Snyder's, Lance leaders found good fit

by Josh Sosland
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CHARLOTTE, N.C. — A recognition by the companies’ top executives of the very different but complementary strengths of Lance, Inc. and Snyder’s of Hanover Inc. set in motion a process culminating in a July agreement to merge the two companies. In particular, the chief executive officers recognized Snyder’s strengths as a leading salty snack company with strong brand identity and national distribution and Lance’s position as a strong cookie and cracker company with broad manufacturing capabilities.

The advantages expected to result from the merger, a thorough timeline of how the merger came to be and a detailed description of Snyder’s business and financial results are included in 373 pages of proxy documents filed Aug. 13 with the Securities and Exchange Commission. The preliminary proxy was filed in advance of special shareholder meetings to be held by each company in consideration of the merger agreement.

On July 22, Charlotte-based Lance and Hanover, Pa.-based Snyder’s announced the stock-for-stock merger agreement under which the combined company will be called Snyder’s-Lance, Inc. The merged company would have more than $1.5 billion in annual sales.

Measured by the company’s stock-price performance, Lance shareholders appear pleased with terms of the merger agreement. In Nasdaq trading, Lance shares closed Aug. 18 at $22.15 per share, up 39% from $15.88 the day before the proposed transaction was announced.

Under the merger terms, Snyder’s shareholders will receive 108.25 shares of Lance common stock for each outstanding Snyder’s share when the transaction closes. A total of 301,568 shares of Snyder’s stock was outstanding as of June 20, giving the transaction a value to the company’s shareholders of $549 million, immediately before the transaction was announced.

Lance shareholders will continue to own their existing shares but will receive a special cash dividend of $3.75 per share. On a diluted basis, 32.4 million Lance shares were outstanding as of June 20, meaning the special dividend will cost $122 million. As of June 27, Snyder’s had far greater liquidity than Lance. Cash and other short-term investments aggregated $88.4 million at Snyder’s, versus $7 million at Lance.

At the Lance special stockholders meeting, votes will be conducted on the issuance of new Lance stock for the merger, the name change and the election of new directors.

Under the merger agreement, Snyder’s of Hanover will become a wholly-owned subsidiary of Lance, which will adopt the Snyder’s-Lance, Inc. name. When the merger is completed, holders of Snyder’s common stock immediately before the merger will own 50.1% of the voting power of the combined company.

The combined company will have a 16 member board of directors, drawn primarily from the existing boards of both companies with eight from the Lance board and seven from the Snyder’s board. An additional independent director will be selected by Snyder’s subject to the approval of the combined board.

The merger agreement contains a termination fee of $25 million.

Risk factors published in the proxy and the timeline include a caution to shareholders that directors and executives of Snyder’s have interests in completing the merger that are different from Lance and Snyder’s shareholders.

“These interests include, among others, ownership interests in the combined company, continued service as a director or an executive officer of the combined company, payments and equity grants and the accelerated vesting of certain equity awards, incentive plan payments and/or certain severance benefits, in connection with the merger,” the proxy said.

In the section of the proxy devoted to risk factors, Lance said its issuance of common stock to Snyder’s shareholders would not only dilute ownership of Lance but could have other effects on control of the combined company. The proxy noted Lance is expected to issue about 35.9 million shares of Lance common stock in connection with the merger.

Following the merger, it is expected that Michael A. Warehime and Patricia A. Warehime will hold a large stake in the company, and each will serve as a member of the board of directors.

“As a result, and subject to the terms of a standstill agreement with the Warehimes, the Warehimes may be able to exercise significant influence over the combined company and certain matters requiring approval of its stockholders,” Lance said.

Under the standstill agreement, the Warehimes for three years will not acquire additional shares of the companies common stock (except exercising stock options and dividend reinvestment); will not sell their shares; and will not take steps to alter the agreed upon governance structure, including a plan to reduce the number of directors over time.

“The standstill agreement further provides that at no time may the Warehimes’ aggregate beneficial ownership exceed 30% of the issued and outstanding shares of the combined company’s common stock,” Lance said.

The proxy contains 25 reasons Lance believes the merger was worth pursuing, including:

• The expectation the merger will create a stronger national snack food company that is well positioned to compete in an increasingly competitive industry by combining Lance’s and Snyder’s complementary strengths, resulting in a wide range of established brands and products, expanded national direct-store delivery system, broader geographical sales footprint and greater sale and marketing impact;
• A conclusion by the Lance board that a larger company would be better able to weather difficult macroeconomic conditions;
• Anticipated synergies, including incremental revenues and a wide range of savings;
• Cross selling opportunities on current distribution routes;
• Access to greater resources to allow investment for future growth;
• The competitive climate of the industry, including the potential for further consolidation; and
• The prospect for the combined company to benefit from a “highly experienced management team with extensive management experience.
• Many of the other reasons cited by Lance were related to actual terms of the merger agreement, which management described as favorable for Lance stockholders and “consistent with market practice for mergers of this type.”

In its list of reasons to merge with Lance, Snyder’s offered several related to what it expects will be a stronger combined company in the marketplace as well as a number of financial benefits. The list included:

o “The ability to invest in ‘better-for-you’ new products that meet the changing desires and lifestyle of consumers,” the proxy said;
o The potential to boost advertising spending, improve and expand the D.S.D. system;
o A wider product offering for retailers;
o “Ability to challenge and compete on a more equal footing with global food companies that dominate both the salty snack category and the cookie and cracker category,” the proxy said;
o Greater access to financial markets;
o Liquidity for Snyder’s shareholders and the expectation that the merger will be a tax-free transaction.
While neither Snyder’s nor Lance normally release to the public forecasts of financial results, data for each company going forward were included in the proxy.

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