 The
Weiss Family’s
Perspective
July 22, 2013
Exhibit 18 |
 1
1.
The Enhanced Price
2.
The Family’s View of the Industry and Its Investment
3.
The Company’s Q1 Results
4.
American Greetings’
Position in the Equity Markets
5.
Necessary Capital Redeployment
6.
What Happens if the Deal is Turned Down?
|
 2
•
The
enhanced
price
of
$19.00
per
share
represents
a
4.4%
premium
to
the
original
price
of $18.20,
and
a
10.6%
increase
over
the
price
initially
offered
by
the
Family
in
September 2012.
•
It represents a 32.5% premium to the unaffected closing price immediately prior to
the Family’s initial offer, and a 33.1% premium to the unaffected
45-day average closing price.
•
The
enhanced
$19.00
cash
price
delivers
certain
value
for
public
shareholders.
•
While
the
Family
was
willing
to
enhance
the
price
in
response
to
feedback
from
the
Special Committee and shareholders, the Family will not further increase its
offer. •
The Family
will
be
assuming
the
risk
of
operating
a
paper
greeting
cards
company
in
an
industry that the Family believes faces persistent year-over-year
decline. The Family increased its offer price after the original
definitive agreement was signed; the price will not be
increased further |
 3
1.
The Enhanced Price
2.
The Family’s View of the Industry and Its Investment
3.
The Company’s Q1 Results
4.
American Greetings’
Position in the Equity Markets
5.
Necessary Capital Redeployment
6.
What Happens if the Deal is Turned Down?
|
 4
•
The Company’s paper greeting cards business accounts for 74% of revenue.
•
The paper greeting cards industry has been shrinking since 2007 (2-4% annually).
•
In 2012, unit sales declined 4%, and the the industry experienced the first-ever
decline among “heavy users”
(1.5%).
•
No one knows how quickly or precipitously the industry will decline.
•
Currently, the only certainty is that the decline is accelerating year-over-year.
The Company’s core business is paper greeting cards, and
the paper greeting cards industry is facing persistent and
accelerating decline |
 5
•
The Family has guided the Company for more than 100 years—because the Family
is fully committed to the Company’s long-term viability, it is
willing to take the risks inherent in the business.
•
The risks of operating in an industry facing persistent and accelerating
decline. •
The substantial execution risks involved with investments in electronic and
digital channels.
•
These
risks
would
be
transferred
from
public
shareholders
to
the
Family,
and
public
shareholders would receive certain cash value at a substantial premium.
•
The Family understands the potential upside if the Company is able to successfully
transform its business, but the Family does not view this transaction
on an IRR, “wealth creation”
or any similar basis.
•
The Family does not intend to exit American Greetings.
•
The
Family
believes
that
any
analysis
of
the
transaction
on
such
bases
necessarily
ignores the fact that the Company’s core industry has been persistently
declining. The Family views the merger as necessary to the long-term
prospects
of
the
Company,
not
in
terms
of
typical
investment
metrics |
 6
1.
The Enhanced Price
2.
The Family’s View of the Industry and Its Investment
3.
The Company’s Q1 Results
4.
American Greetings’
Position in the Equity Markets
5.
Necessary Capital Redeployment
6.
What Happens if the Deal is Turned Down?
|
 7
•
The Company’s operations are heavily seasonal, and annual results are largely
driven by Q3-Q4 performance.
•
The Family believes that the Q1 results are a modest positive variance against
plan—the
Family
does
not
believe
that
this
Q1
variance
translates
into a
fundamental shift in the Company’s value.
•
The variance against plan was approximately 60% attributable to one customer order
in the ancillary Fixtures Business.
•
That order was exceptionally large, and is non-recurring. The Fixtures
Business is driven by one-time customer capital expenditure
needs. Without this order, the Fixtures Business would have missed Q1
plan. •
The new
relationship
with
a
significant
customer,
if
and
when
it
leads
to
an
executed
contract,
will
be
NPV
negative
for
at
least
five
years,
reducing
the
Company’s
cash
generation.
The Family believes that AG’s FY 2014 and long-term
outlooks have not materially changed, and that the
moderately improved Q1 results have no discernible effect on
the trajectory of AG’s core business |
 8
1.
The Enhanced Price
2.
The Family’s View of the Industry and Its Investment
3.
The Company’s Q1 Results
4.
American Greetings’
Position in the Equity Markets
5.
Necessary Capital Redeployment
6.
What Happens if the Deal is Turned Down? |
 9
•
The Company’s stock trades at low multiples.
•
3.5x LTM EBITDA average for 24 months prior to the initial proposal; 3.0x LTM
EBITDA average for six months prior to the initial proposal.
•
Different analyses, as offered by some shareholders, can assume any hypothetical
multiple—the only relevant real-world fact is that the
Company’s actual unaffected trading
multiple,
over
a
sustained
period,
has
averaged
3.0x-3.5x
EBITDA.
•
The Company has demonstrated weak correlation to broader market indices and any set
of comparable companies.
•
The Company’s only true comparable in the paper greeting cards market is
privately held.
•
The Family believes that the markets are tuned in to the fact that the
Company’s core industry is in decline.
•
The Company’s share price had 15-year CAGR of (5.7%) prior to the initial
proposal. •
44% short interest (as percent of float) immediately prior to the initial
proposal; 40% short interest average for six months prior to the initial
proposal. The Family believes that American Greetings’
historical
performance in the public markets does not support the
contention that it would trade at higher multiples in the
foreseeable future |
 10
•
The Family believes that the equity markets have not rewarded the Company for
shareholder capital returns.
•
The Company has returned over $1 billion to public shareholders through dividends
and repurchases since FY 2005.
•
Over that period, the Company’s stock price declined 38%—while the
S&P 400 Consumer Discretionary Index rose 40%.
•
For all of the reasons discussed above—
Despite over $1
billion in cash returned to shareholders since
FY
2005,
the
Company’s
stock
traded
at
3.0-3.5x
EBITDA and
fell 78% behind the consumer index.
(1)
the stock price’s lack of correlation to the broader market,
(2)
the market’s persistently pessimistic view of the Company, including the
substantial short position,
(3)
the market’s indifference to the Company’s massive capital returns to
shareholders,
(4)
the lack of true comparable companies, and
(5)
the accelerating decline of the Company’s core industry
—the Family does not believe that there is any reasonable basis to suggest
that the Company would trade above $19.00 absent a transaction... even if
massive capital
returns
were
continued. |
 11
1.
The Enhanced Price
2.
The Family’s View of the Industry and Its Investment
3.
The Company’s Q1 Results
4.
American Greetings’
Position in the Equity Markets
5.
Necessary Capital Redeployment
6.
What Happens if the Deal is Turned Down? |
 12
•
The Family believes that capital redeployment is essential; substantial investment
is required for all of the following:
•
advancing the Company’s paper card business in order to overcome conditions
in a declining industry,
•
identifying opportunities in the digital channel, necessarily entailing
substantial execution risk,
•
upgrading the Company’s IT systems, and
•
replacing or substantially upgrading the Company’s current headquarters
(current facility ~60 years old).
•
All of this requires capital investment of over 3x historical levels over the next
two years; the
Company
estimates
up
to
$446
million
in
capital
expenditures
over the next five years
(over 1.75x the historical pattern).
•
The vast majority of this $446 million investment represents deferred maintenance,
necessary simply to maintain the Company’s core business
performance. •
The
Company
expects
zero
or
negligible
ROI
on
its
IT
systems
and
headquarters
projects—these activities are purely costs of continuing to do
business. The Family believes that capital must be redirected to capital
expenditures and investment in electronic channels |
 13
•
The Family intends to support these investments whether or not the merger is
completed. •
Contrary to the suggestion of some shareholders, given these capital requirements,
the Family believes that substantial additional capital returns to
shareholders are not feasible. •
This
means
the
substantial
redirection
of
capital
away from shareholder capital
returns for the foreseeable future.
•
The Family believes that the alternative to the proposed transaction is not any
type of recapitalization.
•
The alternative is carrying out the Company’s long-term business
transformation plans as a public company.
The Family believes that capital must be redirected to capital
expenditures and investment in electronic channels |
 14
1.
The Enhanced Price
2.
The Family’s View of the Industry and Its Investment
3.
The Company’s Q1 Results
4.
American Greetings’
Position in the Equity Markets
5.
Necessary Capital Redeployment
6.
What Happens if the Deal is Turned Down? |
 15
•
The
Family
believes
that
it
is
important
for
American
Greetings’
unaffiliated shareholders to
understand the Family’s commitment to the long-term success of American
Greetings. •
The Family has guided the Company for over a century, including since it became a
publicly traded company in 1958.
•
Regardless of the outcome of the vote, the Family places the highest priority on
maximizing the Company’s chances of remaining viable in the 21st
century. •
As shareholders, the Family believes that capital should be redirected to
investment in the
business
and
that,
during
that
period,
share
repurchases
and
dividends should be
terminated.
•
It
is
understandably
difficult
for
many
investors
to
hold
shares
through business
transformations,
given
the
focus
of
the
public
equity
markets
on
quarter-to-quarter
performance.
•
The Family believes that this concern is compounded by their expectation that
capital will be redirected away from shareholder returns—in an
environment where massive shareholder returns had buoyed the stock price to
only 3.0x EBITDA. •
The
Family
urges
American
Greetings’
unaffiliated shareholders to vote in favor of the
merger.
The Family believes that further capital deployment to
shareholders is not sustainable until American Greetings is
fully repositioned for long-term viability |
 16
•
Statements about the expected timing, completion and effects of the proposed
transaction and all other statements in this communication, other than
historical facts, constitute forward-looking statements within the
meaning of the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. Readers are cautioned not to place undue reliance on these
forward- looking statements and any such forward-looking statements
are qualified in their entirety by reference to the following cautionary
statements. All forward-looking statements speak only as of the date
hereof and are based on current expectations and involve a number of
assumptions,
risks
and
uncertainties
that
could
cause
the
actual
results to differ materially from
such forward-looking statements. The Company may not be able to complete the
proposed transaction on the terms described above or other acceptable terms
or at all because of a number of factors, including the failure to obtain
shareholder approval or the failure to satisfy other closing conditions.
Factors that may affect the business or financial results of the Company are
described in the risk factors included in the Company’s filings with the SEC,
including the Company’s 2013 Annual Report on Form 10-K. The Company and
the Weiss Family expressly disclaim a duty to provide updates to
forward-looking statements, whether as a result of new information,
future events or other occurrences. Forward Looking Statements
|
 17
•
In connection with the proposed merger transaction, the Company filed with the SEC a
definitive proxy statement and other relevant documents, including a form of
proxy card, on July 10, 2013. The definitive proxy statement and a
form of proxy card have been mailed to the Company's shareholders.
This investor presentation does not constitute a solicitation of any vote or
approval. Shareholders are urged to read the proxy statement and any other
documents filed with the SEC in connection with the proposed merger or incorporated
by reference in the proxy statement because they contain important
information about the proposed merger.
•
Investors will be able to obtain a free copy of documents filed with the SEC at the
SEC’s website
at
http://www.sec.gov.
In
addition,
investors
may
obtain
a
free copy of the Company’s
filings with the SEC from the Company’s website at
http://investors.americangreetings.com or by directing a request to the
Company’s Corporate Secretary at our World Headquarters at One American
Road, Cleveland, Ohio 44144-2398, or via email to
investor.relations@amgreetings.com.
•
The Company and its directors, executive officers and certain other members of
management and
employees
of
the
Company
may
be
deemed
“participants”
in the solicitation of proxies from
shareholders of the Company in favor of the proposed merger. Information regarding
the persons who may, under the rules of the SEC, be considered participants
in the solicitation of the shareholders of the Company in connection with
the proposed merger is set forth in the definitive proxy statement and the
other relevant documents filed with the SEC. You can find information about
certain of the Company’s executive officers and its directors in its Annual
Report
on
Form
10-K
for
the
fiscal
year
ended
February
28, 2013.
Additional Information and Where to Find It |