MELVILLE, N.Y. and DAVIDSON, N.C. — MSC Industrial Direct Co., a leading North American distributor of metalworking and maintenance, repair and operations products, announced Wednesday that — based on the recommendation of a special committee composed entirely of independent directors — its board of directors has approved, and will recommend to shareholders for approval, the reclassification of the company's equity structure, including the elimination of the company's Class B common stock which is held by the Jacobson-Gershwind family and entities affiliated with the family.
Under the terms of the reclassification agreement, each outstanding share of the company's high-voting Class B shares — 10 votes per share — will be exchanged for 1.225 Class A shares — 1 vote per share — in stock.
The agreement follows the Jacobson-Gershwind family's previously disclosed proposal to exchange each Class B share for 1.35 Class A shares.
The company expects to realize a number of beneficial voting and governance changes as a result of the reclassification, including:
- Limitations on family voting: The Jacobson-Gershwind family has agreed to limit its voting to 15% of shares outstanding, and any shares it owns in excess of 15% will be voted pro rata with the votes of the unaffiliated Class A shareholders. The Jacobson-Gershwind family will remain MSC's largest shareholder following the reclassification, owning approximately 21% of the company's Class A shares. The Jacobson-Gershwind family will also be subject to standstill and lock-up provisions.
- Enhancements to governance: The company will adopt a majority of the shares outstanding standard, replacing the current required two-thirds vote, to approve significant transactions and a majority of the votes cast standard for uncontested board elections.
- Further enhancing board independence: The Board intends to add a new independent director to the board.
- Active capital allocation: The company's board of directors will explore a share repurchase to offset dilution from the proposed transaction.
The special committee issued the following statement regarding the agreement:
"Following rigorous review and analysis with the assistance of independent financial and legal advisors, and dialogue with shareholders, we believe this reclassification is in the best interests of the company and MSC shareholders. MSC's corporate governance will be enhanced by aligning the voting rights and financial interests of all shareholders. We also expect this action will broaden the appeal of our shares to include investors with a preference for companies without dual class share structures. MSC remains well positioned for the future as we continue delivering against our strategic initiatives and targets."
"We are pleased that the Board supports eliminating MSC's dual class share structure, which we believe will align the company's corporate governance profile with current best practices for the benefit of all shareholders," Mitchell Jacobson, chairman of the board of directors, said on behalf of the Jacobson-Gershwind family. "Our family remains enthusiastic about the future of MSC and looks forward to continuing as significant shareholders in the company as we have since it was founded in 1941."
The company will be seeking shareholder approval of the reclassification at a special meeting of shareholders, to be held following effectiveness of a registration statement to be filed with the Securities and Exchange Commission. In addition to other shareholder votes required by law, the proposed reclassification is also subject to approval by the holders of a majority of the unaffiliated Class A shares.
A complete description of the reclassification and the reclassification agreement will be included in the proxy statement for the special meeting. The company will announce details of the special meeting as soon as it is determined.
Evercore is serving as financial advisor and Kirkland & Ellis LLP is serving as legal counsel to the special committee of the MSC board of directors. Greenhill & Co. is serving as financial advisor and Paul, Weiss, Rifkind, Wharton & Garrison LLP is serving as legal counsel to the Jacobson-Gershwind family. Moore & Van Allen PLLC is serving as legal counsel to MSC.
