Madison Dearborn to acquire IPL Plastics in C$981m deal

Madison Dearborn Partners has agreed to buy IPL Plastics, a Montreal-based sustainable packaging solutions provider in the food, consumer, agricultural, logistics and environmental end-markets.

Madison Dearborn Partners has agreed to buy IPL Plastics, a Montreal-based sustainable packaging solutions provider in the food, consumer, agricultural, logistics and environmental end-markets. The deal values the company at C$981 million on an enterprise basis. Caisse de dépôt et placement du Québec willl roll over its interest in IPL Plastics. With the deal’s close, Madison Dearborn will hold a controlling stake and CDPQ a stake of about 24.9 percent. Fonds de solidarité FTQ, another shareholder, has agreed to vote for the transaction.

PRESS RELEASE

MONTREAL, July 29, 2020 (GLOBE NEWSWIRE) — IPL Plastics Inc. (“IPLP” or the “Company”) (TSX: IPLP) today announced that it has entered into an arrangement agreement (the “Arrangement Agreement”) to be acquired by Intelligent Packaging Limited Purchaser Inc. (the “Purchaser”), an entity controlled by funds (the “MDP Funds”) managed by Madison Dearborn Partners, LLC (“MDP”), a Chicago-based private equity firm. Under the terms of the Arrangement Agreement, subject to shareholder and other customary approvals, the Purchaser will acquire at C$10.00 in cash per share (the “Purchase Price”) all of the issued and outstanding common shares (the “Shares”) of IPLP. The Purchase Price represents a 49% premium to the IPLP closing share price on July 28, 2020, a 69% premium to the 20-day volume-weighted average price per share for the period ending on July 28, 2020, and a 153% premium to the closing price on May 15, 2020, the last trading day prior to media reports concerning a potential acquisition.

The transaction values IPLP at C$555 million on an equity basis and at C$981 million on an enterprise basis.

Entry into the Arrangement Agreement was based on the unanimous recommendations of both the IPLP board of directors (the “Board”) and the independent committee of the Board (the “Special Committee”) and followed an extensive review and analysis.

The majority of the outstanding Shares owned by Caisse de dépôt et placement du Québec (“CDPQ”), the largest shareholder of IPLP, are effectively to be rolled over at an implied value per Share equal to the Purchase Price, such that upon completion of the transaction, the MDP Funds will be the controlling shareholder of IPLP, with a wholly-owned subsidiary of CDPQ holding a minority equity interest of approximately 24.9%. The remaining Shares owned by CDPQ will be sold to the Purchaser at the Purchase Price. CDPQ plans to continue to support the development of the Company in Quebec and abroad. Provided that it maintains a minimum ownership threshold, CDPQ will hold governance rights in respect of material modifications to certain Company activities in Quebec.
Under the terms of the Arrangement Agreement, IPLP may solicit a superior offer for a defined “go-shop” period, as further outlined below. BMO Nesbitt Burns Inc. (“BMO Capital Markets”) has been retained to approach potential interested parties with a view to soliciting a higher offer, which the MDP Funds are entitled to match.

Rose Hynes, Chair of the Special Committee, said:
“We have concluded that this transaction is in the best interests of IPLP and fair to our shareholders. With a view to maximizing shareholder value we conducted a thorough assessment of MDP’s proposal, as well as other alternatives reasonably available to the company, including the status quo. Following this comprehensive assessment and our extensive negotiations with MDP, we are pleased to have reached an agreement that provides immediate and fair value to shareholders and includes significant procedural safeguards that protect minority shareholders.”

Transaction Rationale
In response to various confidential enquiries and unsolicited preliminary proposals from North American and European private equity sponsors who wished to explore a potential privatization transaction involving the Company, the Board established the independent Special Committee. The Special Committee is chaired by Rose Hynes and includes Sharon Pel and Hugh McCutcheon, each of whom are independent of the Company and CDPQ under applicable corporate and securities laws.

The conclusions and recommendations of the Special Committee and the Board have been based on a number of factors, including (without limitation) the following:
Premium to IPLP Trading Price: The Purchase Price represents a premium of:
Approximately 49% to the closing price per Share on the Toronto Stock Exchange (the “TSX”) on July 28, 2020 and 69% to the 20-day volume-weighted average price per Share on the TSX for the period ending on July 28, 2020; and
153% to the closing price per Share on the TSX on May 15, 2020, the last trading day prior to media reports with respect to a potential acquisition of IPLP.

Certainty of Value and Liquidity: The payment to shareholders under the terms of the Arrangement Agreement will be all cash, which provides certainty and immediate liquidity. By contrast, the Company has experienced limited trading liquidity since its IPO, which makes it difficult for existing shareholders to realize meaningful liquidity through the public markets on which the Shares trade.

Value Supported by a Formal Valuation and Two Fairness Opinions: The Special Committee and the Board received a fairness opinion and independent formal valuation of the Shares from PricewaterhouseCoopers LLP (“PwC”) as well as a fairness opinion from BMO Capital Markets. The Purchase Price of C$10 per Share is within the range of fair market value for the Shares of C$9.20 to C$10.90 per Share as of July 28, 2020, as set out in PwC’s written valuation report and subject to the assumptions, limitations and qualifications included therein.
Procedural Safeguards for Minority Shareholders: The transaction was negotiated by the Special Committee, which was comprised solely of directors who are unrelated to CDPQ and management, and was advised by independent financial and legal advisors. The transaction will become effective only if it is approved by (i) at least 66 2/3% of the votes cast by shareholders at a special meeting of shareholders called to consider the transaction; (ii) a simple majority of the votes cast by shareholders, excluding for this purpose the votes attached to Shares held by CDPQ pursuant to Regulation 61-101 – respecting Protection of Minority Security Holders in Special Transactions (“MI 61-101”); and (iii) the Superior Court of Québec, after considering the procedural and substantive fairness of the transaction.

Attractive Transaction Relative to Alternatives: The Special Committee and the Board, with the assistance of their financial and legal advisors, believe that the transaction is an attractive proposition now available to shareholders based on a thorough review of reasonable alternatives (including the status quo).
Challenges Presented by Share Performance: Since the Company’s IPO, its trading multiple has traded at a discount to its larger public company peers for a variety of reasons, including its results of operations and performance, and its share price has declined. The Company’s share price underperformance and the Company’s limited trading liquidity make it more difficult for the Company to finance and execute on accretive growth opportunities. The Special Committee and the Board believe that this dynamic, which has been made even more challenging given the negative impact of the COVID-19 pandemic and related uncertainties, is likely to continue, rendering the significant and immediate all-cash premium offered by MDP attractive for IPLP’s shareholders.

Go-Shop Provision: The Arrangement Agreement contains what is commonly referred to as a “go-shop” provision that allows the Company to solicit and engage in discussions and negotiations with respect to potential superior acquisition proposals during an initial 30-day period (with the possibility of a further 10-day extension under certain circumstances).

Arm’s Length Negotiations and Oversight: The Arrangement Agreement is the result of robust, arm’s length negotiations involving the Company, on the one hand, and MDP, on the other hand. Extensive financial, legal and other advice was provided to the Special Committee and the Board. This advice included detailed financial advice from highly qualified financial advisors as to the potential value that might have resulted from other strategic alternatives reasonably available to the Company, including remaining an independent publicly traded company and continuing to pursue the Company’s business plan on a stand-alone basis as well as a formal valuation of the Shares. Following receipt of such financial and legal advice, the transaction was unanimously recommended for approval by the Special Committee and unanimously approved by the Board.

The Special Committee and the Board unanimously recommend the Arrangement Agreement be approved by shareholders.
D&O and Shareholder Support: All of IPLP’s directors and executive officers as well as the Company’s significant shareholders, CDPQ and Fonds de solidarité FTQ (an 8.7% shareholder), have entered into customary voting and support agreements to vote their Shares in favour of the transaction, subject to certain exceptions.

Ability to Respond to Superior Proposal: Under the Arrangement Agreement, the Board, in certain circumstances both during the go-shop period and thereafter until shareholder approval is obtained, is able to consider, accept and enter into a definitive agreement with respect to a superior proposal, and withdraw, modify or amend its recommendation that shareholders vote to approve the Arrangement Agreement. The voting and support agreement of CDPQ provides the ability to support a superior proposal.

Limited Conditions to Closing: The Purchaser’s obligation to complete the transaction is subject to a limited number of customary conditions that the Special Committee and the Board believe are reasonable in the circumstances. The completion of the transaction is not subject to any financing condition.

Fairness Opinions and Independent Valuation
PwC has provided the Special Committee with a formal valuation of the Shares of the Company in accordance with MI 61-101, which determined that, as of July 28, 2020, and subject to the assumptions, limitations and qualifications set out in PwC’s written valuation report, the fair market value of the Shares ranged between C$9.20 and C$10.90 per Share.

PwC has also provided an opinion to the Special Committee that, as of July 28, 2020, and subject to the assumptions, limitations and qualifications set out in PwC’s written fairness opinion, the consideration to be received by the selling shareholders of the Company is fair, from a financial point of view, to such shareholders. PwC’s formal valuation and fairness opinion were prepared for the sole use of the Special Committee and were one factor, among others, that the Special Committee and the Board considered in determining whether to approve the transaction.

BMO Capital Markets, the Company’s financial advisor, has also provided the Special Committee and the Board with an opinion that, as of July 28, 2020, and subject to the assumptions, limitations and qualifications set out in BMO Capital Markets’ written fairness opinion, the consideration to be received by the selling shareholders of the Company is fair, from a financial point of view, to such shareholders.

The formal valuation and both fairness opinions will be made available to shareholders in the Company’s information circular for the special meeting of shareholders, which will be filed by the Company under its profile at www.sedar.com.

Recommendation
Based upon the factors and considerations described above, the Special Committee and the Board unanimously recommend the Arrangement Agreement be approved by shareholders.

Additional Information
Further details regarding the terms of the transaction are set out in the Arrangement Agreement which will be publicly filed by the Company under its profile at www.sedar.com. Additional information regarding the terms of the Arrangement Agreement and the background of the transaction will be provided in the information circular for the special meeting of shareholders to consider the transaction, which will also be filed at www.sedar.com. IPLP expects to mail the information circular for the special meeting in August 2020, and to hold the special meeting in September 2020.

Advisors; Financing
BMO Capital Markets is acting as exclusive financial advisor to the Company. PwC was engaged by the Special Committee as independent valuator for the transaction. Stikeman Elliott LLP is acting as legal advisor to the Company and McCarthy Tétrault LLP is acting as independent legal advisor to the Special Committee.

Evercore is acting as financial advisor to the MDP Funds. Kirkland & Ellis LLP is acting as legal advisor and McMillan LLP is acting as Canadian legal advisor to the MDP Funds.
Fasken Martineau DuMoulin LLP is acting as legal advisor to CDPQ.

Committed financing has been provided by Bank of America, Barclays, Deutsche Bank Securities Inc. and BMO Capital Markets Corp.

About IPLP
IPLP is a leading sustainable packaging solutions provider primarily in the food, consumer, agricultural, logistics and environmental end-markets operating in Canada, the U.S, the U.K., Ireland, Belgium, China and Mexico. IPLP employs approximately 2,000 people and has corporate offices in Montreal and Dublin. For more information, please visit the Company’s website at www.iplglobal.com.

About Madison Dearborn Partners
Madison Dearborn Partners, LLC is a leading private equity investment firm based in Chicago. Since MDP’s formation in 1992, the firm has raised aggregate capital of over $26 billion and has completed over 140 investments. MDP invests across five dedicated industry verticals, including basic industries; financial and transaction services; health care; business and government software and services; and telecom, media and technology services. For more information, please visit www.mdcp.com.