Service Corp International (SCI.N) agreed to buy Stewart Enterprises Inc STEI.O for $1.13 billion, merging the two largest U.S. funeral home operators as the industry gears up to offer more services to aging baby boomers.
Large-scale consolidation in the highly fragmented funeral business has long been on the cards, with the industry looking to sell more pre-planned funeral contracts to the 76 million baby boomers in the United States.
Service Corp, which failed in a bid to take over Stewart in 2008, said on Wednesday the combined company would have a backlog of future revenue exceeding $9 billion from pre-planned bookings.
The group would own 1,653 funeral homes and 515 cemeteries in 48 states, eight Canadian provinces and in Puerto Rico, and have proforma revenue of nearly $3 billion.
Shares of Service Corp, which had revenue of $2.4 billion in 2012, rose as much as 11 percent, suggesting investors were happy with the deal, which was priced at 24.5 times Stewart's forward earnings.
The number of funeral homes and crematories owned by both the companies would be about 20 percent or less of the total in the United States, said Barbara Kemmis, Executive Director of Cremation Association of North America.
"I see this as evidence that there is room in this industry for economies of scale and consolidation," she said.
Just under 25 percent of the U.S. population was over the age of 55 in 2011, up from 20.4 percent in 2000, according to the Census Bureau.
PREMIUM OF 36 PERCENT
The deal is valued at about $1.13 billion based on shares outstanding as of February 28, according to Thomson Reuters data.
Including debt, the transaction is valued at $1.4 billion.
Stewart rejected an unsolicited $1 billion takeover offer from Service Corp in 2008.
Excluding one-time costs, the deal is expected to immediately add to normalized earnings per share, Service Corp said.
Houston-based Service Corp will buy all of Stewart's outstanding Class A and Class B common stock at $13.25 per share, a premium of 36 percent to Tuesday's close.
Service Corp said it expected to generate about $60 million in annual cost savings, and anticipated the synergies to be fully realized over a 24-month period from the closing of the deal, expected late this year or early in 2014.
The acquirer said it intended to maintain an infrastructure presence in Stewart's New Orleans base.
Stewart Chairman Frank Stewart, whose grandfather founded the company in 1910, has agreed to vote his 30 percent stake in the company in favor of the takeover.
Service Corp said it had a financing commitment from JPMorgan Chase Bank and that together with cash on hand this would be sufficient to complete the acquisition.
J.P. Morgan and Shearman & Sterling LLP were financial and legal advisers respectively to the company.
Goldman, Sachs & Co advised Stewart's board, while Jones Walker LLP served as legal adviser. Latham & Watkins LLP served as legal adviser to chairman Stewart.
Service Corp shares were up 7.5 percent at $18.94 on the New York Stock Exchange at midday, while Stewart's stock was up 33.7 percent at $13.03 on the Nasdaq.
(Reporting by Chris Peters in Bangalore; Editing by Maju Samuel and Ted Kerr)
UPDATE 3-British Airways resumes flights from London after IT outage causes chaos
* But Heathrow says expects BA flight delays and cancellations
UK says making progress with tech companies on getting encrypted militant messages
LONDON, May 28 Britain is making good progress with technology companies on getting access to the encrypted messages of militant suspects, interior minister Amber Rudd said on Sunday.