Will Gores Holdings, Inc. Shareholders Vote For Twinkies This November?

| About: Hostess Brands, (TWNK)

Summary

The definitive proxy statement for the Gores Holdings, Inc. acquisition of Hostess Brands was filed this morning and is now on its way to shareholders.

So what’s changed in the last several weeks since the last preliminary proxy statement and since I first wrote about the transaction?

The answer: not much, but we do (i) learn some important transaction details and (ii) get additional insight from the areas the company and its advisors have chosen to improve disclosures.

On Friday, October 21st, 2016 Gores Holdings, Inc. (GRSH) filed the definitive proxy statement related to its combination with Hostess Brands, a transaction I previously wrote about.

This filing is likely to be the final document shareholders use in evaluating the transaction. So what's changed? The answer is not much, but we do learn some important details about the upcoming vote and gain some additional insight into what the company and its advisors have been focused on recently.

Transaction Details

Most notably, in the just-filed definitive proxy statement we learn the date, time and place for the Special Meeting have finally been set. The Special Meeting to vote for the transaction (and six other proposals related to governance and business matters) will take place at 9:00 AM on November 3, 2016.

We also learn the record date for the Special Meeting has been established as September 29th, 2016. Only shareholders of record as of the close of business on that date will be able to vote.

Finally, we learn the redemption date for shareholders choosing to redeem their shares for cash have until November 1st, 2016, at 5:00 PM to make that election. Notably, investors can vote for the deal and still redeem their shares if they so choose.

Additional Insight into Transaction

Sometimes changes to transaction documents are related to investor feedback. Sometimes the changes are the result of 'housekeeping', or routine cleanups made by the deal's lawyers, bankers and company staff to polish the document. While we can't know for certain which category the most recent language changes below fall into, it's helpful to take a look.

Tax Receivable Agreement

Prior to the preliminary proxy dated October 11th, we learned that the obligations under Tax Receivable Agreement, estimated at $165M, could upon certain events such as a breach of the agreement or "…certain mergers, asset sales, other forms of business combinations or other changes of control", accelerate and become due as a lump sum totaling as much as $300M to $325M (and that's even if the actual tax benefits haven't been realized yet).

However, in these prior versions, we did not learn that important detail, which doubles the value of the liability as initially presented, until over 150 pages into the document. And even then, the disclosure was not made in connection with the financial statements where the liability is listed at $165M, but rather in the text describing other agreements.

The company chose to feature this disclosure more prominently in its October 11th amended proxy statement by adding it two more times in the "Adjustments to Unaudited Pro Forma Combined Balance Sheet" so that the estimated liability of $300M to $325M is made clearly in connection with its original presentation in the financial statements.

Proposal Six - Exempting Certain Insiders from Business Combination Restrictions

While the primary purpose of the Special Meeting is for shareholders to vote on the business combination with Hostess Brands, there are six other important proposals that will be also voted on.

In the definitive proxy statement, the company has chosen to further elaborate on one of these, proposal six. In previous preliminary proxy statements, the company has sought to exclude The Gores Group, Apollo and CDM Holders from the definition of "interested stockholders". Such an exclusion would free those parties from certain restrictions on business combinations in connection with the proposed transaction.

In the definitive proxy, the company now clarifies the proposal such that the parties will be included in the definition of "interested stockholders", but that they will still be excluded from those restrictions on business combinations. Why? We learn from additional disclosure language that "the Board approved the Business Combination in which the Excluded Parties became interested stockholders prior to such time they became interested stockholders".

While there is no substantive change to proposal six from the new language, its effect is likely to give shareholders additional information they need to evaluate the proposal.

Conclusion

The definitive proxy statement for the Gores Holdings, Inc. acquisition of Hostess Brands is out and on its way to shareholders who will vote on November 3rd. Changes within the proxy give more fulsome disclosure related to the difficult to understand Tax Receivable Agreement as well as a proposal to exempt certain insiders from routine restrictions on business combinations following the transaction. These additional disclosures do not represent any actual change in the terms and conditions of the deal which appears to be moving forward as expected by the parties.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours.

I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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