Death becomes you, Service Corp. International (NYSE:SCI). It announced today that it has agreed to pay $13.25 per share in cash for funeral home and cemetery operator Stewart Enterprises (NASDAQ: STEI), a 5% premium to its closing price on May 28. The acquisition, which the boards of directors of both companies have approved, has an enterprise value of $1.4 billion.
The death-care industry is highly fragmented, but the merger of the two industry giants will create a combined company with $3 billion in revenues and a backlog of future preneed revenue exceeding $9 billion. Indeed, things are so busy that people are just dying to get in there. The two companies have 2,168 locations in 48 states, eight Canadian provinces, and Puerto Rico, including 1,653 funeral homes and 515 cemeteries; 282 are combination locations.
The merger is expected to generate some $60 million in cost savings that will be realized over a two-year period from reduced back-office systems and infrastructure costs, elimination of duplicate public company and management structure costs, and improved purchasing power. There aren't expected to be any material layoffs associated with joining the two companies together.
While the merger will be late this year or early next year, it is still subject to customary closing conditions, not least of which is gaining the approval from Stewart's shareholders and the expiration of the waiting period under the Hart-Scott-Rodino Antitrust Act.
Service Corp. entered into a voting agreement with Stewart Enterprises Chairman Frank B. Stewart, Jr. who has agreed to vote in favor of the acquisition, which is expected to be immediately accretive to normalized earnings per share and adjusted cash flows from operations. SCI also said it expects the acquisition to generate a compelling return that is consistent with its capital deployment strategy.