Merger Agreement with Builders FirstSource, Inc.

9 Months Ended

Sep. 30, 2020

Business Combinations [Abstract]

Merger Agreement with Builders FirstSource, Inc.

Merger Agreement with Builders FirstSource, Inc.

On August 26, 2020, the Company, Builders FirstSource and Boston Merger Sub I Inc., a Delaware corporation and a direct wholly owned subsidiary of Builders FirstSource (“Merger Sub”), entered into an Agreement and Plan of Merger (the “Merger Agreement”), pursuant to which the Company and Builders FirstSource will combine in an all-stock merger transaction. Upon the terms and subject to the conditions set forth in the Merger Agreement, at the effective time of the Merger (the “Effective Time”), Merger Sub will merge with and into the Company, with the Company continuing as the surviving corporation and becoming a wholly owned subsidiary of Builders FirstSource (the “Merger”), with Builders FirstSource identified as the accounting acquirer.

Under the terms of the Merger Agreement, which has been unanimously approved by the board of directors of each company, at the Effective Time, each issued and outstanding share of the Company’s common stock, par value $0.01 per share (the “BMC Common Stock”), will automatically be converted into the right to receive 1.3125 shares (the “Exchange Ratio”) of common stock, par value $0.01 per share, of Builders FirstSource (the “BLDR Common Stock”). No fractional shares of BLDR Common Stock will be issued in the Merger, and holders of shares of BMC Common Stock will receive cash in lieu of any such fractional shares. Upon consummation of the Merger, Builders FirstSource’s stockholders will own approximately 57% and the Company’s stockholders will own approximately 43% of the combined company.

Each outstanding BMC stock option held by a current employee or service-provider will become, at the Effective Time, an option to purchase shares of BLDR Common Stock, with the number of shares and the exercise price adjusted by the Exchange Ratio. Each outstanding BMC stock option held by any former BMC employee or service-provider will be converted at the Effective Time into the right to receive cash in an amount equal to the product of (i) the number of shares of BMC Common Stock subject to such BMC stock option as of immediately prior to the Effective Time and (ii) the excess of the market value of 1.3125 shares of BLDR Common Stock over the applicable exercise price per share of such option, subject to applicable withholding taxes. Each outstanding BMC time-vested and performance-vested restricted stock unit will vest and settle at the Effective Time in a number of shares of BLDR Common Stock equal to the number of shares of BMC Common Stock otherwise issuable upon settlement of such BMC restricted stock unit (assuming target level of performance for performance-vested awards), multiplied by the Exchange Ratio, and subject to applicable withholding taxes.

The Merger is intended to qualify as a tax-free reorganization under the Internal Revenue Code so that none of the Company, Builders FirstSource, Merger Sub, or any of the Company’s stockholders generally will recognize any gain or loss on the issuance or receipt of BLDR Common Stock in the Merger, except that the Company’s stockholders generally may recognize gain or loss with respect to cash received in lieu of fractional shares of BLDR Common Stock.

The Company and Builders FirstSource have made customary representations, warranties and covenants in the Merger Agreement, including covenants regarding the conduct of their respective businesses during the pre-closing period and their use of reasonable best efforts to consummate the Merger. In addition, the Merger Agreement contains restrictions on the Company’s and Builders FirstSource’s ability to (i) solicit competing acquisition proposals and (ii) subject to certain exceptions if their respective boards of directors determine it would be inconsistent with their fiduciary duties, to participate in any discussions or negotiations, or provide any non-public information, or take other actions in furtherance of or relating to any competing acquisition proposals, or change, withdraw, qualify, or modify the recommendation by the Company’s or Builders FirstSource’s board of directors to their respective stockholders to adopt the Merger Agreement and approve the issuance of BLDR Common Stock in the Merger (the “Stock Issuance”), respectively.

The Merger Agreement contains certain termination rights for both the Company and Builders FirstSource, including (i) if the Merger is not consummated on or before the “outside date” of May 26, 2021 (subject to extension to August 26, 2021, under certain circumstances), (ii) if the required approval of the Company’s stockholders or Builders FirstSource’s stockholders is not obtained, (iii) if any law or order prohibiting the Merger or the Stock Issuance has become final and non-appealable, (iv) if the board of directors of the other party changes its recommendation of the Merger prior to the receipt of its stockholder approval, (v) if the other party breaches its obligation not to solicit competing acquisition proposals in any material respect, or (vi) if the other party breaches its representations or warranties or fails to perform its covenants and such breach would cause a failure of the related closing condition and either is not curable by the outside date or is not cured within thirty days of notice of the breach. Upon termination of the Merger Agreement, under certain specified circumstances, the Company may be required to pay a termination fee of $66 million to Builders FirstSource or Builders FirstSource may be required to pay a termination fee of $100 million to the Company.

The foregoing description of the Merger Agreement is not complete and is qualified in its entirety by reference to the full text of the Merger Agreement included as Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on August 27, 2020 and incorporated by reference in this Quarterly Report on Form 10-Q.

The Company incurred Merger-related costs of $8.5 million and $9.2 million for the three and nine months ended September 30, 2020, respectively, which are included in selling, general and administrative expenses on the condensed consolidated statements of operations.