DELPHI TECHNOLOGIES PLC ITEM 8.01. Other Events.
As previously announced,Delphi Technologies PLC , a public limited company incorporated under the Laws of the Bailiwick of Jersey ("Delphi Technologies"), entered into a Transaction Agreement, dated as ofJanuary 28, 2020 , as amended onMay 6, 2020 (the "Transaction Agreement"), with BorgWarner Inc., aDelaware corporation ("BorgWarner"), pursuant to which BorgWarner, or one of its subsidiaries, will acquireDelphi Technologies in an all-stock transaction (the "transaction"). In connection with the transaction, six complaints have been filed by alleged shareholders ofDelphi Technologies (collectively, the "Shareholder Complaints"): Sherman v.Delphi Technologies PLC , et al., Case No. 1:20-cv-00385-RGA ("Sherman Complaint") is a putative class action that was filed in theUnited States District Court for the District of Delaware ; Costa v.Delphi Technologies PLC , et al., Case No. 1:20-cv-02363-PAC, Catalano v.Delphi Technologies PLC et al., Case No. 1:20-cv-02520-PAC and Schlageter v.Delphi Technologies PLC , et al., Case No. 1:20-cv-02527-PAC are individual actions that were filed in theUnited States District Court for the Southern District of New York ; and Heinowski v.Delphi Technologies PLC , et al., Case No. 2:20-cv-10834-LVP-APP and Reyes v.Delphi Technologies PLC , et al., Case No. 2:20-cv-11562-MAG-EAS are individual actions that were filed in theUnited States District Court for the Eastern District of Michigan . The Shareholder Complaints named as defendantsDelphi Technologies and members of its board of directors and allege, among other things, that the defendants violated Sections 14(a) and 20(a) of theU.S. Securities Exchange Act of 1934, as amended (the "Exchange Act"), and Rule 14a-9 promulgated thereunder by omitting supposedly material information from the preliminary proxy statement filed byDelphi Technologies onMarch 11, 2020 with theSecurities and Exchange Commission ("SEC") or the definitive proxy statement (the "Proxy Statement") filed byDelphi Technologies onMarch 26, 2020 with theSEC , rendering these filings false and/or misleading. In addition, the Sherman Complaint named BorgWarner as a defendant with respect to its claim arising under Section 20(a) of the Exchange Act. The Shareholder Complaints seek, among other relief, an injunction against proceeding with the shareholder vote on the proposed transaction or consummating the proposed transaction absent corrective disclosures, damages and attorneys' and expert fees.Delphi Technologies and the other named defendants believe that the disclosures set forth in the Proxy Statement comply fully with all applicable law, that no supplemental disclosures are required under applicable law, and that the plaintiffs' allegations in each of the Shareholder Complaints are without merit. However, in an effort to put the claims that were or could have been asserted to rest, to avoid nuisance and possible expense and transaction delays, and without admitting any liability or wrongdoing,Delphi Technologies is making certain disclosures set forth below that supplement and revise those contained in the Proxy Statement. Nothing in this Current Report on Form 8-K shall be deemed an admission of the legal necessity or materiality under applicable law of any of the disclosures set forth herein. To the contrary,Delphi Technologies and the other named defendants have denied, and continue to deny, that they have committed or assisted others in committing any violations of law, further deny all allegations that any disclosure was or is required or material, and expressly maintain that, to the extent applicable, they have complied with their respective legal obligations. 2
--------------------------------------------------------------------------------
SUPPLEMENTAL DISCLOSURES
This supplemental information should be read as part of, and in conjunction
with, the Proxy Statement, which should be read in its entirety and is on the
SEC's website at http://www.sec.gov, along with periodic reports and other
information Delphi Technologies files with the SEC . To the extent that the
information set forth herein differs from or updates information contained in
the Proxy Statement, the information set forth herein shall supersede or
supplement the information in the Proxy Statement. To the extent defined terms
are used but not defined herein, they have the meanings set forth in the Proxy
Statement.
The disclosure under the heading "Background of the Transaction" is hereby supplemented by adding the following underlined language to the last sentence of the first full paragraph on page 52 of the Proxy Statement:
Additionally, from time to time during the period from the Company's spin-off through the Company's entry into the transaction agreement, Company management considered potential strategic alternatives and engaged in business development or strategic discussions with potential counterparties. None of these discussions progressed beyond preliminary phases other than as described below and the Company did not enter into any non-disclosure agreements other than with BorgWarner. The disclosure under the heading "Delphi Technologies Unaudited Prospective Financial Information" is hereby amended and supplemented by replacing the table and footnotes concerning the January Company Projections beginning on page 85 and continuing on page 86 of the Proxy Statement with the following: FYE Dec-31 2019A 2020E 2021E 2022E 2023E Total Revenue$ 4,361 $ 4,216 $ 4,354 $ 4,553 $ 4,854 Gross Profit$ 691 $ 644 $ 744 $ 824 $ 905 Operating Income$ 142 $ 184 $ 353 $ 455 $ 530 Restructuring$ 80 $ 86 $ 31 $ 8 $ 9 Separation Costs$ 47 $ 5 - - - Pension Charges$ 14 $ 3 - - - Asset Impairments$ 31 $ 3 - - - Adj. Operating Income1$ 314 $ 281 $ 384 $ 463 $ 539 Depreciation & Amortization2$ 207 $ 219 $ 224 $ 230 $ 237 EBITDA3$ 380 $ 406 $ 577 $ 685 $ 767 Adj. EBITDA4$ 521 $ 500 $ 608 $ 693 $ 776 Capex$ (371 ) $ (227 ) $ (215 ) $ (229 ) $ (218 ) Decrease in net working capital$ 15 $ 30 $ 26 $ 45 $ 40 Taxes5$ (62 ) $ (73 ) $ (89 ) $ (98 ) $ (103 ) Other6$ (74 ) $ (76 ) $ (64 ) $ (21 ) $ (7 ) Restructuring cash cost (post-tax)$ (39 ) $ (76 ) $ (64 ) $ (21 ) $ (7 ) Integration cash cost (post-tax)$ (38 ) $ (3 ) - - -
Pension cash cost (post-tax)
- - Other Cash Flows$ 15 $ 5 - - - Unlevered Free Cash Flow7$ 29 $ 155 $ 267 $ 391 $ 488
(1) Adjusted Operating Income is operating income adjusted for restructuring,
separation costs (which include one-time incremental expenses associated with
becoming a stand-alone publicly-traded company), pension charges (which
include additional contributions to defined contribution plans, other
payments to impacted employees and other related expenses resulting from the
freeze of future accruals for nearly all
and asset impairments.
(2) Depreciation & Amortization is adjusted for asset impairments.
(3) EBITDA is operating income plus depreciation, amortization and asset
impairments.
3
--------------------------------------------------------------------------------
(4) Adjusted EBITDA is EBITDA adjusted for restructuring, separation costs (which
include one-time incremental expenses associated with becoming a stand-alone
publicly-traded company), and pension charges (which include additional
contributions to defined contribution plans, other payments to impacted
employees and other related expenses resulting from the freeze of future
accruals for nearly all
(5) Taxes refers to unlevered taxes and excludes the tax impact of the
restructuring cash cost, integration cash cost, cash cost of certain
transaction costs, and pension cash cost.
(6) Other includes restructuring cash cost (post-tax), integration cash cost
(post-tax), one-time pension contributions cash cost (post-tax), certain
transaction costs (post-tax), proceeds from sale of property and other cash
flows.
(7) Unlevered free cash flow means Adjusted EBITDA less (i) capital expenditures,
(ii) change in net working capital, (iii) taxes, and (iv) other cash flows.
Unlevered free cash flow excludes ordinary course pension cash contributions
and financing-related cash flows, as well as the tax impact related to such
items.
The disclosure under the heading "Delphi Technologies Unaudited Prospective Financial Information" is hereby amended and supplemented by replacing the table and footnotes concerning the Updated Company Projections on page 86 of the Proxy Statement with the following: FYE Dec-31 2020E 2021E 2022E 2023E Total Revenue$ 3,352 $ 3,637 $ 3,985 $ 4,322 Gross Profit$ 341 $ 541 $ 638 $ 719 Operating Income$ (79 ) $ 216 $ 325 $ 410 Restructuring$ 102 $ 31 $ 15 $ 15 Separation Costs$ 7 - - - Pension Charges$ 4 - - - Transaction Costs$ 12 - - - Asset Impairments$ 2 - - - Adj. Operating Income1$ 49 $ 247 $ 340 $ 425 Depreciation & Amortization2$ 221 $ 226 $ 230 $ 237 EBITDA3$ 144 $ 442 $ 555 $ 647 Adj. EBITDA4$ 270 $ 473 $ 570 $ 662 Capex$ (208 ) $ (189 ) $ (200 ) $ (190 ) Decrease in net working capital$ 33 $ 30 $ 44 $ 30 Taxes5$ (11 ) $ (54 ) $ (71 ) $ (81 ) Other6$ (83 ) $ (46 ) $ (20 ) $ (16 ) Restructuring cash cost (post-tax)$ (78 ) $ (47 ) $ (21 ) $ (16 ) Integration cash cost (post-tax)$ (5 ) - -
-
Pension cash cost (post-tax)$ (3 ) - - - Transaction Costs$ (9 ) - - - Other Cash Flows$ 13 - - - Unlevered Free Cash Flow7$ 1 $ 213 $ 322 $ 405
(1) Adjusted Operating Income is operating income adjusted for restructuring,
separation costs (which include one-time incremental expenses associated with
becoming a stand-alone publicly-traded company), transaction costs, pension
charges (which include additional contributions to defined contribution
plans, other payments to impacted employees and other related expenses
resulting from the freeze of future accruals for nearly all
benefit pension plans) and asset impairments.
(2) Depreciation & Amortization is adjusted for asset impairments.
4--------------------------------------------------------------------------------
(3) EBITDA is operating income plus depreciation, amortization and asset
impairments.
(4) Adjusted EBITDA is EBITDA adjusted for restructuring, separation costs (which
include one-time incremental expenses associated with becoming a stand-alone
publicly-traded company), transaction costs, and pension charges (which
include additional contributions to defined contribution plans, other
payments to impacted employees and other related expenses resulting from the
freeze of future accruals for nearly all
(5) Taxes refers to unlevered taxes and excludes the tax impact of the
restructuring cash cost, integration cash cost, cash cost of certain
transaction costs, and pension cash cost.
(6) Other includes restructuring cash cost (post-tax), integration cash cost
(post-tax), one-time pension contributions cash cost (post-tax), certain
transaction costs (post-tax), proceeds from sale of property and other cash
flows.
(7) Unlevered free cash flow means Adjusted EBITDA less (i) capital expenditures,
(ii) change in net working capital, (iii) taxes, and (iv) other cash flows.
Unlevered free cash flow excludes ordinary course pension cash contributions
and financing-related cash flows, as well as the tax impact related to such
items.
The disclosure under the heading "THE TRANSACTION" of the Proxy Statement is hereby amended and supplemented by including the following new subsection immediately after the disclosure under the subsection "Delphi Technologies Unaudited Prospective Financial Information":
BorgWarner Unaudited Prospective Financial Information
Prior to the signing of the original transaction agreement, and in connection with, and for purposes of, the transaction, BorgWarner's management prepared internal financial projections on a standalone basis, which BorgWarner shared with the Company and representatives of Goldman Sachs in January. The Company evaluated these projections to determine an appropriate set of projections to incorporate into its assessment of the transaction. The table below is a summary of the financial projections of BorgWarner for fiscal years 2019 to 2023 on a standalone basis that the Company utilized to assess the original transaction (the "January BorgWarner Projections") and do not reflect the consummation of the transaction:
January BorgWarner Projections
(in millions) FYE Dec-31 2019E 2020E 2021E 2022E 2023E Total Revenue$ 10,129 $ 10,122 $ 11,184 $ 12,021 $ 12,926 Gross Profit$ 2,094 $ 2,127 $ 2,321 $ 2,491 $ 2,711 Adj. Operating Income$ 1,223 $ 1,181 $ 1,319 $ 1,430 $ 1,568 Depreciation & Amortization$ 435 $ 438 $ 481 $ 517 $ 556 Adj. EBITDA$ 1,658 $ 1,619 $ 1,800 $ 1,947 $ 2,124 Capex$ (519 ) $ (589 ) $ (640 ) $ (675 ) $ (713 ) (Increase)/Decrease in net working capital$ (172 ) $ (81 ) $ (133 ) $ (105 ) $ (113 ) Taxes$ (318 ) $ (307 ) $ (343 ) $ (372 ) $ (408 ) Other1$ (30 ) $ 4 $ 27 $ 26 $ 31 Unlevered Free Cash Flow$ 619 $ 646 $ 711 $ 821 $ 921
(1) Other includes asbestos (in 2019 only), restructuring and other cash flow
items.
In connection with the amendment, BorgWarner management updated BorgWarner's internal financial projections to reflect, among other things, BorgWarner's actual financial results through the quarter endedMarch 31, 2020 and the potential impact of the COVID-19 pandemic on BorgWarner's business and shared them with the Company and representatives of Goldman Sachs. The Company evaluated the updated projections provided by BorgWarner management and determined to utilize, in its assessment of the transaction (as amended by the amendment), updated projections of BorgWarner that incorporated the following adjustments relative to the January BorgWarner Projections (the "Updated BorgWarner Projections"):
• Sales being reduced by approximately 16% in 2020 and by a range of 4% to
9% for the years 2021-2023, in each case, to reflect the potential impact
of COVID-19 on future sales forecasts.
• EBITDA and cash taxes adjusted downward by 30% as a percentage of any
adjustments in sales.
• Working capital adjusted downward by 12.5% as a percentage of any
adjustments in sales.
In addition, in connection with the Company's evaluation of the amendment,
Delphi Technologies management prepared financial projections of the combined
company on a pro forma basis (after giving effect to the transaction) for the
last three quarters of fiscal year 2020 to 2023 (the "Pro Forma Projections")
by, among other things, combining the Updated Company Projections and the
Updated BorgWarner Projections, and adjusting for certain anticipated run-rate
cost synergies that Delphi Technologies management had projected to be realized
following the transaction.
The table below is a summary of the Pro Forma Projections that the Company utilized to assess the transaction (as amended by the amendment):
5--------------------------------------------------------------------------------
Pro Forma Projections of the Combined Company
(in millions) FYE Dec-31 L3Q 2020E 2021E 2022E 2023E Total Revenue$ 8,600 $ 13,841 $ 15,281 $ 16,611 Depreciation & Amortization$ 522 $ 707 $ 747 $ 793 Adj. EBITDA$ 1,071 $ 2,119 $ 2,565 $ 2,868 Capex$ (525 ) $ (829 ) $ (875 ) $ (903 ) (Increase)/Decrease in net working capital$ 20 $ (187 ) $ (93 ) $ (94 ) Taxes$ (388 ) $ (487 ) $ (522 ) Other1$ (205 ) $ (62 ) $ (61 ) $ (3 ) Unlevered Free Cash Flow$ 362 $ 571 $ 968 $ 1,346
(1) Other includes taxes for L3Q 2020E and are not separately reflected under
Taxes.
The January BorgWarner Projections, the Updated BorgWarner Projections and the Pro Forma Projections are collectively referred to herein as the "BorgWarner Projections." The inclusion of the unaudited prospective financial information herein will not be deemed an admission or representation by BorgWarner orDelphi Technologies that they are viewed by BorgWarner orDelphi Technologies as material information of BorgWarner (either before or after the transaction) orDelphi Technologies . The inclusion of the BorgWarner Projections in this proxy statement should not be regarded as an indication that any of the Company, BorgWarner or any of their respective affiliates, advisors or representatives considered the BorgWarner Projections to be predictive of actual future events, and the BorgWarner Projections should not be relied upon as such. This summary of the BorgWarner Projections is not being included in this proxy statement to influence your decision whether to vote in favor of any proposal. Any forward-looking statement speaks only as of the date on which it is made, and none of BorgWarner, the Company or any of their respective affiliates, advisors, officers, directors, partners or representatives can give you any assurance that actual results will not differ from the BorgWarner Projections, and none of them undertake any obligation or intend to update or otherwise revise or reconcile the BorgWarner Projections to reflect circumstances existing after the date the BorgWarner Projections were generated or to reflect the occurrence of future events. The BorgWarner Projections are subjective in many respects, and there is uncertainty, unpredictability and subjectivity in the underlying assumptions and estimates utilized in the BorgWarner Projections, especially when applied to time periods further in the future. While presented with numerical specificity, the BorgWarner Projections were based on numerous variables and assumptions that necessarily involve judgments with respect to, among other things future economic, competitive, regulatory and financial market conditions, all of which are difficult or impossible to predict and many of which are beyond the control of BorgWarner and the Company. Important factors that may affect actual results and cause the BorgWarner Projections to not be achieved include, but are not limited to, risks and uncertainties relating to BorgWarner's and the Company's businesses (including their ability to achieve strategic goals, objectives and targets over applicable periods), industry performance, the regulatory and competitive environment, changes in technology, general business and economic conditions, including the impact of the COVID-19 pandemic, and other factors described or referenced under "Risk Factors" and "Cautionary Statement Regarding Forward-Looking Statements" beginning on pages 26 and 41, respectively. Various assumptions underlying the BorgWarner Projections may not prove to have been, or may no longer be, accurate. The BorgWarner Projections may not be realized, and actual results may be significantly higher or lower than projected in the BorgWarner Projections. The BorgWarner Projections also reflect assumptions as to certain business strategies or plans that are subject to change. The BorgWarner Projections do not take into account any circumstances or events occurring after the date they were prepared. The BorgWarner Projections cover multiple years, and such information by its nature becomes less predictive with each successive year. As a result, the inclusion of the BorgWarner Projections in this proxy statement should not be relied on as necessarily predictive of actual future events. For all of these reasons, the BorgWarner Projections, and the assumptions upon which they are based, (i) are not guarantees of future results, (ii) are inherently speculative and (iii) are subject to a number of risks and uncertainties. As a result, actual results may differ materially from those contained in the BorgWarner Projections. Accordingly, there can be no assurance that the BorgWarner Projections will be realized. 6
-------------------------------------------------------------------------------- The Updated BorgWarner Projections and the Pro Forma Projections were utilized by (i) representatives of Goldman Sachs in connection with its financial analyses and opinion issued onMay 6, 2020 , as described in the sections of this proxy statement entitled " -Background of the Transaction" and " -Opinion of Goldman Sachs" beginning on pages 51 and 73, respectively and (ii) the Board to consider in its evaluation of the transaction (as amended by the amendment), and were not prepared with a view toward public disclosure or toward compliance with published guidelines of theSEC or the guidelines established by theAmerican Institute of Certified Public Accountants for preparation and presentation of prospective financial information. NeitherPricewaterhouseCoopers LLP , BorgWarner's independent auditor ("PwC") nor E&Y, or any other independent accountants has audited, reviewed, examined, compiled or applied agreed-upon procedures with respect to the BorgWarner Projections contained herein, and accordingly, neither PwC nor E&Y, or any other independent accountant expresses an opinion or any other form of assurance with respect hereto. ThePricewaterhouseCoopers LLP report incorporated by reference in this proxy statement, which has been supplemented by the information herein, relates to BorgWarner's previously issued financial statements, and the E&Y report incorporated by reference in this proxy statement, which has been supplemented by the information herein, relates toDelphi Technologies' previously issued financial statements. These reports do not extend to the BorgWarner Projections and should not be read to do so. None of BorgWarner,Delphi Technologies or their respective financial advisors assume any responsibility for the validity, reasonableness, accuracy or completeness of the BorgWarner Projections. BorgWarner has made no representation toDelphi Technologies in the transaction agreement or otherwise, concerning any of the financial projections it provided to the Company and representatives of Goldman Sachs or the BorgWarner Projections.
No Offer or Solicitation
This communication is being made in respect of the proposed transaction. This communication is not intended to and does not constitute an offer to sell or the solicitation of an offer to subscribe for or buy or an invitation to purchase or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction pursuant to the proposed transaction or otherwise, nor shall there be any sale, issuance or transfer of securities in any jurisdiction in contravention of applicable law. In particular, this communication is not an offer of securities for sale intothe United States . No offer of securities shall be made inthe United States absent registration under theU.S. Securities Act of 1933, as amended (the "Securities Act"), or pursuant to an exemption from, or in a transaction not subject to, such registration requirements. Any securities issued in the proposed transaction are anticipated to be issued in reliance upon available exemptions from such registration requirements pursuant to Section 3(a)(10) of the Securities Act.
Participants in the Solicitation
Delphi Technologies , BorgWarner and certain of their respective directors, executive officers and employees may be deemed "participants" in the solicitation of proxies fromDelphi Technologies shareholders in respect of the proposed transaction. Information regarding the foregoing persons, including a description of their direct or indirect interests, by security holdings or otherwise, is set forth in the Proxy Statement filed with theSEC and any other relevant documents filed or to be filed with theSEC . You can find information aboutDelphi Technologies' directors and executive officers in its Annual Report on Form 10-K and Form 10-K/A for the fiscal year endedDecember 31, 2019 and its definitive proxy statement filed with theSEC on Schedule 14A onMarch 15, 2019 . You can find information about BorgWarner's directors and executive officers in its Annual Report on Form 10-K for the fiscal year endedDecember 31, 2019 and its definitive proxy statement filed with theSEC on Schedule 14A onMarch 20, 2020 . 7
--------------------------------------------------------------------------------
Additional Information and Where to Find It
This communication may be deemed solicitation material in respect of the proposed transaction. In connection with the proposed transaction,Delphi Technologies filed with theSEC the Proxy Statement and may file with theSEC other relevant documents. This communication does not constitute a solicitation of any vote or approval. Before making any voting decision,Delphi Technologies' shareholders are urged to read the Proxy Statement and any other relevant documents filed or to be filed with theSEC in connection with the proposed transaction or incorporated by reference in the Proxy Statement carefully and in their entirety when they become available because they contain or will contain important information about the proposed transaction and the parties to the proposed transaction. Investors are able to obtain free of charge the Proxy Statement and other documents filed with theSEC (when available) at theSEC's website at http://www.sec.gov. In addition, the Proxy Statement andDelphi Technologies' and BorgWarner's respective annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K and amendments to those reports filed or furnished pursuant to section 13(a) or 15(d) of theU.S. Securities Exchange Act of 1934, as amended, are available free of charge throughDelphi Technologies' and BorgWarner's websites at www.delphi.com and www.borgwarner.com, respectively, as soon as reasonably practicable after they are electronically filed with, or furnished to, theSEC .
Notice Regarding Forward-Looking Statements
This communication may contain forward-looking statements as contemplated by the . . .
© Edgar Online, source
