This morning, in a surprise Friday announcement, ahead of a holiday week, Act II Global Acquisition Corp. (ACTT), announced their combination with Flavors Holdings Inc., and its subsidiaries, Merisant Company (“Merisant”) and MAFCO Worldwide LLC (“MAFCO”).  Flavor Holdings Inc. is owned by affiliates of MacAndrews & Forbes Incorporated. Following the closing of the proposed transaction, it is expected that Act II will change its name to Whole Earth Brands and continue to be listed on the NASDAQ stock exchange. The combined company will have an anticipated initial enterprise value of approximately $575 million, or 8.1x the Flavors Holdings’ estimated Calendar Year 2020 Pro Forma EBITDA of $71 million. Completion of the proposed transaction is currently expected by the end of the first quarter of 2020.

As for what Merisant and MAFCO do, Merisant is a manufacturer of tabletop non-caloric sweeteners and markets its products under its flagship brands Whole Earth®, Equal®, Canderel®, and Pure Via®, while MAFCO is a manufacturer of natural licorice products. MAFCO’s natural licorice products many of which are under the Magnasweet® brand are used today in a wide range of applications including food, beverage, pharmaceutical, confectionary, cosmetic, personal care and tobacco products.

MacAndrews & Forbes, which owns Flavors Holdings, is the holding company of billionaire investor Ron Perelman, who notably also owns Revlon, among other brands.

Transaction Summary

Looking at this transaction, it will be funded through a combination of cash available in the trust, roll-over stock and debt financing. At closing, the owners of Merisant and MAFCO will receive $510 million in total consideration, consisting of $450 million in cash and 6 million shares of Class A Ordinary Shares of Act II, subject to adjustment.

In addition, at closing, the owners of Merisant and MAFCO will receive 1 million shares of Class A Ordinary Shares of Act II placed in escrow, subject to release in accordance with the terms of the definitive agreement (which hasn’t been filed as of yet). Additionally, at closing, Act II is required to have at least $170,000,000 available to it from its trust account, after redemptions and net of certain other expenses.

Furthermore, the Merisant and MAFCO owners will have the opportunity to receive incentive earnout shares totaling approximately 2.7 million shares.  They will receive:

• 1.4 million shares, if the VWAP trading price of the Class A Ordinary Shares is at or above $14 per share for 20 of any 30 day continuous trading period, and
• Approximately 1.3 million shares, if the VWAP trading price of the Class A Ordinary Shares is at or above $16 per share for 20 of any 30 day continuous trading period

Lastly, Act II has received a commitment from TD Bank to provide for the contemplated debt financing in the form of a $185 million funded Term Loan A and $50 million revolving credit facility ($5 million drawn at close).

Quick takes:  An 8-K has not been filed yet, but a presentation was made available on the Whole Earth Brands website. However, a deal announcement on a Friday, ahead of a quiet holiday week, feels a little odd (if a tree falls in a forest…). The radar starts pinging wondering if they are trying to bury this on a slow news day/week? However, Flavors Holdings seems well-suited to Irwin Simon’s leadership capabilities, having previously been the founder and former CEO of Hain Celestial. So it’s big, big plus having him in the role of Executive Chairman for the combined company. Their products are right up his alley.  However, this company (and combination) is premised on “the worldwide shift away from sugar to natural non-sugar sweeteners and products“, and as stated in their presentation, it “…is a mega trend upon which Whole Earth Brands is expected to grow.” I’m not in that camp since I dislike the taste of all the currently available sugar substitutes, but given that obesity continues to be a growing worldwide issue, there is certainly a market for these products. Regardless, the key to this transaction is Irwin Simon.  He’s got the roadmap and the template to successfully grow a brand such as this. Plus, having Mr. Irwin as Executive Chairman of “Whole Earth Brands” immediately gives this company cachet, a calling card and legitimacy.  This is why companies are generally inclined to go public through a SPAC at a discount – they’re immediately on the map via a recognizable leader in their sector. And that is worth quite a bit. As such, investors seems to like this transaction since the share jumped a little above trust value at announcement and the warrant rose to $1.20.  Having said that, a Friday announcement still feels odd.  Let’s see the details in that Super 8-K (merger agreement, etc.)

ADVISORS

• DLA Piper LLP (US) served as legal advisor to Act II for the transaction
• Goldman Sachs & Co. LLC and Moelis & Company LLC served as financial advisors to Act II
• Cantor Fitzgerald & Co. served as capital markets advisor to Act II
• Wachtell, Lipton, Rosen & Katz served as legal advisor to Flavors Holdings
• Citi acted as financial advisor to Flavors Holdings.