WESCO International Inc., a provider of electrical, industrial and communications MRO and OEM products, construction materials, advanced supply chain management and logistics services, and Anixter International Inc., a global distributor of network and security solutions, electrical and electronic solutions and utility power solutions, announced that their boards of directors have unanimously approved a definitive merger agreement under which WESCO will acquire Anixter in a transaction valued at approximately $4.5 billion. Anixter’s prior agreement to be acquired by Clayton, Dubilier & Rice LLC (CD&R) has been terminated, following CD&R’s waiver of its matching rights under the agreement.

Under the terms of the agreement, each share of Anixter common stock will be converted into the right to receive $70 in cash (subject to increase as described below), 0.2397 shares of WESCO common stock and preferred stock consideration valued at $15.89, based on the value of its liquidation preference. Based on the closing price of WESCO's common stock on Jan. 10, 2020 and the liquidation preference of the WESCO preferred stock consideration, the total consideration represents approximately $100 per Anixter share, giving effect to the downside protection described below. Based on transaction structure and the number of shares of WESCO and Anixter common stock currently outstanding, it is anticipated that WESCO stockholders will own 84 percent, and Anixter stockholders 16 percent, of the combined company.

John J. Engel, WESCO's chairman, president and chief executive officer, said, “The transformational combination of WESCO and Anixter will create a premier electrical and data communications distribution and supply chain services company. With increased scale and complementary capabilities, we will be ideally positioned to digitize our business, expand our extensive services portfolio and supply chain offerings, and deliver solutions to our customers whenever and wherever they need them around the globe. Given the enhanced strategic profile and competitiveness of the combined company, we are confident we will deliver improved growth and earnings, and exceptional cash flow generation. We look forward to welcoming Anixter’s talented associates to the WESCO team as we embark on this next chapter and create substantial value for our stockholders, customers, suppliers and people.”

“This is the result of a very thorough process to determine the value of our company,” said Bill Galvin, Anixter's president and chief executive officer. “It's also a recognition of the enormous value created by our talented people, Anixter's deep industry relationships, innovative technology solutions and global reach. Looking ahead, the combination with WESCO will allow the combined company to build on our complementary capabilities and create new ways to serve customers and partners.”

Strategic and Financial Rationale For the Merger According to Anixter:

• Enhances Scale and Global Position. The combined company will have pro forma 2019E revenues of approximately $17 billion and will be a leading electrical and data communications distributor in North America. With an extensive global reach and increased international exposure, approximately 12 percent of revenues will be generated outside of North America. The increased scale will enable the combined company to accelerate digitization strategies and provide a platform for growth in attractive emerging markets.
• Broadens and Diversifies Product and Services Portfolio. The combined company will have a comprehensive and balanced portfolio that unites WESCO’s capabilities in industrial, construction and utility with Anixter’s expertise in data communications, security and wire and cable. Bringing together the companies’ complementary products, services, technologies and solutions is expected to create significant cross-selling opportunities, strengthening the combined company’s customer value proposition and supplier relationships.
• Delivers Substantial Synergies. WESCO expects to realize annualized run-rate cost synergies of over $200 million by the end of year three through efficiencies in corporate and regional overhead, including duplicative public company costs, branch and distribution center optimization, and productivity in procurement, field operations, and supply chain. In addition, WESCO expects incremental sales growth opportunities to result by cross-selling the companies’ complementary product and services offerings to an expanded customer base and capitalizing on the enhanced capabilities across both networks.
• Provides Immediate Earnings Accretion and Significant Free Cash Flow Generation. The combination is expected to be accretive to WESCO’s earnings in the first full year of ownership and, with the realization of synergies, substantially accretive thereafter. WESCO also expects the transaction to generate significant margin expansion and EPS growth. The combined company will have strong free cash flow generation, supporting continued investments in the business and enabling a return of capital to stockholders in the future.
• Ability to Rapidly De-Lever. At closing, WESCO estimates that its pro forma leverage on a net debt to EBITDA basis will be approximately 4.5x. WESCO intends to utilize the strength of the combined company’s cash flows, including significant synergies, to reduce its leverage quickly and ultimately intends to be within its long-term target leverage range of 2.0x to 3.5x within 24 months post-close.

Under the terms of the merger agreement, WESCO may elect to substitute additional cash consideration to reduce the amount of the preferred stock consideration on a dollar-for-dollar basis based on the value of the liquidation preference of the preferred stock consideration.

WESCO has obtained fully committed debt financing from Barclays and intends to offer a combination of debt, equity and equity-content securities between signing and closing to fund the required cash consideration of the transaction. At closing, WESCO estimates that its pro forma leverage on a net debt to EBITDA basis will be approximately 4.5x.

The transaction is subject to Anixter stockholder approval, receipt of regulatory approval in the United States, Canada and certain other foreign jurisdictions, as well as other customary closing conditions. WESCO and Anixter currently anticipate completing the transaction during the second or third quarter of 2020.

Entities associated with Sam Zell, chairman of the Anixter board, which own approximately 10.8 percent of the outstanding shares of Anixter common stock, have entered into a voting agreement with WESCO, pursuant to which they have agreed, among other things, to vote their shares of Anixter common stock in favor of the merger.

Barclays is serving as financial advisor to WESCO, and Wachtell, Lipton, Rosen & Katz is serving as legal advisor.

Centerview Partners LLC is serving as lead financial advisor and Wells Fargo Securities LLC is also serving as financial advisor to Anixter. Sidley Austin LLP is serving as legal advisor.