Lemonade’s S-4: Background surrounding the Metromile acquisition
Lemonade recently submitted Form S-4 in connection to the Metromile acquisition. We’ve included the contents of the “background of the mergers” section and highlighted parts we thought were interesting.
“On November 24, 2020, INSU Acquisition Corp. II, INSU II Merger Sub Corp. and Metromile Operating Company entered into an Agreement and Plan of Merger and Reorganization, as amended on January 12, 2021, with respect to a business combination involving the acquisition by INSU of Metromile Operating Company.
In December 2020, the Chief Executive Officer of Lemonade, Daniel Schreiber, and the then Chairman of the board of directors of Legacy Metromile David Friedberg, had an initial discussion relating to potential marketing and business development opportunities between the two companies’ businesses, including opportunities for cross-selling of the respective companies’ complementary insurance products. The conversation was focused on operational matters and did not include any discussion of a potential business combination or other strategic transaction between the two companies, and ultimately did not result in further conversations at that time.
On February 9, 2021, the INSU SPAC transaction was completed. As a result of the INSU SPAC transaction, Metromile became a publicly-traded corporation listed on NASDAQ. On February 9, 2021, the closing price per Metromile common share on NASDAQ was $18.00.
On March 30, 2021, Metromile publicly announced the financial results of Metromile Operating Company for the year ended December 31, 2020. The closing price per Metromile common share on NASDAQ on that day was $11.23.
On May 17, 2021, Metromile publicly announced its financial results for the three months ended March 31, 2021. The closing price per Metromile common share on NASDAQ on that day was $6.96.
On August 5, 2021, the Metromile board of directors held its quarterly board meeting. Members of Metromile’s senior management team were present at that meeting and presented Metromile’s financial results for the three and six months ended June 30, 2021 and its lowered growth forecast for the second half of 2021, both of which would be publicly announced on August 9, 2021. Members of Metromile’s senior management team also presented nonpublic internal financial projections for Metromile for fiscal years 2022 through 2024. In light of the recent decline in Metromile’s stock price and the likelihood that the announcements with respect to Metromile’s financial results and lowered growth forecast would lead to a further decline in Metromile’s stock price and create additional challenges for Metromile to execute on its existing strategic growth plan, among other considerations, the Metromile board of directors proposed to form a strategic committee, consisting of John Butler, Ryan Graves and Vikas Singhal, to consider and explore potential strategic and business alternatives in an effort to maximize stockholder value. Each of Mr. Butler, Mr. Graves and Mr. Singhal was selected to be a member of the strategic committee given, among other things, their respective expertise and experience in acquiring and selling companies, to assist the Metromile board of directors in fulfilling its responsibility relating to the review, evaluation and negotiation of potential strategic alternatives that could maximize value for Metromile’s stockholders.
On August 9, 2021, Metromile publicly announced its financial results for the three and six months ended June 30, 2021, and its lowered growth forecast for the second half of 2021. As part of that announcement, Metromile disclosed that its policies in force had remained relatively flat quarter-over-quarter, that its contribution margin declined, and that its loss ratio had increased from the prior period. Among the challenges facing Metromile at the time were greater than expected policy cancellations, decreased efficacy of its product messaging to spur premium growth, and industry-wide headwinds, including government-mandated COVID-19 payment extensions and regulatory delays in obtaining approvals for proposed pricing changes for its automobile insurance products.
On August 10, 2021, the closing price per Metromile common share on NASDAQ was $5.40, which represented (i) a 22.5% decline from the previous trading day’s closing price of $6.97, (ii) a 70% decline from the closing price of $18.00 on February 9, 2021 (the day on which the INSU SPAC transaction was completed), and (iii) a 73.5% decline from its high trading price earlier in 2021 of $20.39.
Also on August 10, 2021, Mr. Schreiber contacted a representative of Allen & Company, which was familiar with both Metromile and Lemonade, having previously acted as co-placement agent for the private placement undertaken in connection with the INSU SPAC transaction and as co-bookrunning manager for the initial underwritten public offering and a follow-on underwritten public offering of Lemonade common stock. During a call later that day, representatives of Lemonade discussed with representatives of Allen & Company the potential for a transaction with Metromile.
On August 11, 2021, representatives of Allen & Company contacted Dan Preston, Chief Executive Officer of Metromile (“Mr. Preston”), and, on August 12, 2021, spoke with Mr. Preston to discuss Lemonade’s potential interest in a transaction with Metromile and potential strategic alternatives for Metromile.
On August 13, 2021, Mr. Schreiber contacted Mr. Preston to inquire about Metromile’s interest in exploring potential strategic opportunities with Lemonade. Mr. Schreiber and Mr. Preston agreed to speak via telephone on August 17, 2021. Neither value nor terms were discussed during this conversation.
On August 16, 2021, a meeting of the strategic committee was held with members of Metromile’s senior management team present. At that meeting, the strategic committee discussed with Metromile’s senior management potential strategic and business alternatives for Metromile. Prior to such meeting, members of Metromile’s senior management shared with the strategic committee a list of potential companies to consider for such alternatives, given the strategic rationale and the future growth of Metromile’s business, including (i) Lemonade, (ii) a technology company that provides products and services complementary to Metromile’s products, which had contacted Metromile Operating Company in the second quarter of 2020 to discuss a potential sale of Party A to Metromile Operating Company although discussions at that time had not progressed (“Party A”), and (iii) an established insurance holding company that operates in the automobile insurance industry with which Metromile had held discussions regarding a potential commercial arrangement in July 2021 (“Party B”). After discussion, the strategic committee approved (i) Mr. Preston’s upcoming August 17, 2021 call with Mr. Schreiber regarding a potential strategic transaction with Lemonade, (ii) approaching representatives of Party A to gauge Party A’s interest in a potential strategic transaction with Metromile and (iii) approaching representatives of Party B to gauge Party B’s interest in a potential strategic transaction involving Metromile’s enterprise business solutions business. At such meeting, the strategic committee also discussed with Metromile’s senior management the potential engagement of legal and financial advisors to assist Metromile in connection with its exploration of potential strategic alternatives.
On August 16, 2021, Mr. Preston contacted representatives of Party B regarding a potential strategic transaction involving the EBS business. A non-disclosure agreement on customary terms was executed by Metromile and Party B on August 23, 2021, and representatives of Metromile and Party B met later that day to discuss a potential strategic transaction involving the EBS business. On August 26, 2021, representatives of Party B contacted Mr. Preston to confirm Party B was not interested in pursuing a transaction with Metromile involving the EBS business.
On August 16, 2021, Mr. Preston contacted a representative of Party A to discuss Party A’s potential interest in a strategic transaction with Metromile.
On August 17, 2021, Mr. Schreiber contacted Mr. Preston to discuss whether Metromile might be interested in exploring a potential transaction with Lemonade. Mr. Schreiber and Mr. Preston agreed to discuss further on August 23, 2021, after Mr. Preston conferred with representatives of Metromile’s board of directors. Later that day, Mr. Preston updated the strategic committee on his discussions with Mr. Schreiber and the opportunity to speak with Mr. Schreiber again on August 23, 2021. The members of the strategic committee expressed support for Mr. Preston to engage in a follow-up discussion with Mr. Schreiber and for Metromile to enter into a non-disclosure agreement with Lemonade to facilitate further discussions.
Also on August 17, 2021, representatives of Metromile senior management contacted representatives of Kirkland & Ellis LLP to discuss Kirkland’s potential engagement as legal counsel to Metromile, and also held a discussion with Allen & Company regarding Allen & Company’s potential engagement as financial advisor to Metromile, in connection with Metromile’s exploration of potential strategic alternatives.
On August 19, 2021, Metromile sent a draft mutual non-disclosure agreement to Lemonade. The non-disclosure agreement included customary terms relating to confidentiality and included a standstill provision, with a fall-away provision upon the entry or public announcement of certain acquisition transactions. Metromile and Lemonade executed the non-disclosure agreement on August 20, 2021.
On August 23, 2021, representatives of Metromile gave a presentation on Metromile’s business to representatives of Lemonade, and Mr. Preston and Mr. Schreiber discussed Lemonade’s potential interest in acquiring Metromile. Neither value nor terms was discussed during this presentation.
On August 24, 2021, representatives of Lemonade contacted representatives of Metromile to discuss potential next steps, including topics and questions for further discussion. Neither value nor terms was discussed during this conversation.
On August 26, 2021, the Metromile board of directors held a meeting at which members of Metromile senior management and representatives of Cooley LLP, Metromile’s corporate counsel, and Allen & Company were also present. At that meeting, Mr. Preston provided an update on the discussions with Lemonade and his preliminary conversations with Party A and Party B. The Metromile board of directors also approved and formalized the formation of the strategic committee and further approved that the strategic committee would be responsible for decisions regarding the identification of third parties that would be included in Metromile’s outreach to potential strategic partners and that the strategic committee would not enter into exclusivity with a potential strategic partner, nor negotiate on price without the Metromile board of directors’ input and direction. Representatives of Cooley also provided the Metromile board of directors with an overview of its fiduciary duties in the context of the exploration of potential strategic alternatives. In order to enable Metromile to better understand potential alternatives available to it in light of the inbound interest from Lemonade and the preliminary conversations with Party A, Allen & Company suggested that Metromile consider contacting selected third parties that might be interested in a strategic transaction with Metromile and could potentially provide long-term value to Metromile’s stockholders. Allen & Company noted that, given the small group of potential strategic partners that might be considered viable candidates, a tailored strategic approach to certain potential counterparties could provide Metromile with a sense of the potential strategic alternatives available to it in the near term and discussed with the Metromile board of directors certain potential companies (in addition to Lemonade and Party A) that could be considered. After discussion, the Metromile board of directors approved approaching certain additional companies, taking into account, among other factors, the strategic fit for Metromile’s business, the rationale for a potential transaction and the perceived likelihood of engaging in discussions regarding a potential strategic transaction that could be actionable in the near term, in order to gauge their interest in a potential strategic transaction with Metromile. The Metromile board of directors also indicated its desire that Metromile’s management team continue to engage in discussions with Lemonade and Party A.
On August 31, 2021 and September 1, 2021, senior executives of Metromile and Lemonade met in-person and via video conference to continue the discussions regarding a potential transaction and for follow-up due diligence sessions regarding the topics discussed on August 24, 2021. Neither value nor terms was discussed during these discussions. At the September 1, 2021 meeting, Mr. Schreiber initiated an initial discussion with Mr. Preston regarding the possibility that Mr. Preston continue his involvement with Metromile’s business as an employee of Lemonade post-closing. Mr. Schreiber and Mr. Preston did not discuss any potential compensation terms at this time. Following the September 1, 2021 meeting, Mr. Preston informed members of the strategic committee of Mr. Preston’s discussion with Mr. Schreiber and it was agreed that Mr. Preston would not have further discussions regarding the terms or other details of any such employment with Lemonade post-closing without authorization from the strategic committee or the Metromile board of directors.
On September 1, 2021, in accordance with Metromile’s directives, Allen & Company spoke with Party A’s financial advisor regarding Party A’s potential interest and timing considerations in pursuing a potential transaction with Metromile. Party A’s financial advisor noted that Party A was considering another potential transaction at that time, which was viewed as a priority for Party A. Allen & Company suggested that Party A follow-up with members of Metromile’s senior management if additional information was needed to assess the synergy potential for a transaction.
From September 2, 2021 to September 21, 2021, in accordance with the directives of the Metromile board of directors, representatives of Allen & Company contacted and held discussions with representatives of the additional companies approved by the Metromile board of directors at its August 26, 2021 board meeting. None of these companies executed a non-disclosure agreement and each declined to proceed with discussions with Metromile and its representatives regarding a potential strategic transaction with Metromile.
On September 6, 2021, a representative of Lemonade provided Mr. Preston with a list of additional due diligence questions. On that same day, in accordance with Metromile’s directives, Allen & Company spoke with Lemonade’s outside advisors regarding potential next steps. Neither value nor terms was discussed during this conversation.
On September 8, 2021, representatives of Lemonade spoke with representatives of Metromile regarding due diligence matters and the terms of a potential transaction between Metromile and Lemonade. Later on September 8, 2021, Lemonade sent an initial draft term sheet outlining the basic parameters for a potential transaction between Metromile and Lemonade (the “term sheet”). The initial term sheet contemplated, among other things, an exchange ratio equal to one share of Lemonade common stock for every 19 shares of Metromile common stock, and a 60-day exclusivity period.
On September 9, 2021, in accordance with Metromile’s directives, Allen & Company spoke with Lemonade’s outside advisors regarding the proposed exchange ratio and certain other items included in Lemonade’s term sheet.
On September 13, 2021, the strategic committee held a meeting at which members of senior management and representatives of Cooley, Kirkland and Allen & Company were also present. Mr. Preston and Allen & Company provided an update on the conversations with Lemonade and its outside advisors regarding the term sheet. The strategic committee agreed to provide Lemonade with certain additional financial and other information that the strategic committee believed would result in Lemonade improving the exchange ratio to Metromile’s benefit. At this meeting, the strategic committee also discussed certain other potential companies (in addition to Lemonade, Party A and the companies approved by the Metromile board of directors at its August 26, 2021 meeting) that might potentially be interested in a strategic transaction with Metromile, including a public company in the automotive space (“Party C”). After discussion, the strategic committee approved approaching representatives of Party C, taking into account, among other factors, the strategic fit for Metromile’s business, the rationale for a potential transaction and the perceived likelihood of engaging in discussions regarding a potential strategic transaction that could be actionable in the near term, in order to gauge its interest in a potential strategic transaction with Metromile.
On September 14, 2021, in accordance with Metromile’s directives, Allen & Company spoke with a representative of Lemonade to relay the Metromile strategic committee’s feedback and agreement to provide additional financial and other information relating to Metromile in a follow-up due diligence session.
Between September 19, 2021 and September 29, 2021, representatives of Allen & Company held discussions in the ordinary course with representatives of Party C and, in accordance with Metromile’s directives, inquired as to Party C’s potential interest in a strategic transaction with Metromile.
On September 21, 2021, representatives of Metromile met virtually with representatives of Lemonade to discuss the potential transaction and for Metromile to provide additional information on Metromile’s business.
On September 23, 2021, Lemonade provided to Allen & Company a verbal non-binding indication of interest to acquire Metromile at an exchange ratio equal to one share of Lemonade common stock for every 18 shares of Metromile common stock.
Over the course of the first three weeks in September 2021, members of Metromile’s senior management had telephonic discussions with representatives of Party A and its financial advisor to further discuss Party A’s potential interest in a strategic transaction with Metromile. To facilitate further discussions regarding a potential transaction with Party A, a non-disclosure agreement on customary terms was executed by Metromile and Party A on September 23, 2021, which included a standstill provision, with a fall-away provision upon the entry or public announcement of certain acquisition transactions, and Party A commenced its due diligence review of Metromile and its business. Also on September 23, 2021, representatives of Metromile met with representatives of Party A to discuss a potential transaction and for Metromile to provide additional information on Metromile’s business. On September 30, 2021, Party A was provided with a summary of the July Metromile forecasts (as further described in the section “Certain Financial Forecasts Utilized by Metromile in Connection with the Mergers”).
On September 27, 2021, the strategic committee held a meeting with members of Metromile senior management and representatives of Kirkland, Allen & Company and Cooley. Mr. Preston and Allen & Company updated the strategic committee on the conversations with Party A and its financial advisor, noting that, while Party A indicated that it was interested in exploring a potential strategic transaction with Metromile, Party A previously mentioned that it was considering another potential transaction as a priority and was significantly behind in its assessment of potential synergies and due diligence process relative to Lemonade. Metromile’s senior management team indicated that they would continue to encourage Party A to advance its due diligence review of Metromile. Allen & Company also updated the strategic committee on the progress of Metromile’s outreach to the additional companies approved by the Metromile board of directors at its August 26, 2021 meeting, and that all such companies had declined to proceed with discussions with Metromile and its representatives regarding a potential strategic transaction with Metromile. Allen & Company also updated the strategic committee on the progress of Metromile’s outreach to Party C, indicating that Party C had not yet indicated if it was interested in engaging in discussions regarding a strategic transaction with Metromile. Allen & Company also provided an overview of selected analysts’ perspectives on Lemonade and certain financial information relating to Lemonade and Metromile. The strategic committee then discussed potential responses to Lemonade’s term sheet and Lemonade’s September 18, 2021 verbal non-binding indication of interest to acquire Metromile at an exchange ratio equal to one share of Lemonade common stock for every 18 shares of Metromile common stock and, after such discussion, instructed Allen & Company to submit a counterproposal to Lemonade on behalf of Metromile for a transaction with an exchange ratio that reflected approximately 20-25% premium to Metromile’s current market price (or an exchange ratio of one share of Lemonade common stock for every 14.4 – 15.0 shares of Metromile common stock).
On September 28, 2021, in accordance with the directives of the strategic committee, representatives of Allen & Company sent Metromile’s proposed summary of key terms to Lemonade, which contemplated an exchange ratio in the range specified by the strategic committee. This summary of key terms did not include an exclusivity provision.
On September 29, 2021, a representative of Party C spoke with a representative of Allen & Company and indicated that Party C had decided not to proceed with discussions with Metromile and its representatives regarding a potential strategic transaction with Metromile.
On September 30, 2021, Lemonade sent an updated term sheet to representatives of Allen & Company, which included an exchange ratio of one share of Lemonade common stock for every 17.5 shares of Metromile common stock, and a 60-day exclusivity period.
Also on September 30, 2021, a meeting of the strategic committee was held at which members of Metromile senior management and representatives of Kirkland, Allen & Company and Cooley were also present. At that meeting, the strategic committee received a report on the status of discussions with Lemonade and Party A and discussed potential proposed responses to Lemonade’s revised term sheet. Mr. Preston also reported that Party A was working diligently to advance its due diligence review of Metromile and its business and to submit a proposal prior to Metromile’s scheduled board meeting on October 5, 2021. Allen & Company noted that (i) Lemonade’s third quarter 2021 financial results were scheduled to be publicly announced in early November 2021, (ii) Lemonade had discussed that, based on Lemonade’s estimates at such time, such financial results were then preliminarily expected to exceed analysts’ consensus expectations, and (iii) Lemonade was willing to proceed and target the execution of a definitive agreement for a transaction by or before public announcement of Lemonade’s third quarter 2021 financial results. After discussion, the strategic committee agreed to provide Lemonade with a revised term sheet which: (i) contemplated an exchange ratio of one share of Lemonade common stock for every 15 shares of Metromile common stock; (ii) included the right for Metromile to sell Metromile’s EBS business prior to the closing of any transaction with Lemonade and distribute the cash proceeds from such sale as a dividend to Metromile’s stockholders (the “EBS business sale right”); and (iii) deleted the exclusivity provision.
On October 1, 2021, senior management of Metromile, together with representatives of Allen & Company, had a call with representatives of Lemonade to review selected metrics of Lemonade’s preliminary financial results for the third quarter of 2021. These selected metrics compared favorably to the midpoint of Lemonade’s prior guidance and then current Wall Street analysts’ consensus estimates for Lemonade for the third quarter of 2021.
On October 2, 2021, in accordance with the directives of the strategic committee, representatives of Allen & Company sent an updated term sheet from Metromile to Lemonade reflecting the terms approved by the strategic committee on September 30, 2021, as well as a summary of the July Metromile forecasts.
On October 3, 2021, Lemonade sent a revised term sheet to representatives of Allen & Company, which included an exchange ratio of one share of Lemonade common stock for every 17.5 shares of Metromile common stock and retained the EBS business sale right. This term sheet included a 60-day exclusivity provision.
On October 4, 2021, Mr. Preston had a conversation with representatives of Party A regarding the status of Party A’s due diligence review of Metromile and Party A’s progress toward submitting a proposal for a strategic transaction with Metromile.
On October 5, 2021 and October 6, 2021, the Metromile board of directors held meetings of the full board at which members of Metromile senior management and representatives of Kirkland, Allen & Company and Cooley were also present. At those meetings, representatives of Kirkland presented on the Metromile board of directors’ fiduciary duties in the context of a potential strategic transaction, and Metromile’s management team presented financial forecasts for Metromile’s business, including the July Metromile forecasts, and previewed with the Metromile board of directors certain metrics and financial results for Metromile for the three and nine months ended September 30, 2021 and the likelihood that Metromile would again need to revise downward its already lowered public growth forecasts for the remainder of 2021. Mr. Preston also provided an update on the discussions with Party A, noting that Metromile’s management team had encouraged Party A to accelerate its due diligence review of Metromile in order to submit a proposal for a potential strategic transaction with Metromile prior to Metromile’s October 5, 2021 board meeting, but that Party A did not submit a proposal. Mr. Preston explained that Party A had indicated that it remained interested in exploring a potential strategic transaction with Metromile, but that Party A’s board of directors had instructed Party A’s management team to focus its efforts and resources in the near term on a different M&A opportunity then in process. As a result, Party A indicated that it was not likely to provide a formal proposal for a strategic transaction with Metromile, if at all, for at least another four to six weeks. In contrast, Lemonade was willing to proceed to negotiation and finalization of a definitive agreement with respect to the mergers on a more timely basis, but had, in its conversations with Metromile’s management team and Allen & Company, conditioned its further engagement on Metromile’s agreement to engage in exclusive negotiations with Lemonade. Lemonade had indicated its willingness to execute a definitive agreement with Metromile by its earnings announcement date in early November 2021, and that, if Metromile were not willing to enter into a period of exclusive negotiations consistent with that timeline, Lemonade would disengage from further discussions with Metromile at that time and focus on its own earnings release and previously announced initiative to bring to market its own automobile insurance solution, which was already in process.
The Metromile board of directors considered and discussed Lemonade’s desired approach regarding the timeline for a transaction, Lemonade’s third quarter financial results that Lemonade previously previewed with representatives of Metromile, Metromile’s third quarter financial results and the need to revise downward Metromile’s already lowered growth projections for the remainder of 2021, the likely effect of those upcoming announcements on the relative stock prices of Lemonade and Metromile, the risks inherent in waiting to re-engage with Lemonade until after such announcements were made, including risks to the potential value that could be obtained for Metromile’s stockholders in any business combination transaction with Lemonade at such time, and other factors, including the challenges facing Metromile with respect to its ability to execute on its stand-alone plan without raising additional capital in the near term and the potential terms and dilutive effect of any such potential capital raise. After such discussion, the Metromile board of directors authorized Metromile’s senior management team, with the assistance of Metromile’s legal and financial advisors, to negotiate final terms of a potential business combination transaction with Lemonade and its advisors, and to enter into a period of exclusive negotiations to finalize definitive agreements. The Metromile board of directors also discussed with Metromile’s management and legal and financial advisors the terms of Lemonade’s revised term sheet and potential counterproposals. After such discussion, the Metromile board of directors authorized Allen & Company, on behalf of Metromile, to submit to Lemonade a revised term sheet that included the following terms: (i) an exchange ratio of one share of Lemonade common stock for every 16.5 shares of Metromile common stock; (ii) the EBS business sale right; and (iii) an exclusivity period that would expire on the day immediately prior to the date on which Lemonade was scheduled to announce its financial results for the third quarter of 2021. The Metromile board of directors indicated its desire to execute a definitive agreement with respect to a business combination transaction with Lemonade on acceptable terms prior to the announcement by each party of its financial results for the third quarter of 2021.
Following the conclusion of that board meeting, on October 6, 2021, in accordance with the directives of the Metromile board of directors, representatives of Allen & Company sent Metromile’s updated term sheet to Lemonade reflecting the terms as outlined by the Metromile board of directors. On that day, the closing per share price of Lemonade common stock was $64.06, and the closing per share price of Metromile common stock was $3.50.
On the morning of October 7, 2021, representatives of Lemonade contacted representatives of Allen & Company to propose an exchange ratio of one share of Lemonade common stock for every 17 shares of Metromile common stock, but without the inclusion of the EBS business sale right. The representatives of Lemonade noted that Lemonade would agree to Metromile’s revised exclusivity provision. On that same day, representatives of Allen & Company updated the Metromile board of directors regarding Lemonade’s revised proposal, and the Metromile board of directors indicated its approval for Metromile to enter into the revised term sheet. Later in the day on October 7, 2021, Metromile and Lemonade executed the term sheet reflecting such terms.
On October 8, 2021, Lemonade submitted a preliminary due diligence request list to representatives of Allen & Company in respect of the potential transaction.
On October 10, 2021, representatives of Latham & Watkins LLP (“Latham & Watkins”) and Amar, Reiter, Jeanne, Shochatovitch & Co. (“AYR”), legal counsels to Lemonade, and Kirkland had an introductory call to discuss preliminary issues and process considerations for the definitive documentation in respect of the potential transaction and diligence efforts.
On October 13, 2021, representatives of Lemonade, Latham & Watkins and AYR were provided with access to a virtual data room (the “data room”) for purposes of conducting a detailed due diligence review of Metromile and its business. Over the course of the next several weeks, Lemonade engaged in a detailed due diligence review of Metromile, which involved the review of materials in the data room as well as numerous virtual, telephonic and in-person meetings and conversations with Metromile’s management team. Concurrently during that time, representatives of Metromile and its advisors also conducted a due diligence review of Lemonade.
On October 14, 2021, the July Metromile forecasts were made available to a representative of Lemonade, which were consistent with the summary provided on October 2, 2021.
On October 19, 2021, representatives of Latham & Watkins sent an initial draft of a proposed definitive merger agreement to representatives of Kirkland.
On each of October 21, 2021 and October 25, 2021, the strategic committee held meetings with representatives of Kirkland and Allen & Company in attendance. In each such meeting, Mr. Preston provided an update on Lemonade’s due diligence efforts. Representatives of Kirkland also discussed the terms of Lemonade’s initial draft of the merger agreement and potential responses to the terms proposed by Lemonade and other matters relating to the proposed transaction.
On October 18, 2021 and October 19, 2021, senior executives of Metromile and Lemonade met in person and via video conference to continue the due diligence process and discussions regarding a potential combination of the parties’ businesses. At the October 18, 2021 meeting, Mr. Schreiber initiated a second discussion with Mr. Preston regarding the possibility that Mr. Preston continue his involvement with Metromile’s business as an employee of Lemonade post-closing. Mr. Schreiber and Mr. Preston did not discuss any potential compensation terms at this time. See “Interests of Metromile’s Directors and Executive Officers in the Merger — New Compensation Arrangements with Lemonade” for further information. On October 27, 2021, Metromile’s executive officers, following a discussion with and approval by the strategic committee and the compensation committee of Metromile’s board of directors (the “compensation committee”), after consideration by the strategic committee and the compensation committee regarding the progress that had been made to date on finalizing the terms of the proposed transaction and in view of the material economic terms having been previously agreed, engaged the law firm Withers Bergman LLP to serve as their independent employment counsel with respect to certain post-closing employment matters with Lemonade (see further discussion in the section titled “Interests of Metromile’s Directors and Executive Officers in the Mergers”). Thereafter, certain members of Metromile’s senior management team, including Mr. Preston, were permitted to have discussions with Lemonade regarding the terms of their post-closing employment, and Mr. Preston signed an offer letter from Lemonade regarding such post-closing employment on November 8, 2021, concurrently with the execution and delivery by Lemonade and Metromile of the merger agreement.
Following the October 25, 2021 meeting of the strategic committee, on October 26, 2021, representatives of Kirkland provided a revised draft of the definitive merger agreement to representatives of Latham & Watkins.
Between October 26, 2021 and November 8, 2021, representatives of Latham & Watkins and representatives of Kirkland exchanged drafts of the merger agreement, voting and support agreement and ancillary transaction documents, and together with representatives of Metromile, Lemonade, and Allen & Company, held numerous virtual and telephonic meetings to discuss and negotiate the terms of the merger agreement and other definitive agreements for the transaction.
On October 27, 2021, the compensation committee met to discuss matters relating to employee retention arrangements, the treatment of Metromile’s equity awards in the mergers, and certain related provisions of the merger agreement. Members of Metromile senior management and Kirkland were also present at that meeting.
On October 29, 2021 the Metromile supporting stockholders, representatives of Latham & Watkins sent an initial draft of the voting and support agreement to representatives of Kirkland. Lemonade proposed that the voting and support agreement be executed by certain stockholders of Metromile, including all members of the Metromile board of directors and certain officers (the “supporting stockholders”), pursuant to which the Metromile supporting stockholders would agree, among other things, to vote all of their shares in Metromile in favor of the transaction. For more information, please see “Voting and Support Agreement.”
Also on October 29, 2021, a meeting of the Metromile board of directors was held at which members of Metromile senior management and representatives of Kirkland and Allen & Company were also present. At that meeting, Mr. Preston provided an update regarding the discussions with Lemonade and representatives of Kirkland reviewed with the Metromile board of directors the outstanding material legal issues relating to the transaction agreements. Mr. Preston also notified the Metromile board of directors that representatives of Lemonade had indicated to him that Lemonade’s due diligence review of Metromile had uncovered some items that could change its view on the value of the transaction to Lemonade, but that Lemonade had not yet proposed a change to the exchange ratio of one share of Lemonade common stock for every 17 shares of Metromile common stock that was contemplated by the executed term sheet. During the October 29, 2021 meeting, representatives of Metromile discussed selected metrics of the October Metromile forecasts, which later that day were provided in full to the Metromile board of directors (as further described in the section “Certain Financial Forecasts Utilized by Metromile in Connection with the Mergers”).
Following such meeting, representatives of Kirkland sent representatives of Latham & Watkins a revised draft of the voting and support agreement.
On November 1, 2021, Metromile provided the October Metromile forecasts to Lemonade in the virtual data room.
Also on November 1, 2021, representatives of Latham & Watkins sent a revised draft of the merger agreement to representatives of Kirkland.
On November 2, 2021, the compensation committee met to discuss matters relating to compensation and retention-related matters with respect to, and in light of, the proposed transaction. Representatives of Kirkland and Cooley were also present at that meeting, as well as members of Metromile’s senior management for portions of the meeting.
On November 3, 2021, Lemonade publicly announced the launch of its own automobile insurance product. On that date, the closing price per share of Lemonade common stock was $72.06, and the closing per share price of Metromile common stock was $3.29.
On November 4, 2021, senior management of Metromile, together with representatives of Allen & Company, had a call with representatives of Lemonade to discuss Lemonade’s upcoming financial results for the third quarter of 2021 and anticipated new guidance for fiscal year 2021. Consistent with Lemonade’s prior preliminary views, such financial results compared favorably to the midpoint of Lemonade’s prior guidance and then-current Wall Street analysts’ consensus estimates for Lemonade for the third quarter. Lemonade’s expected new guidance for the fiscal year 2021 was generally in line with prior guidance, with slightly higher revenue as compared to guidance and Wall Street analysts’ consensus estimates, but with a greater amount of investment (more negative EBITDA loss) as compared to Wall Street consensus estimates and prior guidance.
Also on November 4, 2021, a meeting of the strategic committee was held at which members of Metromile senior management and representatives of Kirkland and Allen & Company were also present. Earlier that day, representatives of Lemonade contacted Metromile management and representatives of Allen & Company to state that, given the relative divergence of the trading prices of Metromile shares and Lemonade shares since the date on which the parties agreed to execute the term sheet, as well as certain items Lemonade had discovered during the course of its due diligence review of Metromile, Lemonade was no longer willing to proceed with the transaction at an exchange ratio of one share of Lemonade common stock for every 17 shares of Metromile common stock, as contemplated by the term sheet, but would be willing to proceed with the transaction if the exchange ratio were revised to one share of Lemonade common stock for every 21 shares of Metromile common stock. After some discussion, the strategic committee determined to authorize a counterproposal to Lemonade to revise the exchange ratio to one share of Lemonade common stock for every 18.5 shares of Metromile common stock, conditioned on Lemonade’s agreement to certain terms of the merger agreement relating to deal protections, which the parties had been negotiating but that had not been agreed upon.
On November 5, 2021, the strategic committee met with members of Metromile senior management and representatives of Kirkland and Allen & Company. Allen & Company noted that it had submitted Metromile’s revised proposal to Lemonade as directed by the strategic committee at its meeting on November 4, 2021, and that Lemonade had not agreed to the counterproposal but had provided verbal feedback regarding a potential path to the resolution of the outstanding points, including that Lemonade could potentially agree to an exchange ratio of one Lemonade share for every 19 shares of Metromile common stock. The strategic committee, members of Metromile senior management and representatives of Kirkland and Allen & Company also discussed potential responses to Lemonade.
On November 6, 2021, representatives of Kirkland sent a revised draft of the merger agreement to representatives of Latham & Watkins and representatives of Metromile, Lemonade and their respective legal advisors met to discuss the draft merger agreement.
On November 7, 2021, representatives of Latham & Watkins sent a revised draft of the merger agreement and voting and support agreement to representatives of Kirkland. The draft of the merger agreement included, among other things, placeholders for the exchange ratio and amount of the termination fee.
On the evening of November 7, 2021, the Metromile board of directors held a virtual meeting at which Metromile’s senior management team and representatives of Kirkland and Allen & Company also were present. Representatives of Kirkland reviewed the framework for the Metromile board of directors’ decision-making process in evaluating a potential transaction with Metromile, as well as the fiduciary duties of the board members. Representatives of Kirkland then provided an overview of the negotiation process to date, as well as a presentation regarding the material terms of the draft merger agreement and the draft voting and support agreement. Specifically, representatives of Kirkland noted that Lemonade had communicated that they would agree to an exchange ratio of one share of Lemonade common stock for every 19 shares of Metromile common stock, but that certain other terms of the merger agreement and voting and support agreement relating to deal protections and termination rights remained outstanding. Also at this meeting, Allen & Company reviewed with the Metromile board of directors its preliminary financial analysis of the exchange ratio. In advance of this meeting, Allen & Company provided certain updated information to the Metromile board of directors regarding Allen & Company’s material relationships with Metromile and Lemonade during the preceding two-year period (this information was consistent with similar information regarding Allen & Company initially provided to the Metromile board of directors on October 6, 2021). After discussion, in order to secure the transaction, the members of the Metromile board of directors determined to agree to the proposed exchange ratio and to many of the proposed material terms of the merger agreement proposed by Lemonade that remained outstanding. The Metromile board then further discussed the advantages and risks of the mergers.
Following such meeting, on the evening of November 7, 2021, representatives of Kirkland sent a revised draft of the merger agreement to representatives of Latham & Watkins.
On the morning of November 8, 2021, the Metromile board of directors held a virtual meeting with representatives of Kirkland in attendance. Representatives of Metromile’s management team and Allen & Company were also in attendance for portions of the meeting. Representatives of Kirkland provided a presentation regarding the final terms of the merger agreement and the voting and support agreement. Allen & Company then reviewed with the Metromile board of directors its financial analysis of the exchange ratio and rendered an oral opinion, confirmed by delivery of a written opinion dated November 8, 2021, to the Metromile board of directors to the effect that, as of such date and based on and subject to the various assumptions made, procedures followed, matters considered and qualifications and limitations on the review undertaken as set forth in such opinion, the exchange ratio provided for in the merger agreement was fair, from a financial point of view, to holders of Metromile common stock (other than, to the extent applicable, Lemonade, Acquisition Subs and their respective affiliates). After further discussions, and taking into account the factors described below in greater detail under the sections titled “The Merger — Reasons for the Merger; Recommendation of the Metromile Board of Directors,” the Metromile board of directors unanimously: (i) determined that the mergers are fair to and in the best interests of Metromile and its stockholders; (ii) approved and declared advisable the execution and delivery of the merger agreement, the performance by Metromile of its covenants and agreements contained therein and the transactions contemplated by the merger agreement, including the mergers, all on the terms and subject to the conditions contained therein; (iii) authorized and approved, for all purposes under Section 203 of the Delaware General Corporation Law, the merger agreement and the transactions and other documents and agreements contemplated by the merger agreement and such other documents and agreements, including the voting and support agreements; (iv) directed that the adoption of the merger agreement be submitted to a vote at a meeting of Metromile’s stockholders; and (v) recommended that Metromile’s stockholders adopt the Merger Agreement.
On November 8, 2021, the board of directors of Lemonade approved the execution and delivery of the merger agreement, the performance by Lemonade of its covenants and agreements contained therein and the consummation of the transactions contemplated by the merger agreement, including the mergers, and the issuance of shares of Lemonade common stock in connection therewith.
Immediately after the closing of trading markets on November 8, 2021, Metromile, the Acquisition Subs and Lemonade entered into the merger agreement and the supporting stockholders and Lemonade entered into the voting and support agreements, and Metromile and Lemonade issued a joint press release announcing the mergers.”
