Total Merchant Ltd. to purchase Metalico

The board of directors for Cranford, New Jersey-based Metalico Inc., which operates scrap metal recycling facilities primarily in the eastern Great Lakes corridor, has agreed to sell the company to Total Merchant Ltd. for a total purchase price of approximately $87 million.

According to a news release issued by Metalico, the all-cash deal includes a payment of 60 cents to Metalico’s stockholders for each share of the company’s common stock they own as of the closing date. The price includes roughly $44 million for Metalico’s outstanding equity plus the cost of retiring the company’s primary term and institutional senior and convertible debt, estimated at approximately $45 million, and the assumption of approximately $16 million of additional debt as of June 15, 2015.

Total Merchant is an investment vehicle seeking opportunities in the U.S. metals and commodities market. Total Merchant is controlled by Chung Sheng Huang, the chairman of the board and managing director of Ye Chiu Group, a leading recycler and producer of aluminum and aluminum alloys and a prominent Asian scrap metal recycler with facilities in China and Malaysia.

Under the terms of the merger agreement, Metalico reports, a subsidiary of Total Merchant will merge with Metalico, making Metalico a wholly owned subsidiary of Total Merchant. The merger is subject to certain closing conditions, including approval of the merger agreement by holders of a majority of Metalico’s outstanding common stock and other customary conditions. However, no regulatory approval is required, the company says.

The transaction is expected to close in the third quarter of 2015; however, the dates for Metalico’s stockholder meeting to vote on the agreement and for closing the merger have not yet been determined. The merger agreement has a termination date of Sept. 21, 2015, however, and Metalico says it has agreed with its senior lenders that the deal should be completed by Aug. 31, 2015.

Under the terms of the agreement, Metalico says it has agreed not to solicit alternative proposals for acquisition. However, Metalico can consider unsolicited proposals pursuant to the exercise of its board of directors’ fiduciary duties, with Total Merchant having customary rights to match any proposal.

If Metalico terminates the deal to accept a different proposal, it would be required to pay Total Merchant a termination fee of roughly $2.2 million (corresponding to 3.6 percent of the value of the fully diluted equity). In addition, Total Merchant has agreed to a penalty of just over $3 million (corresponding to 5 percent of the fully-diluted equity) if it fails to close the transaction, assuming all closing conditions have been satisfied.

Metalico says Total Merchant also has indicated that it intends to retain Metalico’s management and all other personnel.

Metalico says its board has been investigating and evaluating strategic alternatives for the company’s future since early January. The directors chose Total Merchant’s offer after a review of several strategies, including continued independence as a public corporation, combinations or joint ventures with suitable partners or investors, sales of assets, sale of the company and analyses of several bids, including solicited and unsolicited proposals from competitors, industrial concerns and strategic investors.

Metalico’s investment bank, Gordian Group LLC, in-house counsel and Lowenstein Sandler LLP are advising the company on the transaction, while Total Merchant’s counsel, K&L Gates LLP, and RPA Advisors, are advising that company.

Metalico and its subsidiaries operate ferrous and nonferrous recycling facilities, including platinum group metals (PGM) and minor metals recycling facilities. Its operations, which include three automobile shredders, are in New York, Pennsylvania, Ohio, West Virginia, New Jersey and Mississippi.