Mood Media Corporation (TSX:MM) has entered into an arrangement agreement with affiliates of several of its key stakeholders, including an affiliate of certain funds managed by affiliates of Apollo Global Management, LLC (NYSE:APO) and funds advised or sub-advised by GSO Capital Partners LP or its affiliates (including funds advised by FS Investments and sub-advised by GSO Capital Partners LP or its affiliates) to effect a comprehensive transaction pursuant to which all of the issued and outstanding common shares of Mood Media will be acquired for C$0.17 in cash per share and certain of the Company’s significant debt obligations will be refinanced, restructured or redeemed, as further detailed below.
The C$0.17 cash price per common share represents a 162% premium over the closing price of the common shares of Mood Media on the Toronto Stock Exchange (the “TSX”) on April 12, 2017, and a 149% premium over the 20-day volume weighted average trading price on the TSX for the period prior to and including such date.
In connection with the transaction, the Company’s US$350 million aggregate principal amount 9.25% senior unsecured notes due 2020 will be exchanged for consideration, per US$1,000 principal amount, consisting of US$500 principal amount of newly-issued second lien notes of the Company and up to 175 new common shares of the Company, as well as additional consideration, to the extent applicable, in connection with the New Equity Issuance described below. In addition, the Company will refinance its existing US$250 million first lien credit facility with a new US$315 million first lien credit facility to be provided by funds and accounts managed by HPS Investment Partners, LLC. The proceeds of the New Credit Facility will also be used to redeem the US$50 million aggregate principal amount 10% senior unsecured notes due 2023 of the Company’s subsidiary, Mood Media Group S.A., in accordance with the indenture governing their terms. As part of the transaction, the Company will be re-domiciled from Canada to Delaware. All such transactions, including the Share Acquisition, are collectively referred to as the “Transaction.”
Steve Richards, President and Chief Executive Officer of Mood Media said “This transaction is an excellent outcome for all of our stakeholders as it puts Mood Media on a stronger footing to advance our transformation and capitalize on the opportunities ahead,” saidWith the support of Apollo, GSO and their partners, Mood Media can further grow and strengthen our business as we invest in new opportunities. We look forward to working with our stakeholders to increasingly elevate the Company’s position as the clear leader for customer experience via value-added solutions that benefit Mood’s clients, partners and employees. In addition, the transaction provides our shareholders with certainty of value at a significant premium over market.”
David Sambur, Senior Partner at Apollo said “We are enthusiastic about the next chapter in our relationship with Mood Media,” said Mood is the clear global leader in elevating customer experiences by providing leading sound, sight and scent solutions to some of the world’s most prominent retail, restaurant and hospitality companies. With this transaction, which de-levers the Company and reduces its cash interest burden, Mood Media now has the financial flexibility it needs to drive innovation and investment in the business. We look forward to working with the Mood team to drive the Company’s strategic direction and enhance its growth.”
The Transaction will be effected by means of a plan of arrangement under the Company’s governing corporate statute, the Canada Business Corporations Act. The Transaction will require approval of the Ontario court as well as the approval of at least two-thirds of the votes cast by Mood Media shareholders and a majority of the votes cast by disinterested Mood Media shareholders at a special meeting of shareholders to be held to consider the Transaction. The Transaction will also require approval by holders of at least two-thirds of the aggregate principal amount of Senior Unsecured Notes represented in person, or by proxy, at a meeting of the holders of Senior Unsecured Notes. In addition to shareholder, noteholder and court approval, the Transaction is conditional upon the Credit Facility Refinancing and the satisfaction of certain other closing conditions customary for transactions of this nature.
Shareholders holding approximately 17.6% of the outstanding common shares of the Company, including certain of the directors and executive officers of the Company have entered into voting and support agreements with the Company pursuant to which such shareholders have agreed, subject to the terms and conditions of such agreements, to vote in favor of the Transaction. Additionally, pursuant to the terms of the Arrangement Agreement, the parties have agreed that the approximately 68%, or US$238 million, of the aggregate principal amount of Senior Unsecured Notes beneficially owned, in the aggregate, by certain investment funds affiliated with Apollo and certain funds advised or sub-advised by GSO, respectively, will be voted or caused to be voted in favor of the Transaction.
Eligible holders of Senior Unsecured Notes will be provided with the opportunity to subscribe for and purchase their pro rata portion (as between eligible holders) of up to approximately US$50 million (the “Maximum New Equity Amount”) of additional post-Transaction common equity to be issued by Mood Media in connection with the Transaction (subject to a pro rata reduction based on the actual offering size, which will be no less than US$25 million (the “Minimum New Equity Amount”) and which will be determined prior to closing) (the “New Equity Issuance”). Senior Unsecured Noteholders who participate in the New Equity Issuance will effectively receive 1,250 New Company Shares per US$1,000 of new equity capital contributed, which will be comprised of 568 New Company Shares delivered as consideration for their new equity contribution and 682 New Company Shares delivered as additional consideration under the Transaction for their Senior Unsecured Notes. Holders of Senior Unsecured Notes who participate in the New Equity Issuance will receive US$500 principal amount of New Company Notes and 175 New Company Shares per US$1,000 principal amount of Senior Unsecured Notes, as well as the additional consideration described above. Holders of Senior Unsecured Notes who do not participate in the New Equity Issuance will receive US$500 principal amount of New Company Notes and 150 New Company Shares per US$1,000 principal amount of Senior Unsecured Notes. The New Company Notes will (i) bear interest at LIBOR plus 14% (6% cash and 8% payment in kind) with a LIBOR floor of 1%, (ii) mature seven years after completion of the Transaction, and (iii) be callable on the one year anniversary of their issuance at 102% of par, on the two year anniversary at 101% of par and on the third year anniversary at par.
The Transaction will not affect the interest payable on the Senior Unsecured Notes on April 15, 2017, which will be paid as required in accordance with the terms of the Senior Unsecured Notes.
In connection with the Transaction, funds and accounts managed by Arbiter Partners Capital Management LLC (“Arbiter”), which currently hold approximately 17.5% of the Company’s outstanding common shares, will reinvest all of the consideration received in respect of its common shares in the Transaction for approximately 4.63 million New Company Shares (the “Arbiter Reinvestment”). Arbiter will receive an additional 1.03 million New Company Shares in consideration for its commitment to reinvest such amounts under the Arbiter Reinvestment.
In addition, an affiliate of funds affiliated with Apollo and certain funds advised or sub-advised by GSO have each agreed to backstop, on a pro rata basis, the full amount of the New Equity Issuance, and in connection therewith will receive, in the aggregate, approximately 12.5 million New Company Shares.
Following completion of the Transaction, the Board will be comprised of directors nominated by an affiliate of funds affiliated with Apollo and certain funds advised or sub-advised by GSO, as well as Steve Richards, President and Chief Executive Officer of the Company. It is also anticipated that, following the completion of the Transaction, the Company will cease to be a reporting issuer under applicable Canadian securities laws and its securities will be delisted from the TSX.
Board Recommendation, Arrangement Agreement and Timing
The Transaction has received the unanimous approval of the board of directors of Mood Media (the “Board”) (other than Ross Levin, who abstained as an interested director), as well as a special committee of independent directors of the Board (the “Special Committee”) consisting of Kevin Dalton, David Richards and Richard Warren. The Company’s financial advisor, Allen & Company LLC (“Allen & Co.”), has provided an opinion to the Board that, subject to the assumptions and limitations described therein and as at the date of such opinion, the consideration to be received by Mood Media shareholders (other than Arbiter) pursuant to the Share Acquisition is fair, from a financial point of view, to such shareholders.
The Board and the Special Committee also retained Origin Merchant Partners in connection with the Transaction. Origin Merchant Partners has provided opinions to the Board and Special Committee that, subject to the assumptions and limitations described therein and as at the date of such opinion, the (i) consideration to be received by Mood Media shareholders (other than Arbiter) pursuant to the Share Acquisition is fair, from a financial point of view, to such shareholders, (ii) consideration to be received by holders of Senior Unsecured Notes is fair, from a financial point of view, to such noteholders (other than the investment funds affiliated with Apollo and GSO, respectively); and (iii) Transaction is fair, from a financial point of view, to the Company. Origin Merchant Partners was also retained by the Special Committee to provide, under the supervision of the Special Committee, an independent formal valuation prepared in accordance with Multilateral Instrument 61-101 – Protection of Minority Security Holders in Special Transactions, and has concluded that, subject to the assumptions and limitations described in its written valuation, as at April 12, 2017, the fair market value of a common share of Mood Media is in the range of nil to C$0.29 per share.
The Arrangement Agreement includes, among other things, a non-solicitation covenant subject to a customary “fiduciary out” provision, which entitles Mood Media to consider and accept a superior proposal, subject to the right of an affiliate of funds affiliated with Apollo and certain funds advised or sub-advised by GSO to together match the superior proposal and the payment to such parties of a total termination fee of C$1.5 million in the aggregate. Mood Media is also required, in certain circumstances, to reimburse an affiliate of funds affiliated with Apollo and certain funds advised or sub-advised by GSO for certain expenses incurred in connection with the Transaction.
Further details of the Transaction, including the full text of the opinions of Allen & Co. and Origin Merchant Partners, respectively, and the formal valuation prepared by Origin Merchant Partners will be included in the management information circular to be provided to the Company’s securityholders in connection with the meetings that will be held to consider the Transaction. It is anticipated that the Mood Media securityholder meetings and closing of the Transaction will take place in June 2017. The full text of the Arrangement Agreement will be filed under the Company’s profile on SEDAR at www.sedar.com.
Allen & Co. acted as financial advisor to Mood Media in connection with the Transaction and Stikeman Elliott LLP and Kirkland & Ellis LLP acted as Mood Media’s legal advisors. Origin Merchant Partners was retained by the Board and the Special Committee to provide various opinions as to the fairness of the Transaction and to prepare a formal valuation in respect of the Company’s common shares. Credit Suisse acted as financial advisor to Apollo in connection with the Transaction and Paul, Weiss, Rifkind, Wharton & Garrison LLP, Goodmans LLP and Akin Gump Strauss Hauer & Feld LLP acted as Apollo and GSO’s legal advisors.