MGP Reaches Agreement to Sell Stake in ICP Joint Venture
28 Jun 2017 --- MGP Ingredients, Inc. have announced that it has entered into a merger agreement with an affiliate of SEACOR Holdings, Inc. and Pacific Ethanol Central, LLC that would result in a sale of its thirty percent equity ownership interest in Illinois Corn Processing, LLC (“ICP”) to Pacific Ethanol.
“The sale of ICP will enable MGP to fully focus on growing our core businesses of premium beverage alcohol and specialty ingredients products,” said Gus Griffin, president and CEO of MGP. “This transaction is another step in our strategic plan to realize the full potential of MGP for our shareholders.”
Total proceeds of $76 million will be paid in a combination of $30 million in cash and through the issuance of secured promissory notes with an aggregate principal amount of $46 million to both of the ICP members in proportion to their ownership. The purchase price is subject to customary pre- and post-closing adjustments.
The transaction is subject to customary representations, warranties and covenants, including covenants with respect to the operation of ICP prior to the closing of the merger transaction. The transaction is also subject to customary closing conditions. Guggenheim Securities LLC acted as exclusive financial advisor to Illinois Corn Processing, LLC.
MGP expects that its Board of Directors will declare a special dividend of approximately $0.85 per share of common stock outstanding, or $14.5 million in the aggregate, to occur within 30 days of closing the merger transaction. This dividend will primarily be funded from the initial cash proceeds from the sale and cash received from a dividend distribution from ICP of $6.6 million approved on June 26, 2017.
Effects of Transaction and Long Term Guidance
Income from MGP's ownership of ICP is reported as equity method investment earnings. The transaction will not affect MGP's sales or operating income, but will reduce MGP's net income by eliminating equity method investment earnings after the date of closing. For the period ending March 31, 2017, MGP reported equity method investment earnings of $471,000, or $0.02 per share. For the year ended December 31, 2016, MGP had equity method investment earnings of $4.0 million from its ownership of ICP, or $0.17 per share.
The transactions contemplated by the Merger Agreement would result in a gain on sale of equity method investment, net of tax, of approximately $8.0 million. This pro forma financial information is presented for illustrative purposes only, is based on certain assumptions that we believe are reasonable, and is not necessarily indicative of the results of the contemplated transaction.
There is no change at this time to the Company’s previously-issued guidance regarding revenue or operating income expectations. Additional details of the merger transaction can be found in the Company's Form 8-K filed with the Securities and Exchange Commission on June 27, 2017.
