JZ Capital Partners(JZCP) has just announced a number of proposals, which include plans to return US$30m via a tender offer “and resultant Off-Market Acquisitions” at a 5% discount to NAV. The company has listed the following recommended proposals to approve:
- The Company’s proposed disposals of ownership interests in each of Jordan Health Products, LLC (Avante), MERS Holdings, LLC (MERS) and Tech Industries, LLP (Orizon) to Edgewater Growth Capital Partners and related additional investments in Avante, MERS and Orizon. This requires shareholder approval as Edgewater Growth Capital Partners is considered to be a Related Party of the Company.
- Amendments to the Articles of Incorporation of the Company that relate to the methodology for the calculation of eligible votes for the appointment and removal of Directors (as noted below this is in fact a done deal).
JZ Capital Partners tender offer
JZCP has announced that it is posting a Circular to Shareholders containing details of a Tender Offer. JZCP proposes to return up to US$30 million by way of Tender Offer and resultant Off-Market Acquisitions at US$9.39 per Ordinary Share.
This is further to the company’s announcement on 8 May 2019 that it plans to return $100m to shareholders at a maximum discount of 5%. The Tender Price of US$9.39 per Ordinary Share is equivalent to 95 per cent. of the Company’s nearest monthly NAV publicly available at the time of announcing the Tender Offer. The announcement contains considerable detail on the tender offer and we suggest shareholders read this and any other documentation provided in full before making any decision.
The Avante-MERS Proposal and Orizon Proposal
JZCP’s board is seeking Shareholder approval for the Company’s proposed disposals of ownership interests in each of Avante, MERS and Orizon to Edgewater, a Related Party of the Company, and related additional investments in each of those entities with Edgewater. The following is taken from the announcement:
“The Avante-MERS Proposal concerns: (i) the Company’s proposed disposals to Edgewater of 80 per cent. of its ownership interest in Avante (being equivalent to a 40 per cent. ownership interest in Avante) and 80 per cent. of its ownership interest in MERS (being equivalent to a 20 per cent. ownership interest in MERS); and (ii) the Company making, at its discretion, related additional investments in Avante and MERS jointly with Edgewater in response to calls for capital contributions from Avante and MERS respectively. Shareholders should also note that Avante itself has an ownership interest of 50 per cent. in MERS and accordingly the Company will in effect be disposing of a further 20 per cent indirect ownership interest in MERS through its disposal of ownership interests in Avante. The Company’s disposals of ownership interests in each of Avante and MERS form part of the same transaction and accordingly the consideration for the disposals is an aggregate amount of approximately US$37.5 million.
Similarly, the Orizon Proposal concerns: (i) the Company’s proposed disposal to Edgewater of 80 per cent. of its ownership interest in Orizon (being equivalent to a 9.5 per cent. ownership interest in Orizon) for consideration of approximately US$28 million; and (ii) the Company making, at its discretion, related additional investments in Orizon jointly with Edgewater in response to calls for capital contributions from Orizon.
The Avante-MERS and Orizon Proposals would each be considered Related Party Transactions of the Company under Chapter 11 of the Listing Rules (with which the Company voluntarily complies and insofar as the Listing Rules are applicable to the Company by virtue of its voluntary compliance). Edgewater is a substantial shareholder of the Company as it is entitled to exercise, or exercise the control of, 10 per cent. or more of the votes able to be cast at a general meeting of the Company and, as such, is considered to be a Related Party of the Company. The Company’s proposed disposals of ownership interests in Avante, MERS and Orizon to Edgewater, and related additional investments in each of those entities with Edgewater, would each be considered to be transactions between the Company and a Related Party. Accordingly, given Edgewater is a Related Party of the Company, the Avante-MERS and Orizon Proposals as transactions between them would be considered Related Party Transactions under Chapter 11 of the Listing Rules, again, insofar as the Listing Rules are applicable to the Company by virtue of its voluntary compliance with the same.
Shareholders should however also note that with respect to each of the Avante-MERS and Orizon Proposals, whilst the Listing Rules provide for written confirmation to be obtained from a sponsor that the terms of a Related Party Transaction are fair and reasonable as far as shareholders are concerned, such a confirmation has not been received in relation to these Proposals. Shareholders are reminded that the Company also departed from the same requirement in relation to the Deflecto and Water Treatment Proposals undertaken by the Company last year, both of which were approved by Shareholders. The reason for this being the case is because, as was the same for the Deflecto and Water Treatment Proposals, whilst the Company has sought to obtain a fair and reasonable written confirmation for the Avante-MERS and Orizon Proposals, it has been unable to do so at a cost which can be justified relative to their size and within the time constraints needed to be met in order to transact on and complete the transactions on the terms negotiated. The Company again reiterates its understanding that the costs and time for obtaining such a confirmation can be greater for a Related Party Transaction that concerns an acquisition or disposal, such as the Avante-MERS and Orizon Proposals.
The Company has therefore decided to depart from the requirement to obtain a fair and reasonable written confirmation on this occasion but notwithstanding that, and as was the case with the Deflecto and Water Treatment Proposals, the Company’s Investment Adviser, JZAI has instead provided written confirmation to the Company that the terms of the Avante-MERS and Orizon Proposals are fair and reasonable as far as Ordinary Shareholders are concerned. JZAI has a selective and disciplined approach to investing which is applied across all investments including in the case of Avante, MERS and Orizon. In addition, JZAI considers the Avante-MERS and Orizon Proposals to have been negotiated on arm’s length terms. Those negotiations have been undertaken on the Company’s behalf by JZAI, the founders and principals of which (David W. Zalaznick and (Jay) W. Jordan II, together with their respective affiliates) are also substantial Shareholders of the Company and whose combined shareholding in the Company exceeds that of Edgewater’s.
Shareholder approval for the Avante-MERS and Orizon Proposals will be sought at the Extraordinary General Meeting of the Company described in further detail below. The Company notes that it has received irrevocable undertakings to vote in favour of each Resolutions the subject of the Avante-MERS and Orizon Proposals from each of David W. Zalaznick and affiliates, John (Jay) W. Jordan II and affiliates, Leucadia Financial Corporation and Arnhold LLC, in respect of which they are entitled to vote, totalling 40.8 per cent. of the current issued Ordinary Share capital of the Company. The irrevocable undertakings to vote in favour of each of the Resolutions also equate to 52.1 per cent. in aggregate of the voting rights of the Ordinary Shares taking account of the fact that Edgewater, as a Related Party of the Company with respect to the Resolutions, has undertaken not to vote, and has taken all reasonable steps to ensure that its associates will not vote.”
Articles Amendments – a done deal
JZCP’s Board is seeking Shareholder approval for the Company to amend the existing Articles of Incorporation. The Articles Amendments relate to the methodology for the calculation of eligible votes for the appointment and removal of Directors in order for the Company to remain a “foreign private issuer” for US securities law purposes.
JZCP says that shareholder approval for the Articles Amendments will also be sought at the Extraordinary General Meeting of the Company but that it has received irrevocable undertakings to vote in favour of the Resolution from each of David W. Zalaznick and affiliates, John (Jay) W. Jordan II and affiliates, Edgewater, Leucadia Financial Corporation and Arnhold LLC. As these combined total 62.7% of the current issued Ordinary Share capital of the Company, this would appear to be a done deal.