Iron Mountain Reports Regulatory Outcomes In US And Canada On Recall Deal

(RTTNews) - Iron Mountain Inc. (IRM) announced outcomes with competition and antitrust regulators in the United States and Canada related to its proposed acquisition of Recall Holdings Limited (REC.AX) by way of a Scheme of Arrangement and the associated changes to synergy and accretion assumptions.

Iron Mountain has agreed to divest portions of Recall's business in the United States, portions of both its and Recall's businesses in Canada and the majority of Iron Mountain's records management business in Australia, and to place Recall's entire business in the UK in a hold separate arrangement from the closing until the conclusion of the CMA's review.

Upon closing of the proposed acquisition and after giving effect to required divestitures, Iron Mountain expects to continue to provide information management services, data management services and information destruction services to the respective customers of Iron Mountain and Recall in each market and country where they collectively provide service today.

The the United States Department of Justice or DOJ'S approval of the proposed Recall acquisition is conditioned upon Iron Mountain's agreement to divest, to a single buyer pre-approved by the DOJ, Recall's records and information management facilities in the following 13 U.S. cities: Buffalo; Charlotte; Detroit; Durham; Greenville/Spartanburg; Kansas City; Nashville; Pittsburgh; Raleigh; Richmond; San Antonio; Tulsa; and San Diego.

The DOJ's approval is also conditioned on Iron Mountain's agreement to divest, to a buyer or buyers subject to the DOJ's approval, Recall's records and information management facility in Seattle and certain of Recall's records and information management facilities in Atlanta.

Following implementation of the Scheme and these divestitures, Iron Mountain's operations in the United States will include both Recall's and Iron Mountain's existing operations in all but these 15 U.S. locations.

Iron Mountain has reached an agreement to divest the assets in the 13 initial divestiture cities noted above to Access CIG, LLC, a privately held provider of information management services throughout the United States approved by the DOJ as a buyer for these divestitures, for total consideration of $80 million, subject to adjustments.

In addition, Iron Mountain is in discussions with potential buyers for the facilities and related assets in Seattle and Atlanta.

the Canada Competition Bureau or CCB's approval is based upon Iron Mountain's agreement to divest Recall's records and information management facilities in Edmonton and Montreal (Laval), and certain of Recall's records and information management facilities in Calgary and Toronto. In addition, Iron Mountain has agreed to divest one of its records and information management facilities in Vancouver (Burnaby) and two of its records and information management facilities in Ottawa.

As disclosed on March 30, 2016, Australian Competition and Consumer Commission or ACCC's decision not to oppose the Scheme is contingent on Iron Mountain's undertaking to divest Iron Mountain's Australian business other than its data management business throughout Australia and its records and information management and data management businesses in the Northern Territory of Australia, except in relation to customers who have holdings in other Australian states or territories (Retained IRM Australian Business).

The statutory deadline for completion of the United Kingdom (UK) Competition and Markets Authority or CMA's Phase 2 Review is June 29, 2016, with the provisional findings due in late April 2016, and no definitive view can be given at this stage as to its outcome or the scope and timing of any divestitures required. On March 30, 2016, the CMA granted its conditional consent for the Scheme to be implemented prior to the issuance of its final decision following its Phase 2 Review. After completion of the CMA's review, the CMA may order divestitures of UK assets by the combined business as an appropriate remedy.

However, Iron Mountain believes that the maximum scope of any divestitures required in the UK is likely to be less than operations and assets that generated 1% of the combined companies' pro forma revenue for the year ended December 31, 2015. Iron Mountain remains confident that the CMA Review will result in significantly less divestitures in the UK than the estimated maximum. As a result, Iron Mountain's operations in the UK are expected to consist of Iron Mountain's entire UK operations as they stood prior to implementation of the Scheme and the majority of Recall's UK business.

Iron Mountain estimates annual net synergies as a result of the Recall acquisition will be $105 million per year when fully achieved. When the transaction was originally announced in June 2015, Iron Mountain estimated annual net synergies of $155 million, which assumed divestitures of businesses with approximately $30 million of annualized OIBDA.

The difference between these estimates is primarily due to an estimated reductionin the total amount of annual OIBDA related to anticipated divestitures of $75 million. The $75 million consists of $35 million of divested OIBDA and $40 million reduction in annualized OIBDA due to a loss in potential synergies resulting from divestitures in geographies that generally have more overlap between Iron Mountain's and Recall's businesses and would therefore provide more integration benefits.

Iron Mountain estimates that approximately 90% of these expected synergies will be achieved in the first three years following implementation of the Scheme, with approximately $80 million realized in calendar year 2017 and $100 million realized in calendar year 2018. Iron Mountain continues to estimate total costs of approximately $300 million in one-time costs to integrate the businesses, achieve the expected synergies and complete the required divestitures, with approximately $220 million expected to be treated as operating expenses and $80 million expected to be treated as capital expenditures.

Iron Mountain has previously communicated its intent to pursue additional value creating initiatives such as its transformation plan and expanded multi-year plans for developed markets, emerging markets, and adjacent businesses and real estate portfolio expansion. Iron Mountain estimates these initiatives will create approximately $60 million of additional earnings by 2018 with a proportional increase in Normalized FFO and AFFO. Therefore, when Iron Mountain's forecast is updated with these initiatives, the estimated realized accretion from the proposed Recall acquisition will, on a percentage basis, be lower than accretion estimates that do not include these initiatives in the base assumptions. As a result, Iron Mountain expects Adjusted EPS accretion in 2018 when giving effect to these initiatives to be 10%, as compared with 15% accretion on the same basis as the original transaction announcement in June 2015.

Additional information related to accretion on the original basis can be found in Iron Mountain's Current Report on Form 8-K which will be filed with the Securities and Exchange Commission tomorrow morning, and details related to accretion, including Iron Mountain's expanded growth plan, as well as updates to Iron Mountain's 2016 guidance can be found in the investor presentation available HERE.

Iron Mountain estimates it will receive approximately $220 million in proceeds from the divestitures resulting from the Scheme. Iron Mountain anticipates that for every $25 million change in proceeds, Adjusted EPS accretion will shift approximately 0.3% in the same direction. Upon successful completion of these divestitures, Iron Mountain anticipates using the net proceeds to repay its long term debt obligations and/or outstanding borrowings under its Revolving Credit Facility and ultimately reinvest those proceeds in the business.

Iron Mountain intends to declare and pay its regular second quarterly dividend in the latter portion of the second quarter, including on shares of common stock issued to Recall shareholders in the Recall transaction, assuming the Recall transaction closes on or prior to the record date for such dividend.

In addition, the company is reiterating its expectations for dividend growth and deleveraging consistent with the 2020 targets originally presented.