What Do Welbilt’s Risk Factors Reveal Amid Pending Merger?

Florida-based Welbilt, Inc. (WBT) makes commercial foodservice equipment. Its brands include Cleveland, Convotherm, Frymaster, Kolpak, and Merrychef. The company sells its products in more than 100 countries through a network of more than 5,000 distribution partners. Welbilt is in the process of merging with Italian foodservice equipment maker Ali Group.

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Let’s take a look at Welbilt’s latest financial performance, the pending Ali Group merger, and changes in risk factors. (See Welbilt stock charts on TipRanks).

Welbilt’s Q2 Financial Results and 2021 Guidance

Welbilt reported a 92% year-over-year increase in Q2 2021 revenue to $395.6 million, beating the consensus estimate of $343.87 million. It posted adjusted EPS of $0.22, compared to $0.07 in the same quarter last year, and beat consensus estimates of $0.11. Welbilt ended Q2 with $153.8 million in cash and $238.4 million in a revolving credit facility.

For full-year 2021, the company anticipates revenue of $1.48 billion and adjusted operating EBITDA of $267 million.

Welbilt’s Merger with Ali Group

Welbilt has agreed to be acquired by Ali Group in an all-cash deal. The deal values Welbilt at $24 per share and assigns it an enterprise value of $4.8 billion. The transaction is expected to close in early 2022 and will result in Welbilt stock to cease trading on the NYSE.

Before Ali Group came on board, Welbilt had agreed to be acquired by Middleby Corp. (MIDD) in an all-stock transaction. The Middleby deal, which was expected to close in late 2021, assigned Welbilt an enterprise value of $4.3 billion.

As a consequence of walking away from the Middleby merger agreement, Welbilt became liable to pay a termination fee of $110 million. Ali Group paid the fee to Middleby on Welbilt’s behalf.

Welbilt’s Risk Factors

The new TipRanks Risk Factors tool shows 46 risk factors for Welbilt. Since Q4 2020, the company has updated its risk profile with eight new risk factors across several categories.

Welbilt cautions investors that failure to complete the merger with Ali Group could adversely impact its stock price, business, and financials. For example, under specific circumstances, Welbilt will be liable to pay a $110 million termination fee to Ali Group if the merger agreement collapses. Additionally, it may be required to refund the $110 million termination fee that Ali Group paid to Middleby on its behalf.

Welbilt says that the terms of the Ali Group merger agreement make it difficult for it to pursue an alternative deal that could be more favorable to its shareholders. It further says that the agreement imposes some restrictions on its business activities. Restrictions may force it to forgo certain business opportunities while waiting for the merger to close, and it will incur merger-related costs if the transaction is not completed.

The majority of Welbilt’s risk factors fall under the Finance and Corporate category, with 33% of the total risk. That is below the sector average of 39%. Welbilt stock has gained about 78% year-to-date.