K2 Inc. will purchase Fotoball USA in an all stock transaction. The agreement provides for an exchange offer of K2 common shares for Fotoball USA common shares followed by a merger in which Fotoball USA would become a wholly-owned subsidiary of K2 Inc. In the transaction, each outstanding share of Fotoball USA will be exchanged for 0.2757 shares of K2 common stock.
Based on the average closing price of K2 shares of $15.85 for the 20 trading days ending November 25, 2003, the value of the transaction is $17.2 million, or $4.37 per share for Fotoball USA shareholders, plus assumed liabilities.
The transaction, which is subject to regulatory review and other customary conditions, is to be finalized by the end of January 2004. Fotoball expects revenue of approximately $31 million for the fiscal year ended December 31, 2003. K2 indicated that it expects the transaction to be accretive to its earnings in the first
12 months following completion of the transaction and beyond.
“Fotoball has a successful franchise in marketing and
manufacturing souvenir and promotional products principally for team sports, and we are excited about the opportunity to expand that capability in all of K2's sporting goods lines,” stated Richard J. Heckmann, K2 chairman and chief executive officer. “The fit with our
Rawlings division will make both companies stronger in the
marketplace. Fotoball also has proven expertise in licensing programs which will assist us as we seek additional revenue sources for our portfolio of brands.”
Michael Favish, Fotoball chairman and chief executive officer, stated “This transaction represents a great opportunity for our shareholders, customers and licensing partners. K2's tremendous resources and powerful line-up of brands will provide a great platform from which Fotoball will realize its full potential while also
delivering tremendous synergies and opportunities for the entire K2 family.”
Under the terms of the merger agreement, K2 will first commence an exchange offer in which tendering Fotoball USA stockholders will receive 0.2757 of a share of K2 common stock for each share of Fotoball USA common stock tendered in the offer. The exchange offer, if completed, will be followed by a back-end merger for the same consideration as offered in the exchange offer. The Board of Directors
of Fotoball USA, upon the recommendation of a special committee, has approved and adopted the merger agreement and has resolved to recommend that Fotoball USA stockholders accept the offer and tender their Fotoball USA stock in the offer.
The transaction is expected to qualify as a “tax-free”
reorganization for federal income tax purposes. Consummation of the transaction is subject to the condition that there be validly tendered, and not withdrawn, at least a majority of the shares of Fotoball USA's outstanding common stock and certain shares subject to options, receipt of certain regulatory approvals and other customary conditions and termination provisions. In addition, Fotoball USA will have the ability to terminate the agreement if the average closing price for K2's shares for any ten trading days ending not later than two trading days prior to the expiration of the offer is less than
$11.78.
K2 also reaffirmed guidance for the remainder of fiscal 2003. The Company expects fourth quarter diluted earnings per share to be $0.05, assuming diluted shares outstanding of 29.3 million. On a full year basis for fiscal 2003, the Company expects earnings per share to be $0.56 on projected average diluted shares of 25.6 million.
