If another buyer tries to breakup Sycamore Partners’ proposed acquisition of Charlotte-based Belk with a more attractive offer and the local retailer accepts, it would have to pay Sycamore a termination fee of $80 million.
In the event Sycamore Partners backs out of the deal for some reason, it would have to pay Belk $165 million in what’s known as a reverse termination fee.
A securities filing Wednesday shed some light on the deal announced earlier this week in which Belk said it had agreed to be purchased by Sycamore, a New York-based private equity firm, for $3 billion.
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It’s standard to include termination fees in mergers. There’s no indication of an unsolicited rival bidder, but Charlotte’s retail scene is no stranger to hostile takeover attempts. When Matthews-based Family Dollar agreed to sell itself for $8.5 billion to Dollar Tree last summer, Dollar General came in with a hostile $9.1 billion bid, which the local discount chain eventually refused because of regulatory concerns.
Belk’s filing Wednesday revealed some additional legal and financial details of the Sycamore deal. Belk cannot solicit other offers, for example, but if it is approached with a more attractive buyout bid, the retailer would be required to give Sycamore a three-day notice of the other offer to either match or beat it.
Sycamore Partners also entered into retention agreements with Adam Orvos (Belk’s chief financial officer), Ralph Pitts (Belk’s general counsel and secretary) and David Zant (Belk’s chief marketing officer) that guarantees the executives a cash bonus equal to half their annual base pay regardless of whether the deal goes through. They will receive a second bonus worth half their salary on Feb. 19 if the two companies go through with the deal.
Among other legal agreements, Sycamore revised the Belk severance plan. Now, an employee who loses his or her position because of a job elimination or store closure would be eligible for severance benefits even if he or she has a “needs improvement” or “unsatisfactory” performance rating.
The filing also showed that Sycamore is securing financing from a number of banks including Bank of America, Jefferies Finance LLC and Wells Fargo.
Belk and Sycamore Partners have said they expect the deal to close in the fourth quarter of this year. Belk’s headquarters will remain in Charlotte, and Tim Belk will remain chief executive officer.