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Heckmann Corporation to Acquire
China Water and Drinks Inc. for Approximately $625 Million
Tuesday May 20 9:45 PM
Heckmann Corporation of Palm Desert,
California (AMEX: HEK, HEK.U, HEK.WS) ("Heckmann") and China Water
and Drinks Inc. (OTCBB: CWDKE) ("China Water") announced today that
they have signed a definitive agreement under which Heckmann would
acquire China Water, a leading producer and distributor of bottled
water in China, for an aggregate purchase price of approximately
$625.0 million. Of the total price, approximately $455.0 million is
expected to be paid in common stock at an exchange ratio of 0.80 per
share of Heckmann stock for each share of China Water stock (closing
stock price of $7.48 on May 16, 2008), and approximately $170.0
million is expected to be paid in cash at $5.00 per share. Following
completion of the transaction, China Water will become a
wholly-owned subsidiary of Heckmann. Holders of a majority of China
Water's stock have already approved the transaction. Heckmann has
been cleared to apply to list its securities on the New York Stock
Exchange (NYSE) and expects its common stock, units, and warrants to
begin trading on the NYSE on May 23, 2008.
"We are very pleased to announce this transaction, as China Water
will be our platform to build a global water company," stated Dick
Heckmann, Chairman and CEO of Heckmann Corporation. "We are excited
about the opportunity to build another company in the water sector
and believe that the attractive growth profile and favorable market
dynamics make this an ideal acquisition for our SPAC. China Water's
well-established bottled water platform, combined with the economic
growth, favorable demographic characteristics, and need for clean,
safe drinking water in China, make this combination a compelling
growth story. We plan to leverage this foundation to execute an
aggressive acquisition program in the highly-fragmented water
business and look forward to leading this company through its next
stage of growth."
"In order to help execute our growth strategy, we are in the process
of assembling a Board of Directors and a senior management team that
has extensive experience in the water sector both in Asia as well as
in other international markets. I am pleased to announce that Mr. Xu
Hongbin, the Founder and Chairman of China Water, will join our
board of directors along with Andy Seidel, Chairman and CEO of
Underground Solutions, one of the fastest growing water
infrastructure companies in the US. Mr. Seidel succeeded me as CEO
of US Filter, after having served as the Chief Operating Officer of
the US Filter wastewater group. We look forward to leveraging our
combined operating and transaction experience to grow this business
into a worldwide water enterprise."
"We are very excited to join with Heckmann Corporation and its
experienced management team," stated Xu Hongbin, the Founder and
Chairman of China Water. "We believe that our combination with
Heckmann will provide enhanced capital and management resources that
will deliver superior value to our shareholders."
Transaction Overview
Under the terms of the merger agreement, Heckmann will acquire China
Water for a total purchase price of approximately $625.0 million
(based on a closing stock price of $7.48 on May 16, 2008 and certain
assumptions regarding stock and cash elections).
-- Pursuant to the terms of the agreement, shareholders of China
Water will receive 0.80 per share of Heckmann common stock for each
common share of China Water, or if stockholders so elect, $5.00 per
share in cash. Based on current assumptions, Heckmann expects to
issue approximately 61.0 million shares (on a fully diluted basis
using the treasury stock method). Holders of approximately 65.0
million shares of China Water stock (on an as converted basis) have
already elected to receive Heckmann stock in the merger.
-- It is expected that approximately $170.0 million of the total
purchase price will paid in cash at $5.00 per share. Holders of
approximately 26.0 million shares of China Water have already
elected to receive cash.
-- Heckmann will fund the acquisition with cash that is currently
held in trust together with new shares to be issued. All remaining
proceeds from Heckmann's trust account (after payment of transaction
expenses and deferred underwriting fees from its initial public
offering) are expected to be invested into the company for working
capital and growth opportunities.
-- Heckmann Corporation may also pay $150.0 million in contingent
payments, primarily to noteholders and other investors who have
agreed to certain waivers, releases and terminations of rights. The
contingent payments are triggered if the combined company achieves
$90.0 million in adjusted net income for 2009.
-- Most of the common shares issued to China Water in connection
with the transaction will be restricted from sale, hedge or pledge
for up to two years following the closing pursuant to a standard
lockup.
Under the terms of the agreement, China Water's significant
shareholders Xu Hongbin, Founder and Chairman of China Water, The
Pinnacle Fund L.P., and The Pinnacle China Fund L.P. will convert
their interests in China Water to Heckmann common stock subject to
lock up provisions. In addition, certain holders of China Water's
outstanding convertible notes, including Goldman Sachs and Liberty
Harbor, have agreed to convert their convertible notes and
participate in the merger and receive Heckmann common stock.
Credit Suisse Securities (USA) LLC is serving as financial advisor
to Heckmann Corporation and Roth Capital Partners LLC is serving as
financial advisor to China Water on the transaction. DLA Piper
served as legal counsel to Heckmann Corporation and Thelen Reid
Brown Raysman & Steiner, LLP served as legal counsel to China Water
and Drinks Inc.
The transaction is expected to close in the fall of 2008.
Post-closing, Dick Heckmann will remain Chairman and CEO of Heckmann
Corporation and Xu Hongbin, the Founder and Chairman of China Water,
will serve as the CEO of China Water and Drinks, which will be a
wholly-owned subsidiary of Heckmann Corporation. The closing of the
transaction is subject to customary closing conditions, including
approval of the acquisition agreement by the stockholders of both
companies. In addition, the closing is conditioned on holders of
less than 30% of Heckmann common stock voting against the
acquisition and electing to convert their Heckmann common stock into
cash, as permitted by the Heckmann certificate of incorporation.
China Water and Drinks Inc. Overview
China Water and Drinks Inc., headquartered in Hong Kong and founded
in 1996, is a licensed bottled water producer and distributor,
operating plants in 6 cities with distribution in 14 provinces and
regions across China. China Water produces a variety of products,
including purified water, mineralized water, and oxygenated water.
It also plans to expand its product offering to include other
specialized water products, such as vitamin and nutrient enriched as
well as flavored water products. China Water utilizes a fully
integrated and automated world class 5-stage filtration and
purification process. These facilities meet government hygiene
standards and are independently audited for quality control,
procedure compliance, standards, and hygiene.
China Water currently markets its own bottled water products,
primarily under the brand name "Darcunk" (translated means
"Absolutely Pure"). China Water's branded products accounted for 64%
of total revenue in 2007, although it expects to expand the
geographic reach of is brand name via acquisitions. In addition,
China Water also supplies bottled water products to globally
recognized beverage companies, including Coca-Cola and
UNI-President, under their respective brand names. In addition,
China Water provides a complete private label solution, including
bottle design, production, packaging and delivery, to companies in
the service industry, including hotels and casinos.
Market Overview
Total sales for bottled water in China are expected to reach
approximately US$4.6 billion in 2008.(1) The consumption of bottled
water in China grew at a compound annual growth rate of 17.5%
between 2002 and 2007, which is double that of the United States and
represents the fastest pace of growth worldwide.(2) There are a
number of industry dynamics driving the growth in consumption of
bottled water in China, including;
1) Lack of water infrastructure and poor water quality results in
the need for clean, safe drinking water. It is estimated that 700
million people drink contaminated water every day in China and 300
million of those people drink water that is unsafe.(3) According to
the World Bank, 90% of the cities' groundwater and 75% of the rivers
and lakes are polluted in China.
2) Increased spending power of the growing middle class. The middle
class is expected to be greater than 350 million people by 2011,
accounting for over 50% of the urban population in China.(4)
3) Increasing personal wealth, living standards, and health
consciousness of Chinese consumers. In addition to a greater
awareness of hygiene and water quality, the demand for bottled water
has overtaken and now exceeds the growth in consumption of
carbonated sweet drinks.(5)
Growth Strategy
China Water expects to continue to deliver strong growth going
forward driven by the robust demand for bottled water in China and a
trend towards consolidation within this highly-fragmented market.
China Water currently has built the required infrastructure to
expand production and will serve as an ideal platform for growth.
The company has grown its annual capacity to over one billion small
bottles and 21 million carboy-sized bottles. The company also plans
to expand its existing distribution network and leverage the
"Darcunk" brand in order to introduce other product offerings,
including oxygenated and vitamin water.
The transaction with Heckmann will provide the necessary liquidity
and management depth in order to execute on management's plan to
increase current capacity by 100% over the next two years through
new plant construction and the pursuit of strategic acquisitions. In
addition to the two bottled water companies acquired in the second
half of 2007, there continue to be significant opportunities for
consolidation in this highly-fragmented sector, which consists of
more than 250 bottled water producers.
Financial Overview and 2008 Outlook
China Water reported revenues for 2007 of $56.8 million, a 59%
increase from $35.7 million in 2006. This increase in revenue was
driven by organic growth and the acquisitions of two bottled water
production plants located in Nanning and Shenyang in the second half
of 2007, which increased the total capacity and expanded the
company's presence in the southwest and northeast regions of China.
Net income was $19.4 million in 2007, up 208% from $6.3 million in
2006.
Based on current capacity levels, business trends, and anticipated
acquisitions, China Water's management projects revenue in 2008 to
be approximately $220.0 million and net income in 2008 to be
approximately $70.0 million, including the addition of five
acquisitions currently under contract or in negotiations. This
guidance assumes that the acquisitions currently under contract or
in negotiations closed on January 1, 2008 and thus reflects the
full-year impact.
Conference Call Information
Heckmann Corporation will host a conference call to discuss the
transaction at 10:00 a.m. Eastern Time today, Tuesday May 20, 2008.
Investors may listen to the call via telephone by dialing (888)
221-9508 (pass code 6932428), or for international callers, (913)
312-0945. A telephone replay will be available shortly after the
call and can be accessed by dialing (888) 203-1112 (pass code
6932428), or for international callers, (719) 457-0820. The replay
will be available until June 3, 2008, at 11:59 p.m. Eastern Time.
About Heckmann Corporation
Heckmann Corporation is a blank check company formed for the purpose
of acquiring or acquiring control of one or more operating
businesses through a merger, capital stock exchange, asset or stock
acquisition, exchangeable share transaction or other similar
business combination. The Company completed its initial public
offering of 54.1 million units at $8.00 per unit on November 16,
2007, generating gross proceeds of approximately $432.9 million
dollars. Each unit was comprised of one share of common stock and
one warrant exercisable at $6.00 per share. On November 20, 2007,
the warrants began separately trading. As of March 31, 2008, the
Company held approximately $429.2 million in a trust account
maintained by an independent trustee, which will be released to the
Company upon the consummation of the business combination.
About China Water and Drinks
China Water and Drinks Inc. is a leading producer and distributor of
bottled water in China. Through its production facilities in
Guangzhou, Zhanjiang, Feixian, Changchun, Nanning and Shenyang, the
Company produces and distributes bottled water to fourteen provinces
and regions in China. The Company markets its own product under the
brand "Darcunk", supplies purified water to both local and
international beverage brands such as Coca-Cola and Uni-President
and provides private label bottled water for companies such as Sands
Casino, Macau.
(1) Beverage Marketing Corporation and Euromonitor.
(2) Beverage Marketing Corporation.
(3) Government report themed "China's Environment in 2006: Changes
and Struggles."
(4) The McKinsey Quarterly, The value of China's emerging middle
class, 2006.
(5) Euromonitor International, "Bottled Water in China", July 2007.
Risks and Uncertainties; Forward-Looking Statements
The transaction described herein is subject to a number of risks and
uncertainties, including, but not limited to, the satisfaction of
certain conditions to the closing of the proposed merger, including
the risk that stockholder approval might not be obtained in a timely
manner or at all.
This document contains forward-looking statements within the meaning
of the Private Securities Litigation Reform Act of 1995. These
forward-looking statements include, but are not limited to,
statements related to the benefits of the transaction, the future
financial performance of the surviving entity, the growth of the
market for bottled water in China, expansion plans and
opportunities, plans to increase production capacity, pending and
future acquisitions by the surviving entity, and consolidation of
the market for bottled water in China generally.
These forward-looking statements are based on information available
to Heckmann and China Water as of the date of this release and
current expectations, forecasts and assumptions and involve a number
of risks and uncertainties. Accordingly, forward-looking statements
should not be relied upon as representing Heckmann's or China
Water's views as of any subsequent date and neither undertake any
obligation to update forward-looking statements to reflect events or
circumstances after the date they were made.
Risks that could cause actual results to differ materially from
those anticipated by the forward-looking statements contained herein
include difficulties encountered in integrating the merged
businesses and management teams, difficulty in completing targeted
acquisitions or integrating them effectively, identifying and
completing additional acquisitions needed to achieve growth targets,
the adverse impact of competitive product announcements, revenues
and operating performance, changes in overall economic conditions,
competitors' actions, pricing and gross margin pressures, loss of
key customers, order cancellations or reduced bookings, control of
costs and expenses, significant litigation, risks associated with
international operations, the threat or occurrence of international
armed conflict and terrorist activities both in the United States
and internationally, risks and costs associated with increased and
new regulation of corporate governance and disclosure standards
(including pursuant to Section 404 of the Sarbanes-Oxley Act of
2002), and risks involving environmental or other governmental
regulation.
Information concerning additional factors that could cause results
to differ materially from those projected in the forward-looking
statements is contained in Heckmann's Annual Report on Form 10-K as
filed with the Securities and Exchange Commission (the "SEC") on
March 31, 2008 (the "Annual Report"), Quarterly Reports on Form
10-Q, Current Reports on Form 8-K, and other of Heckmann's SEC
filings, and China Water's Annual Report on Form 10-K as filed with
the SEC on May 1, 2008, as amended, (the "CW Annual Report"),
Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and
other of China Water's SEC filings.
This communication is being made in respect of the proposed
transaction involving Heckmann and China Water. Heckmann and their
respective directors and executive officers may be deemed to be
participants in the solicitation of proxies for the special meeting
of Heckmann's stockholders to be held to approve the proposed
business combination. In connection with the proposed transaction,
Heckmann plans to file with the SEC a Registration Statement on Form
S-4 containing a Proxy Statement/Prospectus and each of Heckmann and
China Water plan to file with the SEC other documents regarding the
proposed transaction. Stockholders of Heckmann and other interested
persons are advised to read, when available, Heckmann's preliminary
and definitive Proxy Statements in connection with the forthcoming
solicitation of proxies for the forthcoming special meeting because
these proxy statements will contain important information. Such
persons can also read the Heckmann Annual Report and CW Annual
Report, and subsequent filings with the SEC for a description of the
security holdings of officers and directors of Heckmann Corporation
and China Water and their respective interests in the successful
consummation of the proposed business combination. The definitive
Proxy Statement will be mailed to stockholders as of a record date
to be established for voting on the business combination.
Stockholders will also be able to obtain a copy of the definitive
Proxy Statement, without charge, by directing a request to: Heckmann
Corporation, 75080 Frank Sinatra Drive, Palm Desert, California
92211. The preliminary and definitive Proxy Statements, once
available, and the final Prospectus can also be obtained, without
charge, at the Securities and Exchange Commission's internet site
(http://www.sec.gov).
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