Global Eagle Enters into Agreement with Shareco of HNA Group to Make Major Investment in Global Eagle and to Form a Joint Venture to Provide Inflight Entertainment and Connectivity Services in China
08 Nov, 2016
- Joint venture would exclusively provide inflight connectivity hardware and entertainment services on HNA airlines, comprising over 320 aircraft today with the potential to grow to over 500 planes
- Shareco plans to invest up to $416 million in Global Eagle stock at $11 per share through a combination of primary and secondary share purchases
Today Global Eagle announced it has entered into a strategic alliance and an investment agreement with Beijing Shareco Technologies Co., Ltd. ("Shareco", NEEQ: 837676), an affiliate of HNA Group, one of China's largest conglomerates. Global Eagle and Shareco plan to create a joint venture ("JV") to provide inflight entertainment and connectivity ("IFEC") in China and exclusively service aircraft operated by HNA airlines. Shareco will make an initial primary equity investment in Global Eagle of approximately $103 million, as well as contemplated additional primary and secondary common equity purchases upon the formation of the JV that would bring the total expected investment to $416 million.
Under terms of the contemplated transactions, Global Eagle and Shareco would form a JV to provide IFEC and passenger monetization services to HNA airlines. Global Eagle would sell its equipment, including its Airconnect antennas, network services and engineering and product support directly to the JV. The JV would be the exclusive provider of IFEC to HNA aircraft. This fleet comprises over 320 aircraft today and is expected to grow to over 500 aircraft in the future.
Global Eagle currently operates live connectivity and television services in the Chinese IFEC market, and since 2013, Global Eagle's Chinese growth program has included investment in a Beijing office, local engineers, partnerships with Chinese media and advertising firms, connectivity trials and teleport infrastructure. Global Eagle works with all of the Tier-1 telecommunications providers in China and, upon implementation of the JV, expects to be well-positioned in the highly competitive China IFEC market, with the JV having exclusive access to aircraft currently comprising a significant portion of the Chinese commercial aviation market. Currently, Global Eagle has trial contracts with Shareco to provide services to several airlines within the HNA Group.
Shareco is a Beijing-based company that has developed and implemented an established advertising and passenger monetization model as the exclusive provider of e-commerce, games, content and advertising solutions to numerous airlines within and out of HNA's fleet, including Hainan Airlines, Beijing Capital Airlines, Yangtze River Express, Tianjin Airlines and Okay Airways, among others. Shareco currently provides innovative tablet-based IFEC services to over 200 aircraft. Shareco is affiliated with HNA Group, a Fortune Global 500 corporation based in China with a proven track-record of acquisitions and investments in the aviation and travel industries.
"The transaction would bring together two industry leaders to accelerate IFEC adoption and improve the passenger experience in China. The completion of our JV with Shareco would accelerate our growth and solidify Global Eagle as a major IFEC provider in the rapidly growing Chinese market," said Dave Davis, CEO of Global Eagle. "We are thrilled to partner with Shareco and HNA Group to drive new revenue opportunities and provide unparalleled connectivity and passenger entertainment products for HNA airlines and the Chinese market."
"We are investing in Global Eagle based on its leadership in the mobility space and unique position of offering an integrated suite of connectivity and content products," said Jason Sun, Chairman of Shareco. "Our investment and strategic alliance will accelerate adoption of inflight connectivity, advertising and e-commerce in the Chinese market and bring a differentiated experience to passengers."
Shareco's investment and creation of the JV is planned to occur in two stages. First, Shareco has agreed to acquire newly issued common shares of Global Eagle for $11.00 per share, resulting in a 9.9% post-investment ownership stake. Based on Global Eagle current shares outstanding, the initial investment is expected to total approximately $103 million for approximately 9.3 million newly issued shares of Global Eagle. Global Eagle will use the proceeds from this investment for general corporate purposes. The first stage of the transaction is subject to regulatory review and other customary closing conditions.
In connection with the second stage of the transactions, Global Eagle and Shareco will negotiate binding documentation including an investment agreement providing for additional Shareco primary and secondary equity investments and a definitive JV agreement. Upon formation of the JV, Shareco would purchase up to $150 million of additional primary shares from Global Eagle at $11.00 per share, with the proceeds used by Global Eagle to invest in the JV as described below. In addition, in connection with the second stage of the transaction, Shareco would commence a tender offer to Global Eagle's stockholders to acquire shares at $11.00 per share in an amount which would result in Shareco holding an expected 34.9% ownership stake in Global Eagle, through an expected aggregate investment of up to approximately $416 million, inclusive of both investment stages of the transaction. The second stage of the transaction is subject to the parties entering in a definitive investment and JV agreements, as well as regulatory review, Global Eagle shareholder approval and other customary closing conditions.
Global Eagle is expected to own up to 49% of the JV, and Shareco would own the remainder. In connection with the formation of the JV, Global Eagle would invest up to $150 million into the JV, and Shareco is expected to contribute substantially all of its assets and liabilities, including exclusive contractual rights to provide IFEC services to HNA airlines. Upon completion of the second investment, Shareco would have the right to nominate Global Eagle Board of Director seats proportionate to its ownership position in Global Eagle. Global Eagle expects to be actively engaged in the management of the JV, including having the rights to appoint key JV officers.
Global Eagle expects that the completion of Shareco's initial primary investment will occur during the first half of 2017, with the JV and second stage equity investments completed later in 2017.
BofA Merrill Lynch and Barclays are acting as financial advisors to Global Eagle, and Simpson Thacher & Bartlett LLP is acting as legal advisor to Global Eagle. Moelis & Company is acting as exclusive financial advisor to Shareco. Sidley Austin LLP and Fangda Partners are acting as legal advisors to Shareco.
Conference Call Webcast
Further details on the transaction will be discussed on today's Global Eagle's earnings webcast at 5:00 p.m. ET (2:00 p.m. PT). Global Eagle will make the webcast available on the Investor Relations section of its website at http://investors.geemedia.com/events.cfm, along with a supplementary slide presentation also available on that section of the website. Global Eagle will archive a webcast replay and the slide presentation on its website for 30 days following the event.