CEB Inc. (NYSE:CEB) Files An 8-K Other Events
Item8.01 Other Events
Settlement of Certain Litigation Relating to the
Merger
As described in greater detail in the Legal Proceedings Regarding
the Merger section of the definitive proxy statement of CEB Inc.
(CEB or the Company) filed with the Securities and
Exchange Commission on March7, 2017 and first mailed to CEB
stockholders on or about March7, 2017 (the Proxy
Statement), a lawsuit captioned Steinberg
v. CEB Inc., et al.,
Case No. 1:17-cv-00226 (D. Del.) is pending in the United States
District Court for the District of Delaware. Since the filing of
the Proxy Statement, two additional purported class action
lawsuits captioned Buchans v. CEB
Inc., et al, Case No. 1:17-cv-00263 and
Gordon v. CEB Inc.,
et al, Case No. 1:17-cv-00290, were filed on
behalf of CEB shareholders in the United States District Court
for the Eastern District of Virginia and are pending before that
court. In this Current Report on Form 8-K, we refer to these
three pending lawsuits, collectively, as the CEB Merger
Litigation. The CEB Merger Litigation relates to the
Agreement and Plan of Merger, dated as of January5, 2017 (the
Merger Agreement), by and among Gartner, Inc.
(Gartner), Cobra Acquisition Corp. (Merger Sub) and
CEB, providing for the merger of Merger Sub with and into CEB
(the Merger), with CEB surviving the Merger as a
wholly-owned subsidiary of Gartner.
On March24, 2017,
solely to avoid the costs, risks, and uncertainties inherent in
litigation, and without admitting any liability or wrongdoing,
CEB and the other named defendants in the CEB Merger Litigation
signed a memorandum of understanding (the MOU) to settle
the CEB Merger Litigation. This Current Report on Form
8-K is being filed
to the MOU. CEB believes that no further supplemental disclosure
is required under applicable state and federal securities laws;
however, to avoid the risk of the CEB Merger Litigation delaying
or adversely affecting the Merger and to minimize the expense of
defending such action, it has agreed, to the terms of the MOU, to
make certain supplemental disclosures related to the proposed
Merger, all of which are set forth below.
Supplement to
Proxy Statement
The additional disclosures in
this Current Report on Form 8-K supplement the disclosures
contained in the Proxy Statement and should be read in
conjunction with the disclosures contained in the Proxy
Statement, which in turn should be read in its entirety. To the
extent that information in this Current Report on Form 8-K
differs from or updates information contained in the Proxy
Statement, the information in this Current Report on Form 8-K
shall supersede or supplement the information in the Proxy
Statement. Nothing in this Current Report on Form 8-K, the MOU,
or any stipulation of settlement shall be deemed an admission of
the legal necessity or materiality of any of the disclosures set
forth herein. Capitalized terms used herein, but not otherwise
defined, shall have the meanings ascribed to such terms in the
Proxy Statement.
The Merger –
Background of the Merger
The disclosure under the
heading Background of the Merger is hereby supplemented by adding
the following disclosure after the first sentence of the eighth
paragraph on page 41 of the Proxy Statement:
In their calls, the firms
generally indicated to Mr.Monahan that if CEB were to decide in
the future that it wanted to pursue options that could require
third-party debt or equity funding, they had capital that might
be available for such purposes and also would be open to
assisting CEB in evaluating any such options, including a buyout,
an equity investment in CEB or financing for an acquisition by
CEB. None of the firms made a proposal to Mr.Monahan about any
particular option.
The disclosure under the
heading Background of the Merger is hereby supplemented by adding
the following disclosure after the last sentence of the eighth
paragraph on page 41 of the Proxy Statement:
Mr.Monahan also stated that he
would present any specific, credible proposals to the CEB board
for review, consistent with the CEB boards fiduciary obligations.
During the go-shop period, Centerview and Allen solicited each of
these private equity firms. In response, none of the firms
submitted an offer to pursue a transaction with
CEB.
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The disclosure under the
heading Background of the Merger is hereby supplemented by adding
the following disclosure after the first sentence of the fourth
paragraph on page 51 of the Proxy Statement:
During the course of the
talent assessment diligence meetings, Mr.Monahan and Ms.Jones
generally reviewed the roles of and potential succession plans
for certain of CEBs senior officers with Mr.Hall and other
representatives of Gartner. There were no discussions regarding
the potential terms of future employment of CEBs officers between
Gartner and CEB prior to the signing of the merger
agreement.
The disclosure under the
heading Background of the Merger is hereby supplemented by adding
the following disclosure at the end of the fourth sentence of the
fifth paragraph on page 51 of the Proxy
Statement:
(The draft merger agreement
did not identify any individual employees, and soon after this
meeting WSGR advised KE that Gartner would not require the
closing condition regarding post-closing employment of any CEB
employees.)
The disclosure under the
heading Background of the Merger is hereby supplemented by adding
the following disclosure after the last sentence of the seventh
paragraph on page 55 of the Proxy Statement:
Allen did not provide advisory
services to the CEB board relating to the fairness of the
transaction or any other aspects of the merger prior to the
Companys execution of the merger agreement. to the executed
engagement letter, CEB retained Allens services for a
one-time fee equal
to 0.215% of the total value of cash and the fair market value of
all securities or other property paid or payable to CEB
shareholders in connection with the merger. CEBs obligation to
pay this fee to Allen is contingent upon the consummation of the
merger. Neither CEB, Gartner nor any of their respective
affiliates engaged Allen to provide financial advisory services,
or paid any professional fees to Allen, in the two years prior to
CEBs engagement of Allen in connection with the
merger.
Opinion of Centerview
Partners LLC
The disclosure under the
heading Opinion of Centerview Partners LLC is hereby supplemented
by adding the following disclosure after the last sentence of the
final bullet point on page 62 of the Proxy
Statement:
In calculating the projections
for years 2018 through 2021 of the CEB-Prepared Gartner
Forecasts, management of CEB extrapolated growth rates for each
Gartner business unit based on the projected firm level growth
rate for 2017 provided by management of Gartner. CEB management
adjusted the extrapolated growth rate for each Gartner business
unit in accordance with the growth plans discussed with Gartner
management and CEB managements industry knowledge and historical
knowledge of Gartners business, in addition to the views of
outside third parties, including Centerview. In addition,
management of CEB assumed that cost structures for the Gartner
business units would remain consistent with historical trends and
growth margins.
The disclosure under the
heading Opinion of Centerview Partners LLC under the subheading
Discounted Cash Flow Analysis is hereby supplemented by adding
the following disclosure after the second sentence of the third
paragraph on page 67 of the Proxy
Statement:
Centerview determined the
range of exit multiples used to calculate the estimated terminal
values for CEB based on its professional judgment and experience
and taking into account the trading multiples of the selected
companies set forth above under the heading CEB Financial
Analyses Selected Comparable Public Company
Analysis.
The disclosure under the
heading Opinion of Centerview Partners LLC under the subheading
Discounted Cash Flow Analysis is hereby supplemented by adding
the following disclosure to the end of the fourth sentence of the
third paragraph on page 67 of the Proxy
Statement:
, determined using the Capital
Asset Pricing Model and based on considerations that Centerview
deemed relevant in its professional judgment and experience,
taking into account certain metrics including yields for U.S.
Treasury notes, levered and unlevered betas for a comparable
group of companies, market risk and size premia, yields on an
index of comparable credits and tax rates.
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The disclosure under the
heading Opinion of Centerview Partners LLC under the subheading
Discounted Cash Flow Analysis is hereby supplemented by adding
the following disclosure after the third sentence of the second
full paragraph on page 68 of the Proxy
Statement:
Centerview determined the
range of exit multiples used to calculate the estimated terminal
values of Gartner based on its professional judgment and
experience and taking into account the trading multiples of the
selected companies set forth above under the heading Gartner
Financial Analyses Selected Public Companies
Analysis.
The disclosure under the
heading Opinion of Centerview Partners LLC under the subheading
Discounted Cash Flow Analysis is hereby supplemented by adding
the following disclosure to the end of the fourth sentence of the
second full paragraph on page 68 of the Proxy
Statement:
, determined using the Capital
Asset Pricing Model and based on considerations that Centerview
deemed relevant in its professional judgment and experience,
taking into account certain metrics including yields for U.S.
Treasury notes, levered and unlevered betas for a comparable
group of companies, market risk and size premia, yields on an
index of comparable credits and tax rates.
CEB Certain Unaudited
Financial Forecasts
The disclosure under the
heading CEB Certain Unaudited Financial Forecasts is hereby
supplemented by adding the following disclosure as a new
paragraph following the first paragraph on page 83 of the Proxy
Statement:
Between 2012 and 2014, CEB
reported annual organic revenue growth in the high single digits.
During 2015 and 2016, CEBs organic revenue growth rate was
substantially lower. The three-year historical growth case plan
referenced elsewhere in this proxy statement/prospectus was
prepared by CEB management based on a view that CEB would return
to a high single digit annual organic revenue growth rate from
the beginning of 2017. After the third quarter of 2016, CEB
management had substantial evidence to conclude that 2017 organic
revenue growth was unlikely to return to this level, and both CEB
management and the CEB board concluded, therefore, that the
historic growth case plan did not reflect a reasonable forecast
of CEBs likely future performance, particularly in the near term.
Accordingly, CEB management modified its forecast with respect to
CEBs near term future performance, particularly by reducing
expected organic revenue growth in 2017 and 2018, and prepared
the three-year recent growth case plan. CEB management provided
this recent growth case plan to the CEB board on November1, 2016,
as described elsewhere in this proxy statement/prospectus. The
five-year CEB forecast was prepared using the recent growth case
plan based on a compound annual revenue growth rate of 6.1% for
the period from 2016 to 2021.
The disclosure under the
heading CEB Certain Unaudited Financial Forecasts is hereby
supplemented by adding the following disclosure after the third
sentence of the second paragraph on page 83 of the Proxy
Statement:
Adjusted EBITDA and Unlevered
Free Cash Flow are non-GAAP financial
measures.
The disclosure under the
heading CEB Certain Unaudited Financial Forecasts is hereby
supplemented by adding the following disclosure after the second
full paragraph on page 83 of the Proxy
Statement:
CEB believes that its non-GAAP
financial measures are relevant and useful supplemental
information for evaluating its results of operations as compared
from period to period and as compared to its competitors. CEB
uses these non-GAAP financial measures
for internal budgeting and other managerial purposes, including
comparison against its competitors, when publicly providing its
business outlook, and as a measurement for potential
acquisitions. Historically, CEBs publicly announced guidance has
included guidance regarding Adjusted
EBITDA.
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The disclosure under the
heading CEB Certain Unaudited Financial Forecasts is hereby
supplemented by adding the following disclosure into footnote
(2)to the table at the top of page 84 of the Proxy Statement,
prior to the existing text in
footnote(2):
Unlevered free cash flow
refers to a calculation of cash flow available to all providers
of capital, including debt and equity. For purposes of the CEB
forecast, unlevered free cash flow is calculated using operating
profit, adding back depreciation and amortization and subtracting
(a)taxes, (b) capital expenditures and (c)net changes in working
capital.
The disclosure under the
heading CEB Certain Unaudited Financial Forecasts is hereby
supplemented by adding the following disclosure after the second
footnote below the table summarizing the CEB forecast on page 84
of the Proxy Statement:
The CEB forecast for Adjusted
EBITDA reflects adjustments for (a)interest expense of $31million
in 2017, declining slightly to $30million by 2021; (b) taxes of
$43million in 2017, increasing by 50% over the five-year forecast
period; (c)depreciation and amortization of $70million in 2017,
declining by approximately 20% over the five-year forecast
period; (d)share-based compensation of $20million, increasing by
approximately 10% over the five-year forecast period; and
(e)business transformation costs of $15million in 2017 only. The
CEB forecast for Unlevered Free Cash Flow includes the same
amounts for taxes and depreciation over the five-year forecast
period. In addition, it includes (a)capital expenditures of
$35million, increasing by slightly more than 30% over the
five-year forecast period; and (b)an increase in net working
capital of $8million in 2017 declining over the five-year
forecast period to a decrease in net working capital of
$12million by 2021.
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The following supplemental
disclosure is added on page 84 of the Proxy Statement immediately
prior to the heading The Merger
Agreement:
Gartner Certain
Unaudited Financial
Forecasts
Gartner periodically may
publicly disclose financial forecasts and projections. In
connection with the merger, Gartners management prepared certain
unaudited prospective financial information for the years 2016
and 2017 as summarized below, which we refer to as the Gartner
forecast. The Gartner forecast was provided to CEB management for
its use in connection with CEBs evaluation of the merger. The
Gartner forecast was also used by CEB management to prepare
certain financial forecasts, analyses and projections relating to
Gartner which were furnished to Centerview by CEB for purposes of
Centerviews analysis.
The Gartner forecast was not
prepared with a view toward public disclosure and does not
necessarily comply with GAAP or the guidelines published by the
SEC or established by the American Institute of Certified Public
Accountants with respect to prospective financial information.
Neither Gartners independent auditors, CEBs independent auditors,
nor any other independent accountants, have audited, examined,
compiled or performed any procedures with respect to the Gartner
forecast, nor have they expressed any opinion or any other form
of assurance on such information or its achievability, and assume
no responsibility for, and disclaim any association with, the
prospective financial information. The report of Gartners
independent registered accounting firm included in the proxy
statement/prospectus relates to Gartners historical financial
information. It does not extend to the prospective financial
information and should not be read to do so. The Gartner forecast
contains non-GAAP financial measures within the meaning of
applicable rules and regulations of the SEC. Normalized EBITDA,
Free Cash Flow and Diluted Earnings Per Share Excluding
Acquisition Adjustments are non-GAAP financial measures. Non-GAAP
financial measures should not be considered in isolation from, or
as a substitute for, financial information presented in
compliance with GAAP, and non-GAAP financial measures as used by
Gartner may not be comparable to similarly titled amounts used by
other companies.
Gartner believes that its
non-GAAP financial measures are relevant and useful supplemental
information for evaluating its results of operations as compared
from period to period and as compared to its competitors. Gartner
uses these non-GAAP financial measures for internal budgeting and
other managerial purposes, including comparison against its
competitors, when publicly providing its business outlook, and as
a measurement for potential acquisitions. Historically, Gartners
publicly announced guidance has included guidance regarding
Normalized EBITDA, Free Cash Flow and Diluted Earnings Per Share
Excluding Acquisition Adjustments.
The Gartner forecast is a
forward-looking statement that is subject to risks and
uncertainties that could cause actual results to differ
materially from those predicted, and should be read with caution.
See the section entitled Cautionary Statement
Regarding Forward-Looking Statements
of the proxy statement/prospectus. Although presented with
numerical specificity, the Gartner forecast was based on numerous
assumptions and variables that are uncertain and many of which
are beyond the control of Gartner or CEB. The assumptions upon
which the Gartner forecast was based necessarily involve
judgments with respect to future economic, competitive and
regulatory conditions and financial market conditions, all of
which are difficult or impossible to predict. There can be no
assurance that the Gartner forecast will be realized, and actual
results may vary materially from those provided. The Gartner
forecast was prepared by Gartner alone based on information
available at the time the Gartner forecast was prepared and does
not take into account any circumstances or events occurring after
the date on which it was prepared. Given that the Gartner
forecast covers multiple years, by its nature it becomes less
predictive with each successive year.
The Gartner forecast is
included solely to give CEB stockholders access to certain
unaudited prospective financial information that was made
available to CEBs management and CEBs financial advisors in
connection with the merger. The inclusion of the CEB forecast in
this proxy statement/prospectus should not be regarded as an
indication that CEB, Gartner or any of their respective
affiliates, advisors or representatives considered the Gartner
forecast to necessarily reflect actual future events, and the
Gartner forecast should not be relied upon as such. Neither
Gartner, CEB nor any of their respective affiliates, advisors,
officers, directors or representatives has made or makes any
representation to any CEB stockholder or other person regarding
the ultimate performance of Gartner compared to the information
contained in the Gartner forecast or that the Gartner forecast
will be achieved. Gartner has made no representation to CEB, in
the merger agreement or otherwise, concerning the CEB forecast.
The
6
Gartner forecast should be
evaluated, if at all, in conjunction with the historical
financial statements and other information regarding Gartner and
CEB in the proxy statement/prospectus and in their other
respective public filings with the SEC. In light of the foregoing
factors and the uncertainties inherent in the Gartner forecast,
Gartner stockholders are cautioned not to place undue reliance on
the Gartner forecast.
The following table summarizes
the Gartner forecasts:
| Gartner | ||||||||
| ($ in millions, except per share data) | 2016E | 2017E (1) | ||||||
|
GAAP Revenue |
$ | 2,4352,465 | $ | 2,7522,785 | ||||
|
Normalized EBITDA |
$ | 455 475 | $ | 510 532 | ||||
|
Free Cash Flow |
$ | 352 372 | (2) | |||||
|
Diluted Earnings Per Share Excluding Acquisition |
$ | 2.89 3.05 | (2) |
| (1) |
As of the date the projections were presented to CEB. The 2017 forecast was subsequently updated and disclosed in the Gartner 2016 year-end 8-K Earnings Release furnished to the SEC on February2, 2017. |
| (2) | Not disclosed to CEB. |
Definitions of the
Non-GAAP Financial Measures Used
Above
Diluted Earnings Per Share
Excluding Acquisition Adjustments: Represents GAAP diluted
earnings per share adjusted for the impact of certain items
directly-related to acquisitions. The adjustment items consist of
the amortization of identifiable intangibles; incremental
acquisition and integration charges related to the achievement of
certain performance targets and employment conditions, as well as
legal, consulting, severance, and other costs; and non-cash fair
value adjustments on pre-acquisition deferred revenues. Gartner
believes Diluted Earnings Per Share Excluding Acquisition
Adjustments is an important measure of its recurring operations,
relative to the GAAP financial measure of diluted earnings per
share, as it excludes items that may not be indicative of
Gartners core operating results.
Normalized EBITDA:
Represents operating income excluding stock-based compensation
expense, depreciation and amortization, accretion on obligations
related to excess facilities, and acquisition and integration
charges. Gartner believes Normalized EBITDA is an important
measure of our recurring operations as it excludes items that may
not be indicative of Gartners core operating results. You are
cautioned that Normalized EBITDA is not a financial measure
defined under generally accepted accounting principles and as a
result is considered a non-GAAP financial measure. Gartner
provides this measure to enhance the users overall understanding
of Gartners current financial performance and Gartners prospects
for the future relative to the GAAP financial measure of net
income. Normalized EBITDA should not be construed as an
alternative to any other measure of performance determined in
accordance with generally accepted accounting
principles.
Free Cash Flow:
Represents cash provided by operating activities plus cash
acquisition and integration payments less payments for capital
expenditures. Gartner believes that Free Cash Flow is an
important measure of the recurring cash generated by its core
operations that is available to be used to repurchase our stock,
repay debt obligations, invest in future growth through new
business development activities, or make acquisitions relative to
the GAAP financial measure of cash flows from operating
activities.
7
Interests of CEB
Directors and Executive Officers in the
Merger
The disclosure under the
heading Interests of CEB Directors and Executive Officers in the
Merger is hereby supplemented by adding the following disclosure
after the last sentence of the first paragraph under this heading
on page 75 of the Proxy
Statement:
There have not been
discussions between CEB and Gartner, either before or after the
signing of the merger agreement, of the inclusion of any members
of the CEB board on the board of Gartner after consummation of
the merger.
***
Additional
Supplemental Disclosures
The following additional
supplemental disclosures are not covered by the
MOU:
Questions and
Answers
The disclosure under the
heading Q: What will holders of CEB restricted share units
receive in the merger? is hereby supplemented by deleting the
words and Mr.Lindahl have from the third sentence of the third
paragraph under this heading on pages ix-x of the Proxy Statement
and replacing them with the word
has.
Summary
The disclosure under the
heading Treatment of Restricted Stock Units and Performance Stock
Units is hereby supplemented by deleting the words and Mr.Lindahl
have from the third sentence of the third paragraph under this
heading on page 3 of the Proxy Statement and replacing them with
the word has.
Interests of CEB
Directors and Executive Officers in the
Merger
The disclosure under the
heading Interests of CEB Directors and Executive Officers in the
Merger is hereby supplemented by deleting the words and Mr.
Lindahl have from the second sentence of the second paragraph
under the table on page 81 of the Proxy Statement and replacing
them with the word has.
The Merger
Agreement
The disclosure under the
heading Treatment of Restricted Share Units and Performance Share
Units in the Merger is hereby supplemented by deleting the words
and Mr.Lindahl have from the third sentence of the third
paragraph under this heading on page 85 of the Proxy Statement
and replacing them with the word
has.
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CEB Inc. (NYSE:CEB) Recent Trading Information
CEB Inc. (NYSE:CEB) closed its last trading session up +0.05 at 78.80 with 555,481 shares trading hands.
