mid-year convention, as of December 31, 2020 using discount rates
ranging from 7.0% to 9.0%, which were based on an estimate of II-VI's weighted
average cost of capital, derived using the capital asset pricing model, which
took into account, among other things, risk free rate, unlevered beta, and
historical equity risk premium and BofA Securities' professional judgment and
experience. From the resulting enterprise values, BofA Securities subtracted net
debt of $689 million to derive equity values.
This analysis indicated the following approximate implied per share equity value
reference ranges for II-VI (rounded to the nearest $0.25), as compared to the
closing price of II-VI common stock on March 23, 2021:
Implied Per Share Equity Closing Trading Price of
Value Reference Range for II-VI II-VI on March 23, 2021
$99.00 - $182.50 $65.85
Other Factors. BofA Securities also noted certain additional factors that were
not considered part of BofA Securities' material financial analyses with respect
to its opinion but were referenced for informational purposes, including, among
other things, the following:
• the trading range for II-VI common stock for the 12-month period as of
March 23, 2021, which was $24.25 to $99.58 per share; and
• the following publicly available equity research analyst price targets
for the II-VI common stock available as of March 23, 2021, and noted that
the range of such price targets (discounted one year by 8.0% cost of
equity) was $66.75 to $140.75 per share:
Firm Price Target
Cowen & Company $124.00
Loop Capital Markets $118.00
Northland Securities $72.00
Raymond James NA
Canaccord Genuity $152.00
Morgan Stanley $88.00
--------------------------------------------------------------------------------
Firm Price Target
J.P. Morgan $105.00
The Benchmark Company $105.00
Craig Hallum Capital Group $120.00
Susquehanna $100.00
B Riley Securities $77.00
Piper Sandler Companies $110.00
DA Davidson $110.00
Stifel Nicolaus $110.00
Needham $105.00
Citi $115.00
Barclays $105.00
* NA means not available.
The disclosure under the heading "Summary of Material Relative Financial
Analyses" beginning on page 112 of the joint proxy statement/prospectus is
hereby amended and supplemented by replacing the first and second paragraphs
under that heading in their entirety with the following:
Pro Forma Analysis. BofA Securities performed a pro forma analysis to calculate
the theoretical change in value for Coherent stockholders resulting from the
merger based on a comparison of (i) the pro forma ownership by Coherent
stockholders of the combined company following the merger and (ii) the 100%
ownership by Coherent stockholders of the Coherent common stock on a standalone
basis. For Coherent on a standalone basis, BofA Securities used the reference
range obtained in its discounted cash flow analysis described above under
"-Summary of Material Coherent Financial Analyses-Discounted Cash Flow
Analysis." BofA Securities then calculated the implied pro forma equity value
per share of Coherent common stock resulting from the merger as follows:
(a) the implied equity value of Coherent on a standalone basis plus the
implied equity value of II-VI on a standalone basis (each as
calculated using the discounted cash flow analysis described above);
(b) plus the implied equity value of net estimated cost savings to the
combined company applying a perpetuity growth rate of 3.0% to 4.0% and
a discount rate range of 8.5% to 11.5% (based on the perpetuity growth
rates and discount rates used in the discounted cash flow analysis
with respect to Coherent as described above);
(c) less the decrease in cash from the merger to the combined company; and
(d) plus $220.00 cash per share included in the merger consideration.
This analysis yielded the following implied per share equity value reference
ranges for Coherent common stock on a standalone basis and, assuming pro forma
ownership by Coherent stockholders set forth in the table below, for the
combined company, excluding payment in kind interest payable on the II-VI Series
B convertible preferred stock (rounded to the nearest $0.25):
Per Share Equity Value Reference
Ranges for Coherent Common Stock
Low Midpoint High
Standalone $ 104.75 $ 136.50 $ 196.25
Pro Forma(1) $ 286.75 $ 315.75 $ 367.75
Coherent Stockholders Ownership(1) 15.8 % 13.9 % 13.8 %
(1) Treats shares of II-VI Series B convertible preferred stock as debt in
the event that such preferred stock is out of the money.
The disclosure under the heading "Financial Analyses Regarding Coherent"
beginning on page 118 of the joint proxy statement/prospectus is hereby amended
and supplemented by replacing the ninth paragraph under that heading (such
paragraph beginning on page 120) in its entirety with the following:
Discounted Cash Flow Analysis Regarding Coherent. Credit Suisse also performed a
discounted cash flow analysis with respect to Coherent by calculating the
estimated net present value of the projected after-tax, unlevered free cash
flows of Coherent, treating stock-based compensation as a cash expense, based on
the Coherent management case prospective financial information. Credit Suisse
applied, based on its experience and professional judgment, a range of terminal
value multiples of 10.0x to 12.0x to the Coherent Adjusted EBITDA estimate for
the fiscal year ending September 2026 and discount rates ranging from 8.5% to
10.5% derived from a weighted average cost of capital calculation, by
application of the capital asset pricing model. The discounted cash flow
analysis indicated the following approximate implied equity value per share
reference range for Coherent common stock, as compared to the implied value of
the merger consideration:
--------------------------------------------------------------------------------
Per Share Price Implied by
Implied Per Share Equity Value Reference Range Merger Consideration
$163.89 - $209.68 $281.21
The disclosure under the heading "Other Matters" beginning on page 122 of the
joint proxy statement/prospectus is hereby amended and supplemented by replacing
the second paragraph under that heading (such paragraph beginning on page 123)
in their entirety with the following:
Credit Suisse and its affiliates may in the future provide investment banking
and other financial advice and services to Coherent, II-VI and their respective
affiliates for which advice and services Credit Suisse and its affiliates would
expect to receive compensation. Credit Suisse and its affiliates have provided
and currently are providing investment banking and other financial advice and
services to Bain Capital, LP and its affiliates, one of which is providing
financing to II-VI, for which advice and services Credit Suisse and its
affiliates have received and would expect to receive compensation, including,
during the past two years, having provided such advice and services for which
Credit Suisse and its affiliates received aggregate fees of less than
$50 million.
The disclosure under the heading "Opinions of BofA Securities" on page 20 of the
joint proxy statement/prospectus is hereby amended and supplemented by replacing
the last sentence of the first paragraph under that heading with the following:
Coherent has agreed to pay BofA Securities for its services in connection with
the merger an aggregate fee currently estimated to be approximately $57,700,000
based on the aggregate value of the consideration estimated to be paid in
connection with the merger taking into account the closing price of II-VI common
stock on April 23, 2021, a total of $2 million of which was paid upon rendering
two opinions in connection with the January 18 Lumentum Merger Agreement (as
defined below) and the March 9 Lumentum Merger Agreement (as defined below), $1
million of which was paid in connection with its opinion dated March 24, 2021
and the remainder of which is contingent upon the completion of the merger.
The disclosure under the heading "Miscellaneous" on page 113 of the joint proxy
statement/prospectus is hereby amended and supplemented by replacing the fourth
paragraph under that heading in its entirety with the following:
Coherent has agreed to pay BofA Securities for its services in connection with
the merger an aggregate fee currently estimated to be approximately $57,700,000
based on the aggregate value of the consideration estimated to be paid in
connection with the merger taking into account the closing price of II-VI common
stock on April 23, 2021, a total of $2 million of which was paid upon rendering
two opinions in connection with the January 18 Lumentum Merger Agreement and the
March 9 Lumentum Merger Agreement, $1 million of which was paid in connection
with its opinion dated March 24, 2021 and the remainder of which is contingent
upon the completion of the merger. Coherent also has agreed to reimburse BofA
Securities for its reasonable expenses incurred in connection with BofA
Securities' engagement and to indemnify BofA Securities, its affiliates, and
each of their respective directors, officers, employees and agents and each
other controlling person of BofA Securities or any of its affiliates against
specified liabilities, including liabilities under the federal securities laws.
Forward-Looking Statements
This communication contains forward-looking statements relating to future events
and expectations that are based on certain assumptions and contingencies. The
forward-looking statements are made pursuant to the safe harbor provisions of
the U.S. Private Securities Litigation Reform Act of 1995. The forward-looking
statements in this communication involve risks and uncertainties, which could
cause actual results, performance, or trends to differ materially from those
expressed in the forward-looking statements herein or in previous disclosures.
II-VI and Coherent believe that all forward-looking statements made in this
document have a reasonable basis, but there can be no assurance that
management's expectations, beliefs, or projections as expressed in the
forward-looking statements will actually occur or prove to be correct. In
addition to general industry and global economic conditions, factors that could
cause actual results to differ materially from those discussed in the
forward-looking statements in this communication include, but are not limited
to: (i) the failure of any one or more of the assumptions stated above to prove
to be correct; (ii) the conditions to the completion of the proposed transaction
between II-VI and Coherent, and the remaining equity investment by an affiliate
of Bain Capital, LP, including the receipt of any required shareholder and
regulatory approvals, and the risks that those conditions will not be satisfied
in a timely manner or at all; (iii) the occurrence of any event, change or other
circumstances that could give rise to an amendment or termination of the merger
agreement relating to the proposed transaction, including the receipt by either
party of an unsolicited proposal from a third party; (iv) II-VI's ability to
finance the proposed transaction, the substantial indebtedness II-VI expects to
incur in connection with the proposed transaction and the need to generate
sufficient cash flows to service and repay such debt; (v) the possibility that
the combined company may be unable to achieve expected synergies, operating
efficiencies and other benefits within the expected time-frames or at all and to
successfully integrate Coherent's operations with those of the combined company;
(vi) the possibility that such integration may be more difficult, time-consuming
or costly than expected or that operating costs and business disruption
(including, without limitation, disruptions in relationships with employees,
customers or suppliers) may be greater than expected in connection with the
--------------------------------------------------------------------------------
proposed transaction; (vii) litigation and any unexpected costs, charges or
expenses resulting from the proposed transaction; (viii) the risk that
disruption from the proposed transaction materially and adversely affects the
respective businesses and operations of II-VI and Coherent; (ix) potential
adverse reactions or changes to business relationships resulting from the
announcement, pendency or completion of the proposed transaction; (x) the
ability of II-VI and Coherent to retain and hire key employees; (xi) the
purchasing patterns of customers and end users; (xii) the timely release of new
products, and acceptance of such new products by the market; (xiii) the
introduction of new products by competitors and other competitive responses;
(xiv) II-VI's and Coherent's ability to assimilate recently acquired businesses
and realize synergies, cost savings and opportunities for growth in connection
therewith, together with the risks, costs, and uncertainties associated with
such acquisitions; (xv) II-VI's and Coherent's ability to devise and execute
strategies to respond to market conditions; (xvi) the risks to anticipated
growth in industries and sectors in which II-VI and Coherent operate; (xvii) the
risks to realizing the benefits of investments in R&D and commercialization of
innovations; (xviii) the risks that the combined company's stock price will not
trade in line with industrial technology leaders; (xix) the risks of business
and economic disruption related to the currently ongoing COVID-19 outbreak and
any other worldwide health epidemics or outbreaks that may arise; (xx) pricing
trends, including II-VI's and Coherent's ability to achieve economies of scale;
and/or (xxi) uncertainty as to the long-term value of II-VI common stock. Both
II-VI and Coherent disclaim any obligation to update information contained in
these forward-looking statements, whether as a result of new information, future
events or developments, or otherwise.
These risks, as well as other risks associated with the proposed transaction,
are more fully discussed in the definitive joint proxy statement/prospectus
included in the registration statement on Form S-4 (File No. 333-255547) filed
with the SEC, and thereafter amended, in connection with the proposed
transaction (the "Form S-4"). While the list of factors discussed above and the
list of factors presented in the Form S-4 are considered representative, no such
list should be considered to be a complete statement of all potential risks and
uncertainties. Unlisted factors may present significant additional obstacles to
the realization of forward-looking statements. For additional information about
other factors that could cause actual results to differ materially from those
described in the forward-looking statements, please refer to II-VI's and
Coherent's respective periodic reports and other filings with the SEC, including
the risk factors contained in II-VI's and Coherent's most recent Quarterly
Reports on Form 10-Q and Annual Reports on Form 10-K. Neither II-VI nor Coherent
assumes any obligation to publicly provide revisions or updates to any
forward-looking statements, whether as a result of new information, future
developments or otherwise, should circumstances change, except as otherwise
required by securities and other applicable laws.
Additional Information and Where to Find It
This communication does not constitute an offer to buy or solicitation of an
offer to sell any securities. In connection with the proposed transaction, II-VI
and Coherent filed with the SEC the Form S-4 on April 27, 2021 (as amended on
May 4, 2021), that includes a joint proxy statement of II-VI and Coherent and
that also constitutes a prospectus with respect to shares of II-VI's common
stock to be issued in the proposed transaction. The Form S-4 was declared
effective on May 6, 2021, and II-VI and Coherent commenced mailing to their
respective stockholders on or about May 10, 2021. This communication is not a
substitute for the Form S-4, the definitive joint proxy statement/prospectus or
any other document II-VI and/or Coherent may file with the SEC in connection
with the proposed transaction. INVESTORS AND SECURITY HOLDERS OF II-VI AND
COHERENT ARE URGED TO READ THE DEFINITIVE JOINT PROXY STATEMENT/PROSPECTUS, FORM
S-4 AND OTHER DOCUMENTS FILED WITH THE SEC, AS WELL AS ANY AMENDMENTS OR
SUPPLEMENTS TO THESE DOCUMENTS, CAREFULLY IN THEIR ENTIRETY, AS THEY CONTAIN
IMPORTANT INFORMATION ABOUT THE PROPOSED TRANSACTION. Investors and security
holders are able to obtain free copies of these documents and other documents
filed with the SEC by II-VI and/or Coherent through the website maintained by
the SEC at www.sec.gov. Copies of the documents filed with the SEC by II-VI may
be obtained free of charge on II-VI's investor relations site at
https://ii-vi.com/investor-relations. Copies of the documents filed with the SEC
. . .
© Edgar Online, source Glimpses