SPECIAL FACTORS. BACKGROUND OF THE MERGER During the first quarter of calendar 1998, management and the Instron Board began to actively consider the various alternatives by which Instron might enhance long-term shareholder value. In connection with its review, management and the Instron Board noted the limited public trading volume of the Instron Common Stock on AMEX, as evidenced by the fact that the average monthly trading volume on AMEX between July 1, 1997 and March 31, 1998 was approximately 138,500 shares. Moreover, they noted that the public float of the Instron Common Stock had never exceeded $100 million due in part to the significant ownership of shares held by the executive officers and directors of Instron (approximately 20%). Based on the foregoing, the Instron Board and management believed that the Instron Common Stock was an illiquid security and that this illiquidity had an adverse effect on the trading price of the Instron Common Stock. Accordingly, in the second calendar quarter of 1998, the Instron Board sought to engage a financial advisor to render advice to the Instron Board concerning options for all Instron stockholders to achieve greater liquidity and other alternatives which might enhance shareholder value. The Instron Board did not base any part of this decision on the liquidity concerns of any particular Instron stockholders, including without limitation, Georxx X. Xxxx xxx Haroxx Xxxxxxx xx any of the other executive officers or directors of Instron. On June 8, 1998, representatives of The Beacon Group met with Jamex X. XxXxxxxxx, xxe Chief Executive Officer and President of Instron, and Lintxx X. Xxxlding, the Chief Financial Officer of Instron, and discussed in general terms various alternatives pursuant to which Instron might enhance shareholder value and create options for increasing stockholder liquidity. The alternatives outlined by The Beacon Group included (i) acquiring strategic businesses or assets that would add to or strengthen Instron's core businesses, (ii) divesting or spinning off certain of Instron's non-core businesses, (iii) entering into joint ventures and strategic alliances and (iv) a potential sale of Instron. The Beacon Group also reviewed with Messrs. McCoxxxxx xxx Moulding the processes involved if the company were to pursue the various alternatives and the advisability and feasibility of pursuing a particular alternative. In addition to meeting with The Beacon Group, Messrs. McCoxxxxx xxx Moulding met with other investment banking firms in June 1998 to assess the desirability of engaging a particular firm to assist the Instron Board in evaluating strategic alternatives. On June 30, 1998, the Executive Committee of the Instron Board (the "Executive Committee"), which consisted of Mr. XxXxxxxxx, Xxroxx Xxxxxxx, xxe Chairman of the Instron Board, and Richxxx X. Xxxxx, xxt to review and discuss proposals from the three investment banking firms with whom Messrs. McCoxxxxx xxx Moulding had met. At this meeting, the Executive Committee recommended that the Instron Board retain The Beacon Group to assist the Instron Board in exploring and considering strategic alternatives. Thereafter, on July 10, 1998, the Instron Board retained The Beacon Group to act as its financial and strategic advisor. On July 13, 1998, representatives of The Beacon Group met with senior management of Instron, including Messrs. McCoxxxxx xxx Moulding, to discuss the process by which The Beacon Group would assist the Instron Board in evaluating strategic alternatives. At this meeting, The Beacon Group indicated that it would first need to conduct financial and other due diligence concerning Instron and its business and operations. The representatives of The Beacon Group advised Instron's management that, following completion of such due diligence, The Beacon Group would present to the Instron Board an analysis of the strategic alternatives available to Instron and The Beacon Group's assessment of the alternative or alternatives that were most likely to enhance shareholder value and provide stockholders with increased liquidity. On August 11, 1998, the Instron Board held a meeting at which representatives of The Beacon Group advised the Instron Board with respect to a range of strategic alternatives that might be available to Instron to enhance shareholder value and provide stockholders with greater liquidity. These alternatives included, among other things, (i) remaining an independent company and continuing to pursue Instron's operating and business strategy, which included the acquisition of strategic businesses or assets that would add to or strengthen Instron's core businesses, (ii) divesting Instron's non-core businesses through asset sales or spin-off transactions, (iii) undertaking a share repurchase program, (iv) entering into joint ventures and other strategic alliances and (v) selling the Company. The Beacon Group described certain criteria used by it to evaluate these strategic alternatives, which included, among others: preliminary indications of the value that might be received by Instron stockholders based on various analyses (including an analysis of comparable companies, an analysis of comparable mergers and acquisitions transactions, various discounted cash flow analyses and a leveraged recapitalization analysis); the ability of Instron to sustain growth given its current assets, size and market capitalization; the stability of Instron's income stream; the liquidity available to Instron stockholders from various strategic alternatives; and the certainty of and risks involved in consummating various potential transactions. The Beacon Group then noted that a number of the alternatives discussed were not likely to be effective in enhancing shareholder value or providing liquidity to the Instron stockholders. In particular, The Beacon Group noted that because Instron's non-core businesses were small and their divestiture would be unlikely to have a material effect on Instron's market value, divestitures of non-core businesses was not an alternative likely to enhance shareholder value or provide liquidity to the Instron stockholders. The Beacon Group likewise noted that spin-offs of non-core businesses would not likely be a viable alternative because none of Instron's non-core businesses were large enough to be stand-alone public companies. With respect to joint ventures, The Beacon Group noted that within the materials and structural testing systems industry the opportunities for joint ventures and other strategic alliances were limited. The Beacon Group also noted that a share repurchase program was not an attractive alternative because it would only exacerbate the illiquidity of the Instron Common Stock. In reviewing potential alternatives at the August 11, 1998 Instron Board meeting, The Beacon Group noted that while acquiring strategic businesses or assets that could add to or strengthen Instron's core businesses would not address stockholder liquidity concerns, Instron had been successful to date in executing that operating and business strategy. The Beacon Group also noted that Instron could continue to focus on add-on acquisitions where it could leverage its market position to reduce costs and increase efficiency. However, The Beacon Group explained that, based on its discussions with Instron's management, it believed that in view of the markets in which the company operated, in the future there would likely be fewer attractive acquisition candidates and that enhancing shareholder value by maintaining the status quo and pursuing add-on acquisitions was inherently risky. The Beacon Group also discussed the strategy of engaging in a sizable acquisition, which it believed had the potential, among other things, to diversify Instron's revenue mix, leverage and strengthen Instron's distribution network with broader product offerings and increase revenue and cash flow. However, The Beacon Group noted that undertaking such a significant acquisition would expose Instron to excessive financial and operating risks associated with the execution of such a transaction, particularly in view of the substantial management resources that would be required to be devoted to such an acquisition. At the August 11, 1998 Instron Board meeting, The Beacon Group explained to the Instron Board that The Beacon Group had conducted a number of very preliminary analyses to attempt to quantify the potential relative values to Instron's stockholders of the following alternatives: (i) remaining an independent company and continuing to pursue Instron's current strategies (the "status quo" alternative), (ii) undertaking a significant acquisition, and (iii) undertaking various other transactions that would result in the sale of Instron, including a merger pursuant to which the Instron stockholders would receive cash, a stock-for-stock merger with a publicly traded company engaged in a business related to one or more of Instron's businesses (a "strategic buyer") or a leveraged recapitalization merger with a financial buyer engaged in the business of pursuing investment opportunities (a "financial buyer"). To undertake these very preliminary relative value analyses, The Beacon Group relied, without independent verification, on management's then current forecasts for the period 1998 to 2002, which projected net sales and EBITDA of $222.2 million and $25.0 million, respectively, for 1998 (pro forma for Instron's acquisitions of Satec Systems, Inc. and the remaining interest in Instron Schexxx Xxxting Systems) and $266.1 million and $35.5 million for 2002, respectively. The Beacon Group also relied, without independent verification, on research analysts' projections for both a selected representative significant acquisition candidate and a selected representative merger partner in analyzing these alternatives. Based on a number of assumptions, the merger and financing market conditions prevailing at the time, and the then current trading multiples of selected comparable companies, particularly MTS Systems Corporation, Instron's principal competitor, The Beacon Group's preliminary analyses derived theoretical per share value ranges of the Instron Common Stock for each of the alternatives listed above for the purpose of providing the Instron Board with some basis to compare them relative to one another. The Beacon Group calculated the theoretical implied per share value of the Instron Common Stock to range from $21.46 to $24.55 and $20.61 to $27.43 for the status quo and significant acquisition alternatives, respectively. The Beacon Group calculated the potential per share values of the Instron Common Stock in a transaction involving the sale of Instron to range from $26.00, based primarily on a leveraged recapitalization analysis and the favorable financing markets prevailing for such transactions at the time, to $32.00 in a sale to a strategic buyer, based primarily on an analysis of reasonably comparable mergers and acquisitions transactions and a discounted cash flow analysis. The Beacon Group noted that this range of potential per share values relied heavily on the assumption that a number of strategic buyers would be interested in acquiring Instron at a valuation in line with, or at a premium to, values implied by MTS Systems Corporation's Aggregate Value to LTM EBITDA multiple of 8.4x, given MTS Systems Corporation's position as Instron's closest publicly traded comparable company in terms of markets served. In addition, The Beacon Group noted that the theoretical per share value of the Instron Common Stock could be substantially higher than this range if a merger with a competitor were effected for stock and if the combined company were able to achieve very significant cost savings. However, The Beacon Group also noted that such cost savings are often very difficult to realize in practice and that Instron's stockholders would have to bear the risk that they are not achieved for some time and ultimately reflected in the price of the merged entity's stock. Further, The Beacon Group noted that a merger with such significant cost savings would likely be available with only the very limited number of companies within Instron's industry. Based on the foregoing analyses, The Beacon Group recommended that, in order to enhance shareholder value and provide liquidity to stockholders, the Instron Board should consider exploring a potential sale of the company pursuant to a cash merger, a stock-for-stock merger or a leveraged recapitalization transaction, which, The Beacon Group noted, could all be pursued in the context of the same process. Following the presentation by The Beacon Group, the Instron Board engaged in a discussion concerning the various alternatives outlined by The Beacon Group that concluded with the Instron Board adopting The Beacon Group's findings and recommendations. Accordingly, the Instron Board determined that a potential sale of Instron was the alternative that would most likely allow Instron to satisfy the objectives of increasing shareholder value and providing liquidity to all of the Instron stockholders. Following the Instron Board's decision to explore a potential sale of the Company, The Beacon Group recommended at the August 11, 1998 Instron Board meeting that Instron implement a multi-step process in order to solicit potential bids. The first step would be a broad marketing effort designed to attract as wide and competitive a field of interested parties as possible. The second step would be to seek more specific proposals from a smaller group of interested parties, whose offers would be evaluated based upon such criteria as price, form of consideration and certainty of consummation of a transaction. Pursuant to this bidding process, the smaller group of interested parties would submit competing proposals to acquire Instron or its assets. As the third step, Instron would enter into exclusive negotiations concerning a definitive agreement with the party whose bid would be most likely to provide the best value for the Instron stockholders. According to The Beacon Group, this process was preferable to other alternatives, such as negotiating only with one party throughout the process, because in a competitive bidding process parties were more likely to submit their highest bid to avoid being outbid by a competing party. Thus, in the opinion of The Beacon Group, this multi-step process was most likely to increase the amount of consideration to be received by the Instron stockholders. Following this discussion, the Instron Board decided to adopt The Beacon Group's recommendation to solicit interest from potential acquirors using a multi-step process designed to result in competitive bidding for the Company. The Instron Board also authorized management, with the assistance of Instron's financial and legal advisors, to prepare a confidential information package for distribution to potential buyers and to enter into confidentiality agreements with potential buyers. In connection with authorizing the solicitation of bids, the Instron Board did not make it a condition to any potential transaction that current management maintain an equity interest in Instron following such transaction.
Appears in 2 contracts
Samples: Agreement and Plan of Merger (Instron Corp), Agreement and Plan of Merger (Instron Corp)
SPECIAL FACTORS. BACKGROUND OF THE MERGER During the first quarter of calendar 1998, management and the Instron Board began to actively consider the various alternatives by which Instron might enhance long-term shareholder value. In connection with its review, management and the Instron Board noted the limited public trading volume of the Instron Common Stock on AMEX, as evidenced by the fact that the average monthly trading volume on AMEX between July 1, 1997 and March 31, 1998 was approximately 138,500 shares. Moreover, they noted that the public float of the Instron Common Stock had never exceeded $100 million due in part to the significant ownership of shares held by the executive officers and directors of Instron (approximately 20%). Based on the foregoing, the Instron Board and management believed that the Instron Common Stock was an illiquid security and that this illiquidity had an adverse effect on the trading price of the Instron Common Stock. Accordingly, in the second calendar quarter of 1998, the Instron Board sought to engage a financial advisor to render advice to the Instron Board concerning options for all Instron stockholders to achieve greater liquidity and other alternatives which might enhance shareholder value. The Instron Board did not base any part of this decision on the liquidity concerns of any particular Instron stockholders, including without limitation, Georxx X. Xxxx xxx Haroxx Xxxxxxx xx any of the other executive officers or directors of Instron. On June 8, 1998, representatives of The Beacon Group met with Jamex X. XxXxxxxxx, xxe Chief Executive Officer and President of Instron, and Lintxx X. Xxxlding, the Chief Financial Officer of Instron, and discussed in general terms various alternatives pursuant to which Instron might enhance shareholder value and create options for increasing stockholder liquidity. The alternatives outlined by The Beacon Group included (i) acquiring strategic businesses or assets that would add to or strengthen Instron's core businesses, (ii) divesting or spinning off certain of Instron's non-core businesses, (iii) entering into joint ventures and strategic alliances and (iv) a potential sale of Instron. The Beacon Group also reviewed with Messrs. McCoxxxxx xxx Moulding the processes involved if the company were to pursue the various alternatives and the advisability and feasibility of pursuing a particular alternative. In addition to meeting with The Beacon Group, Messrs. McCoxxxxx xxx Moulding met with other investment banking firms in June 1998 to assess the desirability of engaging a particular firm to assist the Instron Board in evaluating strategic alternatives. On June 30, 1998, the Executive Committee of the Instron Board (the "Executive Committee"), which consisted of Mr. XxXxxxxxx, Xxroxx Xxxxxxx, xxe Chairman of the Instron Board, and Richxxx X. Xxxxx, xxt to review and discuss proposals from the three investment banking firms with whom Messrs. McCoxxxxx xxx Moulding had met. At this meeting, the Executive Committee recommended that the Instron Board retain The Beacon Group to assist the Instron Board in exploring and considering strategic alternatives. Thereafter, on July 10, 1998, the Instron Board retained The Beacon Group to act as its financial and strategic advisor. On July 13, 1998, representatives of The Beacon Group met with senior management of Instron, including Messrs. McCoxxxxx xxx Moulding, to discuss the process by which The Beacon Group would assist the Instron Board in evaluating strategic alternatives. At this meeting, The Beacon Group indicated that it would first need to conduct financial and other due diligence concerning Instron and its business and operations. The representatives of The Beacon Group advised Instron's management that, following completion of such due diligence, The Beacon Group would present to the Instron Board an analysis of the strategic alternatives available to Instron and The Beacon Group's assessment of the alternative or alternatives that were most likely to enhance shareholder value and provide stockholders with increased liquidity. On August 11, 1998, the Instron Board held a meeting at which representatives of The Beacon Group advised the Instron Board with respect to a range of strategic alternatives that might be available to Instron to enhance shareholder value and provide stockholders with greater liquidity. These alternatives included, among other things, (i) remaining an independent company and continuing to pursue Instron's operating and business strategy, which included the acquisition of strategic businesses or assets that would add to or strengthen Instron's core businesses, (ii) divesting Instron's non-core businesses through asset sales or spin-off transactions, (iii) undertaking a share repurchase program, (iv) entering into joint ventures and other strategic alliances and (v) selling the Company. The Beacon Group described certain criteria used by it to evaluate these strategic alternatives, which included, among others: preliminary indications of the value that might be received by Instron stockholders based on various analyses (including an analysis of comparable companies, an analysis of comparable mergers and acquisitions transactions, various discounted cash flow analyses and a leveraged recapitalization analysis); the ability of Instron to sustain growth given its current assets, size and market capitalization; the stability of Instron's income stream; the liquidity available to Instron stockholders from various strategic alternatives; and the certainty of and risks involved in consummating various potential transactions. The Beacon Group then noted that a number of the alternatives discussed were not likely to be effective in enhancing shareholder value or providing liquidity to the Instron stockholders. In particular, The Beacon Group noted that because Instron's non-core businesses were small and their divestiture would be unlikely to have a material effect on Instron's market value, divestitures of non-core businesses was not an alternative likely to enhance shareholder value or provide liquidity to the Instron stockholders. The Beacon Group likewise noted that spin-offs of non-core businesses would not likely be a viable alternative because none of Instron's non-core businesses were large enough to be stand-alone public companies. With respect to joint ventures, The Beacon Group noted that within the materials and structural testing systems industry the opportunities for joint ventures and other strategic alliances were limited. The Beacon Group also noted that a share repurchase program was not an attractive alternative because it would only exacerbate the illiquidity of the Instron Common Stock. In reviewing potential alternatives at the August 11, 1998 Instron Board meeting, The Beacon Group noted that while acquiring strategic businesses or assets that could add to or strengthen Instron's core businesses would not address stockholder liquidity concerns, Instron had been successful to date in executing that operating and business strategy. The Beacon Group also noted that Instron could continue to focus on add-on acquisitions where it could leverage its market position to reduce costs and increase efficiency. However, The Beacon Group explained that, based on its discussions with Instron's management, it believed that in view of the markets in which the company operated, in the future there would likely be fewer attractive acquisition candidates and that enhancing shareholder value by maintaining the status quo and pursuing add-on acquisitions was inherently risky. The Beacon Group also discussed the strategy of engaging in a sizable acquisition, which it believed had the potential, among other things, to diversify Instron's revenue mix, leverage and strengthen Instron's distribution network with broader product offerings and increase revenue and cash flow. However, The Beacon Group noted that undertaking such a significant acquisition would expose Instron to excessive financial and operating risks associated with the execution of such a transaction, particularly in view of the substantial management resources that would be required to be devoted to such an acquisition. At the August 11, 1998 Instron Board meeting, The Beacon Group explained to the Instron Board that The Beacon Group had conducted a number of very preliminary analyses to attempt to quantify the potential relative values to Instron's stockholders of the following alternatives: (i) remaining an independent company and continuing to pursue Instron's current strategies (the "status quo" alternative), (ii) undertaking a significant acquisition, and (iii) undertaking various other transactions that would result in the sale of Instron, including a merger pursuant to which the Instron stockholders would receive cash, a stock-for-stock merger with a publicly traded company engaged in a business related to one or more of Instron's businesses (a "strategic buyer") or a leveraged recapitalization merger with a financial buyer engaged in the business of pursuing investment opportunities (a "financial buyer"). To undertake these very preliminary relative value analyses, The Beacon Group relied, without independent verification, on management's then current forecasts for the period 1998 to 2002, which projected net sales and EBITDA of $222.2 million and $25.0 million, respectively, for 1998 (pro forma for Instron's acquisitions of Satec Systems, Inc. and the remaining interest in Instron Schexxx Xxxting Systems) and $266.1 million and $35.5 million for 2002, respectively. The Beacon Group also relied, without independent verification, on research analysts' projections for both a selected representative significant acquisition candidate and a selected representative merger partner in analyzing these alternatives. Based on a number of assumptions, the merger and financing market conditions prevailing at the time, and the then current trading multiples of selected comparable companies, particularly MTS Systems Corporation, Instron's principal competitor, The Beacon Group's preliminary analyses derived theoretical per share value ranges of the Instron Common Stock for each of the alternatives listed above for the purpose of providing the Instron Board with some basis to compare them relative to one another. The Beacon Group calculated the theoretical implied per share value of the Instron Common Stock to range from $21.46 to $24.55 and $20.61 to $27.43 for the status quo and significant acquisition alternatives, respectively. The Beacon Group calculated the potential per share values of the Instron Common Stock in a transaction involving the sale of Instron to range from $26.00, based primarily on a leveraged recapitalization analysis and the favorable financing markets prevailing for such transactions at the time, to $32.00 in a sale to a strategic buyer, based primarily on an analysis of reasonably comparable mergers and acquisitions transactions and a discounted cash flow analysis. The Beacon Group noted that this range of potential per share values relied heavily on the assumption that a number of strategic buyers would be interested in acquiring Instron at a valuation in line with, or at a premium to, values implied by MTS Systems Corporation's Aggregate Value to LTM EBITDA multiple of 8.4x, given MTS Systems Corporation's position as Instron's closest publicly traded comparable company in terms of markets served. In addition, The Beacon Group noted that the theoretical per share value of the Instron Common Stock could be substantially higher than this range if a merger with a competitor were effected for stock and if the combined company were able to achieve very significant cost savings. However, The Beacon Group also noted that such cost savings are often very difficult to realize in practice and that Instron's stockholders would have to bear the risk that they are not achieved for some time and ultimately reflected in the price of the merged entity's stock. Further, The Beacon Group noted that a merger with such significant cost savings would likely be available with only the very limited number of companies within Instron's industry. Based on the foregoing analyses, The Beacon Group recommended that, in order to enhance shareholder value and provide liquidity to stockholders, the Instron Board should consider exploring a potential sale of the company pursuant to a cash merger, a stock-for-stock merger or a leveraged recapitalization transaction, which, The Beacon Group noted, could all be pursued in the context of the same process. Following the presentation by The Beacon Group, the Instron Board engaged in a discussion concerning the various alternatives outlined by The Beacon Group that concluded with the Instron Board adopting The Beacon Group's findings and recommendations. Accordingly, the Instron Board determined that a potential sale of Instron was the alternative that would most likely allow Instron to satisfy the objectives of increasing shareholder value and providing liquidity to all of the Instron stockholders. Following the Instron Board's decision to explore a potential sale of the Company, The Beacon Group recommended at the August 11, 1998 Instron Board meeting that Instron implement a multi-step process in order to solicit potential bids. The first step would be a broad marketing effort designed to attract as wide and competitive a field of interested parties as possible. The second step would be to seek more specific proposals from a smaller group of interested parties, whose offers would be evaluated based upon such criteria as price, form of consideration and certainty of consummation of a transaction. Pursuant to this bidding process, the smaller group of interested parties would submit competing proposals to acquire Instron or its assets. As the third step, Instron would enter into exclusive negotiations concerning a definitive agreement with the party whose bid would be most likely to provide the best value for the Instron stockholders. According to The Beacon Group, this process was preferable to other alternatives, such as negotiating only with one party throughout the process, because in a competitive bidding process parties were more likely to submit their highest bid to avoid being outbid by a competing party. Thus, in the opinion of The Beacon Group, this multi-step process was most likely to increase the amount of consideration to be received by the Instron stockholders. Following this discussion, the Instron Board decided to adopt The Beacon Group's recommendation to solicit interest from potential acquirors using a multi-step process designed to result in competitive bidding for the Company. The Instron Board also authorized management, with the assistance of Instron's financial and legal advisors, to prepare a confidential information package for distribution to potential buyers and to enter into confidentiality agreements with potential buyers. In connection with authorizing the solicitation of bids, the Instron Board did not make it a condition to any potential transaction that current management maintain an equity interest in Instron following such transaction.bidding
Appears in 1 contract
SPECIAL FACTORS. BACKGROUND OF THE MERGER During the first quarter of calendar 1998, management and the Instron Board began to actively consider the various alternatives by which Instron might enhance long-term shareholder value. In connection with its review, management and the Instron Board noted the limited public trading volume of the Instron Common Stock on AMEX, as evidenced by the fact that the average monthly trading volume on AMEX between July 1, 1997 and March 31, 1998 was approximately 138,500 shares. Moreover, they noted that the public float of the Instron Common Stock had never exceeded $100 million due in part to the significant ownership of shares held by the executive officers and directors of Instron (approximately 20%). Based on the foregoing, the Instron Board and management believed that the Instron Common Stock was an illiquid security and that this illiquidity had an adverse effect on the trading price of the Instron Common Stock. Accordingly, in the second calendar quarter of 1998, the Instron Board sought to engage a financial advisor to render advice to the Instron Board concerning options for all Instron stockholders to achieve greater liquidity and other alternatives which might enhance shareholder value. The Instron Board did not base any part of this decision on the liquidity concerns of any particular Instron stockholders, including without limitation, Georxx X. Xxxx xxx Haroxx Xxxxxxx xx any of the other executive officers or directors of Instron. On June 8, 1998, representatives of The Beacon Group met with Jamex X. XxXxxxxxx, xxe Chief Executive Officer and President of Instron, and Lintxx X. Xxxlding, the Chief Financial Officer of Instron, and discussed in general terms various alternatives pursuant to which Instron might enhance shareholder value and create options for increasing stockholder liquidity. The alternatives outlined by The Beacon Group included (i) acquiring strategic businesses or assets that would add to or strengthen Instron's core businesses, (ii) divesting or spinning off certain of Instron's non-core businesses, (iii) entering into joint ventures and strategic alliances and (iv) a potential sale of Instron. The Beacon Group also reviewed with Messrs. McCoxxxxx xxx Moulding the processes involved if the company were to pursue the various alternatives and the advisability and feasibility of pursuing a particular alternative. In addition to meeting with The Beacon Group, Messrs. McCoxxxxx xxx Moulding met with other investment banking firms in June 1998 to assess the desirability of engaging a particular firm to assist the Instron Board in evaluating strategic alternatives. On June 30, 1998, the Executive Committee of the Instron Board (the "Executive Committee"), which consisted of Mr. XxXxxxxxx, Xxroxx Xxxxxxx, xxe Chairman of the Instron Board, and Richxxx X. Xxxxx, xxt to review and discuss proposals from the three investment banking firms with whom Messrs. McCoxxxxx xxx Moulding had met. At this meeting, the Executive Committee recommended that the Instron Board retain The Beacon Group to assist the Instron Board in exploring and considering strategic alternatives. Thereafter, on July 10, 1998, the Instron Board retained The Beacon Group to act as its financial and strategic advisor. On July 13, 1998, representatives of The Beacon Group met with senior management of Instron, including Messrs. McCoxxxxx xxx Moulding, to discuss the process by which The Beacon Group would assist the Instron Board in evaluating strategic alternatives. At this meeting, The Beacon Group indicated that it would first need to conduct financial and other due diligence concerning Instron and its business and operations. The representatives of The Beacon Group advised Instron's management that, following completion of such due diligence, The Beacon Group would present to the Instron Board an analysis of the strategic alternatives available to Instron and The Beacon Group's assessment of the alternative or alternatives that were most likely to enhance shareholder value and provide stockholders with increased liquidity. On August 11, 1998, the Instron Board held a meeting at which representatives of The Beacon Group advised the Instron Board with respect to a range of strategic alternatives that might be available to Instron to enhance shareholder value and provide stockholders with greater liquidity. These alternatives included, among other things, (i) remaining an independent company and continuing to pursue Instron's operating and business strategy, which included the acquisition of strategic businesses or assets that would add to or strengthen Instron's core businesses, (ii) divesting Instron's non-core businesses through asset sales or spin-off transactions, (iii) undertaking a share repurchase program, (iv) entering into joint ventures and other strategic alliances and (v) selling the Company. The Beacon Group described certain criteria used by it to evaluate these strategic alternatives, which included, among others: preliminary indications of the value that might be received by Instron stockholders based on various analyses (including an analysis of comparable companies, an analysis of comparable mergers and acquisitions transactions, various discounted cash flow analyses and a leveraged recapitalization analysis); the ability of Instron to sustain growth given its current assets, size and market capitalization; the stability of Instron's income stream; the liquidity available to Instron stockholders from various strategic alternatives; and the certainty of and risks involved in consummating various potential transactions. The Beacon Group then noted that a number of the alternatives discussed were not likely to be effective in enhancing shareholder value or providing liquidity to the Instron stockholders. In particular, The Beacon Group noted that because Instron's non-core businesses were small and their divestiture would be unlikely to have a material effect on Instron's market value, divestitures of non-core businesses was not an alternative likely to enhance shareholder value or provide liquidity to the Instron stockholders. The Beacon Group likewise noted that spin-offs of non-core businesses would not likely be a viable alternative because none of Instron's non-core businesses were large enough to be stand-alone public companies. With respect to joint ventures, The Beacon Group noted that within the materials and structural testing systems industry the opportunities for joint ventures and other strategic alliances were limited. The Beacon Group also noted that a share repurchase program was not an attractive alternative because it would only exacerbate the illiquidity of the Instron Common Stock. In reviewing potential alternatives at the August 11, 1998 Instron Board meeting, The Beacon Group noted that while acquiring strategic businesses or assets that could add to or strengthen Instron's core businesses would not address stockholder liquidity concerns, Instron had been successful to date in executing that operating and business strategy. The Beacon Group also noted that Instron could continue to focus on add-on acquisitions where it could leverage its market position to reduce costs and increase efficiency. However, The Beacon Group explained that, based on its discussions with Instron's management, it believed that in view of the markets in which the company operated, in the future there would likely be fewer attractive acquisition candidates and that enhancing shareholder value by maintaining the status quo and pursuing add-on acquisitions was inherently risky. The Beacon Group also discussed the strategy of engaging in a sizable acquisition, which it believed had the potential, among other things, to diversify Instron's revenue mix, leverage and strengthen Instron's distribution network with broader product offerings and increase revenue and cash flow. However, The Beacon Group noted that undertaking such a significant acquisition would expose Instron to excessive financial and operating risks associated with the execution of such a transaction, particularly in view of the substantial management resources that would be required to be devoted to such an acquisition. At the August 11, 1998 Instron Board meeting, The Beacon Group explained to the Instron Board that The Beacon Group had conducted a number of very preliminary analyses to attempt to quantify the potential relative values to Instron's stockholders of the following alternatives: (i) remaining an independent company and continuing to pursue Instron's current strategies (the "status quo" alternative), (ii) undertaking a significant acquisition, and (iii) undertaking various other transactions that would result in the sale of Instron, including a merger pursuant to which the Instron stockholders would receive cash, a stock-for-stock merger with a publicly traded company engaged in a business related to one or more of Instron's businesses (a "strategic buyer") or a leveraged recapitalization merger with a financial buyer engaged in the business of pursuing investment opportunities (a "financial buyer"). To undertake these very preliminary relative value analyses, The Beacon Group relied, without independent verification, on management's then current forecasts for the period 1998 to 2002, which projected net sales and EBITDA of $222.2 million and $25.0 million, respectively, for 1998 (pro forma for Instron's acquisitions of Satec Systems, Inc. and the remaining interest in Instron Schexxx Xxxting Systems) and $266.1 million and $35.5 million for 2002, respectively. The Beacon Group also relied, without independent verification, on research analysts' projections for both a selected representative significant acquisition candidate and a selected representative merger partner in analyzing these alternatives. Based on a number of assumptions, the merger and financing market conditions prevailing at the time, and the then current trading multiples of selected comparable companies, particularly MTS Systems Corporation, Instron's principal competitor, The Beacon Group's preliminary analyses derived theoretical per share value ranges of the Instron Common Stock for each of the alternatives listed above for the purpose of providing the Instron Board with some basis to compare them relative to one another. The Beacon Group calculated the theoretical implied per share value of the Instron Common Stock to range from $21.46 to $24.55 and $20.61 to $27.43 for the status quo and significant acquisition alternatives, respectively. The Beacon Group calculated the potential per share values of the Instron Common Stock in a transaction involving the sale of Instron to range from $26.00, based primarily on a leveraged recapitalization analysis and the favorable financing markets prevailing for such transactions at the time, to $32.00 in a sale to a strategic buyer, based primarily on an analysis of reasonably comparable mergers and acquisitions transactions and a discounted cash flow analysis. The Beacon Group noted that this range of potential per share values relied heavily on the assumption that a number of strategic buyers would be interested in acquiring Instron at a valuation in line with, or at a premium to, values implied by MTS Systems Corporation's Aggregate Value to LTM EBITDA multiple of 8.4x, given MTS Systems Corporation's position as Instron's closest publicly traded comparable company in terms of markets served. In addition, The Beacon Group noted that the theoretical per share value of the Instron Common Stock could be substantially higher than this range if a merger with a competitor were effected for stock and if the combined company were able to achieve very significant cost savings. However, The Beacon Group also noted that such cost savings are often very difficult to realize in practice and that Instron's stockholders would have to bear the risk that they are not achieved for some time and ultimately reflected in the price of the merged entity's stock. Further, The Beacon Group noted that a merger with such significant cost savings would likely be available with only the very limited number of companies within Instron's industry. Based on the foregoing analyses, The Beacon Group recommended that, in order to enhance shareholder value and provide liquidity to stockholders, the Instron Board should consider exploring a potential sale of the company pursuant to a cash merger, a stock-for-stock merger or a leveraged recapitalization transaction, which, The Beacon Group noted, could all be pursued in the context of the same process. Following the presentation by The Beacon Group, the Instron Board engaged in a discussion concerning the various alternatives outlined by The Beacon Group that concluded with the Instron Board adopting The Beacon Group's findings and recommendations. Accordingly, the Instron Board determined that a potential sale of Instron was the alternative that would most likely allow Instron to satisfy the objectives of increasing shareholder value and providing liquidity to all of the Instron stockholders. Following the Instron Board's decision to explore a potential sale of the Company, The Beacon Group recommended at the August 11, 1998 Instron Board meeting that Instron implement a multi-step process in order to solicit potential bids. The first step would be a broad marketing effort designed to attract as wide and competitive a field of interested parties as possible. The second step would be to seek more specific proposals from a smaller group of interested parties, whose offers would be evaluated based upon such criteria as price, form of consideration and certainty of consummation of a transaction. Pursuant to this bidding process, the smaller group of interested parties would submit competing proposals to acquire Instron or its assets. As the third step, Instron would enter into exclusive negotiations concerning a definitive agreement with the party whose bid would be most likely to provide the best value for the Instron stockholders. According to The Beacon Group, this process was preferable to other alternatives, such as negotiating only with one party throughout the process, because in a competitive bidding process parties were more likely to submit their highest bid to avoid being outbid by a competing party. Thus, in the opinion of The Beacon Group, this multi-step process was most likely to increase the amount of consideration to be received by the Instron stockholders. Following this discussion, the Instron Board decided to adopt The Beacon Group's recommendation to solicit interest from potential acquirors using a multi-step process designed to result in competitive bidding for the Company. The Instron Board also authorized management, with the assistance of Instron's financial and legal advisors, to prepare a confidential information package for distribution to potential buyers and to enter into confidentiality agreements with potential buyers. In connection with authorizing the solicitation of bids, the Instron Board did not make it a condition to any potential transaction that current management maintain an equity interest in Instron following such transaction.,
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