Skullcandy, Inc. (Nasdaq:SKUL), terminated its definitive merger agreement with Incipio LLC after the latter declined to match an unsolicited offer from Mill Road Capital Management LLC.
Under the terms of the Mill Road Merger Agreement approved by Skullcandy’s board of directors August 23, outstanding shares of common stock of Skullcandy will be exchanged for $6.35 per share in cash at the completion of the merger, or a total of approximately $196.6 million. To clear the way for the agreement, the Skullcandy board authorized paying a $6.6 million termination fee to Incipio.
“We are extremely pleased with Mill Road’s interest in partnering with Skullcandy,” said Skullcandy Inc. President and CEO Hoby Darling. “For our public stockholders, the merger represents a significant premium to the share price prior to the initial announcement of a potential strategic transaction in June. At the same time, returning to private ownership under Mill Road provides us with the flexibility and resources to continue to expand our uniquely positioned business.”
Darling added that Mill Road’s experience stewarding branded consumer companies will help accelerate the growth of the Skullcandy and Astro brands, the last of which makes headphones and other audio accessories for electronic gaming.
“We have followed Skullcandy for several years,” said Mill Road Founder Thomas Lynch. “We are impressed by how the company has grown and have the highest confidence in the company’s future. We are pleased to be able to increase our 9.8 percent ownership stake in the company.”
The purchase price pursuant to the Mill Road Merger Agreement represents approximately a 4 percent premium over the existing Incipio offer of $6.10 per share in cash and approximately a 43 percent premium over Skullcandy’s closing share price on June 22, the last trading day prior to the initial announcement of the Incipio Merger Agreement.
The transaction with Mill Road is not subject to a financing condition – a caveat that caused Skullcandy’s board to reject its original offer. Under the terms of the agreement, an affiliate of Mill Road will commence a cash tender offer to acquire Skullcandy’s outstanding shares of common stock for $6.35 per share, net to each holder in cash.
The transaction has been approved by the Skullcandy Board and Mill Road’s Investment Committee and is expected to close in the third quarter of 2016 pending routine regulatory approvals and other closing conditions.
The Mill Road Merger Agreement requires Skullcandy to cease all existing discussions and prohibits it from soliciting or participating in any additional discussions with third parties regarding alternative proposals, subject to certain exceptions.
Peter J. Solomon Company is acting as financial advisor and Latham & Watkins LLP is acting as legal advisor to Skullcandy. Foley Hoag LLP is acting as legal advisor to Mill Road and its affiliates.
