EANS-News: RHI AG RHI and Magnesita to combine to create a leading refractory
company
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Corporate news transmitted by euro adhoc. The issuer/originator is solely
responsible for the content of this announcement.
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Mergers - Acquisitions - Takeovers
§ RHI and the controlling shareholders of Magnesita, GP and Rhône ("Magnesita's
Controlling Shareholders"), have reached an agreement to combine the operations
of RHI and Magnesita to create a leading refractory company. The combined
company, to be named RHI Magnesita, will be established in the Netherlands and
listed in London
§ Accordingly, RHI's Management Board has agreed to sign a share purchase
agreement with Magnesita's Controlling Shareholders regarding the acquisition of
a controlling stake of at least 46%, but no more than 50% plus one share of the
entire share capital in Magnesita, pending RHI's Supervisory Board approval
§ The consideration for the 46% stake will consist of cash amounting to EUR 118
million and 4.6 million new shares to be issued by RHI Magnesita
§ A subsequent mandatory tender offer will be launched as a result of which a
maximum number of 5.4 million RHI Magnesita shares will be issued, bringing the
total number of newly issued RHI Magnesita shares to up to 10.0 million. The
Offer will also include a cash-only alternative amounting to EUR 8.19 per
Magnesita share
§ As a result of the Transaction, GP, Magnesita's largest shareholder, will
become a relevant shareholder of RHI Magnesita and will be represented on its
board of directors
§ Following registration of the corporate restructurings, RHI's shares will
cease to be listed on the Vienna Stock Exchange. RHI's migration from Austria
and listing in London are subject to approval by RHI's shareholders' meeting.
The Transaction is also subject to approvals by relevant competition
authorities. The place of effective management will be Austria
§ The Transaction is expected to complete in 2017. Both companies will remain
completely separate and independent until then
§ RHI Magnesita will be a leading refractory company with an enhanced growth
profile due to improved regional presence and complementary asset portfolios.
RHI, based in Austria, is a global supplier of high-grade refractory products,
with 2015 revenues of EUR 1,753 million Brazil-based Magnesita is a global
provider of integrated refractory solutions, services and industrial minerals,
with revenues of US$ 1,013 million (EUR 914 million) in 2015
Transaction Overview
RHI AG ("RHI") and the controlling shareholders of Magnesita Refratários S.A.
("Magnesita"), investment vehicles affiliated with GP Investments ("GP") and
Rhône Capital ("Rhône", and together with GP, "Magnesita's Controlling
Shareholders"), announce that they have reached an agreement to combine the
operations of RHI and Magnesita to create a leading refractory company to be
named RHI Magnesita.
Accordingly, RHI's Management Board has agreed to sign a share purchase
agreement ("SPA") with Magnesita's Controlling Shareholders regarding the
acquisition of a controlling stake of at least 46%, but no more than 50% plus
one share of the total share capital in Magnesita (the "Transaction"), pending
RHI's Supervisory Board approval. The purchase price for the 46% stake will be
paid in cash amounting to EUR 118 million and 4.6 million new shares to be
issued by RHI Magnesita, a new RHI entity to be established in the Netherlands
and listed in London. Based on RHI's six-month volume-weighted average price
("VWAP") of EUR 19.52, the implied value of the 46% stake amounts to EUR 208
million.
As a result of the Transaction, GP will become a relevant shareholder of RHI
Magnesita. The combined company's corporate governance will be constituted on a
one-tier board structure while GP will be represented on the board of directors.
All RHI Magnesita shares issued as a result of the Transaction and subsequent
mandatory tender offer will be subject to a minimum 12-month lock-up period.
The resulting combination will be a leading refractory company. Refractories are
materials that retain their strength at high temperatures and are used in
various industrial processes in the steel, cement, nonferrous metals, glass and
chemicals industries. The combination will bring under one roof two
complementary businesses, both in terms of products and geographical footprint.
RHI, based in Austria, is a global supplier of high-grade refractory products,
with 2015 revenues of EUR 1,753 million and adjusted EBITDA of EUR 198 million.
Brazil-based Magnesita is a global provider of integrated refractory solutions,
services and industrial minerals, with revenues of US$ 1,013 million (EUR 914
million) and adjusted EBITDA of US$ 145 million (EUR 131 million) in 2015. (1)
The completion of the Transaction is amongst others subject to (i) approvals by
the relevant competition authorities, (ii) the migration of RHI to the
Netherlands, (iii) the listing of RHI Magnesita's shares in the premium segment
of the Official List on the Main Market of the London Stock Exchange and (iv)
RHI's shareholders not having exceeded statutory withdrawal rights in an amount
of more than EUR 70 million in connection with organizational changes preceding
RHI's migration from Austria. The migration and the preceding organizational
changes in Austria require qualified approval by RHI's shareholders' meeting. If
the Transaction is terminated for reasons not under the control of Magnesita's
Controlling Shareholders, an aggregate break fee of up to EUR 20 million is
payable by RHI to Magnesita's Controlling Shareholders.
The migration of RHI to the Netherlands and the subsequent listing on the London
Stock Exchange have the objective of reinforcing and underlining the truly
international scope of the enlarged combined company, enhancing its capital
markets presence and maximizing value potential for the company's shareholders.
The migration of RHI will be effected by RHI Magnesita becoming the ultimate
holding company of RHI Group and the shareholders of RHI will cease to hold
shares in RHI and instead hold RHI Magnesita shares. Following registration of
the corporate restructurings, RHI's shares cease to be listed on the Vienna
Stock Exchange. The place of effective management of RHI Magnesita will be
Austria.
The Transaction is expected to complete in 2017. Until then, the two companies
will remain completely separate and independent. Therefore customers, suppliers,
employees and other stakeholders should expect no change in management teams,
commercial relationships, supply chains and product offerings during this
period.
Mandatory Tender Offer
Following completion of the Transaction, a mandatory tender offer will be
launched by RHI Magnesita or one of its affiliates ("Offer") for the remaining
shares in Magnesita. As part of the Offer, a maximum number of 5.4 million RHI
Magnesita shares will be issued, resulting in an aggregate number of no more
than 10.0 million newly issued shares to finance the acquisition. The Offer will
include the option to sell shares on the same payment terms as the Transaction
as well as a cash-only alternative amounting to EUR 8.19 per Magnesita share
(subject to certain adjustments according to the SPA). If some or all of
Magnesita's other shareholders elect not to receive RHI Magnesita shares in the
Offer, Magnesita's Controlling Shareholders have committed to purchase
additionally at least 1.9 million and at most 3.4 million of the remaining new
RHI Magnesita shares, thereby increasing their total number of RHI Magnesita
shares to a maximum of 8.0 million. RHI may decide to combine the Offer with a
delisting offer and/or a voluntary offer to exit Magnesita from the "Novo
Mercado" listing segment. The Offer will follow applicable Brazilian laws and
regulations. Any RHI Magnesita shares that are not taken up in the Offer by
Magnesita's shareholders may be either placed into the market or with
institutional investors.
Financial Terms of the Transaction
Based on RHI's six-month VWAP of EUR 19.52, the implied value for the entire
share capital of Magnesita will be EUR 451 million, 45% above Magnesita's market
capitalization as of October 4, 2016. (2)
The Transaction will be financed by additional debt and the issuance of 4.6
million RHI Magnesita shares to Magnesita's Controlling Shareholders. The
Transaction will increase RHI's current financial leverage, measured as net debt
to EBITDA, to 4.0x at closing of the Transaction when assuming an acquisition of
Magnesita's entire share capital. RHI expects, however, that leverage will
decline to below 2.0x by 2020 as a result of the strong cash generation profile
of the newly combined company. Magnesita will continue to finance itself on a
standalone basis without credit support from RHI Group.
Before or at completion of the Transaction, Magnesita is expected to adopt RHI's
accounting practices, which, according to RHI, could lead to significant,
however substantially non-cash adjustments in Magnesita's book equity value.
Enhanced Growth Profile and Global Footprint
The combination of RHI and Magnesita represents a unique opportunity to
accelerate growth in certain regions, resulting from the high complementary of
the businesses both in terms of geographic footprint and products.
Magnesita's presence in South America and the United States fits well with RHI's
presence in Europe and Asia. It results in strengthened geographic clusters of
the combined company by adding production facilities in several markets in which
RHI and Magnesita are lacking capacity on their own. This combination will also
strengthen the competitive position against the Chinese refractory industry,
which is expected to consolidate in the coming years as announced by the Chinese
government. Moreover, Magnesita's position in dolomite-based products is highly
complementary to RHI's asset portfolio, which traditionally has a strong focus
and an excellent market reputation for high-quality magnesite products.
The combination of RHI and Magnesita will enable the combined company to offer
its customers an even broader product and service portfolio thereby delivering
enhanced value-add. Additional potential for value creation will be realized
through synergies and the implementation of common proven standards of
operational and commercial excellence.
Significant Value Creation and Synergy Potential
The Transaction will result in meaningful synergies in the following key areas,
amongst others:
(i) a highly complementary offering of value-added products and services as a
result of the combination of both product portfolios;
(ii) a more efficient cost structure, benefitting from economies of scale in
important operational areas such as raw materials supply, freight,
marketing and administration, as well as an optimized operational set-up
leading to enhanced flexibility in production and an improved cost basis;
(iii) an optimized working capital structure, especially given Magnesita's
presence in the Americas, by means of improved inventory management and
related costs, resulting from the complementary regional footprint of RHI
and Magnesita's operations and customer base; and
(iv) a relevant reduction in capital expenditure requirements and maintenance
costs.
As a result of the Transaction, RHI expects minimum net run-rate synergies on
EBIT level of approx. EUR 36 million by 2020. However, RHI is optimistic that as
a result of the Offer, RHI Magnesita's stake in Magnesita will significantly
exceed 46%. In this case, RHI expects substantially higher synergies of approx.
EUR 72 million, especially in the areas of enhanced production efficiency and
cost benefits in research and development, marketing and administrative
functions. In addition, capital expenditure synergies are expected to amount to
between EUR 2 million and EUR 7 million annually, while aggregate working
capital savings of EUR 40 million are expected in the coming years.
Cash integration costs as a result of the Transaction are expected by RHI to be
of the magnitude of EUR 50 million to EUR 90 million, while non-cash integration
costs, effectively write-offs, should vary between EUR 20 million and EUR 35
million, depending on the amount of Magnesita shares acquired pursuant to the
Transaction and subsequent Offer. Both cash and non-cash integration costs will
mainly crystallize in 2017 and 2018.
Increased Financial Targets
As a result of the Transaction, RHI's mid-term financial targets will surpass
RHI's current targets. RHI expects the combined company to generate fully
consolidated revenues of EUR 2.6 billion to EUR 2.8 billion (previously EUR 2.0
to EUR 2.2 billion) with an operating EBIT margin of more than 12% (previously
more than 10%) by 2020. It projects a cumulative operating cash flow of approx.
EUR 1.1 billion for the period from 2017 to 2020 for the combined business,
assuming an acquisition of Magnesita's entire share capital.
RHI expects RHI Magnesita to pay stable dividends in 2017 and 2018, in line with
RHI's previous years' payment levels. In the mid- to long-term, however, RHI
Magnesita aims to increase its dividend payments, as a result of stronger cash
flow generation resulting from synergies, organic growth and de-leveraging of
the company's capital structure.
About RHI
RHI is a globally operating supplier of high-grade refractory products, systems
and services, which are indispensable for industrial high-temperature processes
exceeding 1,200 °C. With approx. 7,900 employees, over 30 production facilities
and more than 70 sales offices, RHI serves more than 10,000 customers in the
steel, cement, nonferrous metals, glass, energy and chemical industries in
nearly all countries around the world. RHI produces more than 1.5 million tons
of refractory products p.a. and supplies customized product and system
solutions. The Company's shares are listed on the Vienna Stock Exchange under
the symbol RHI, with RHI being a member of the ATX index.
About Magnesita
Magnesita is a Brazilian publicly traded company, dedicated to mining, producing
and marketing an extensive line of refractory and industrial mineral materials.
Its products are mainly used by the cement, glass, and steel industries.
Industrial activities began in 1940, soon after the discovery of magnesite
deposits in Brumado, in the Brazilian state of Bahia. Today, it operates 26
industrial and mining units, sixteen in Brazil, three in Germany, one in China,
one in the United States, two in France, one in Belgium, one in Taiwan and one
in Argentina, with a refractory production capacity of more than 1.3 million
tons per year. The company is a leader in refractories in the Americas and in
dolomite-based refractories worldwide, and its products were sold to more than
100 countries in 2015. Its shares trade on the Novo Mercado of BM&FBOVESPA in
Brazil and through level 1 ADRs in the United States.
About GP Investments
GP Investments is a leader in alternative investments in Latin America. Since
its inception, the company has raised approx. US$5.0 billion from international
investors and has acquired 54 companies in 15 sectors. In May 2006, GP
Investments concluded its initial public offering (IPO), becoming the first
listed private equity firm in Brazil.
About Rhône
With 20 years of investing experience, Rhône, together with its affiliates, is a
global alternative asset management firm with a focus on investments in market
leading businesses with a pan-European or transatlantic presence and expansion
prospects. Currently investing capital from its fifth private equity fund, Rhône
has offices in London and New York and prior investment experience in the
business services, chemicals, consumer products, food, packaging, security
services, specialty materials and transportation sectors.
(1) Magnesita net revenues and adjusted EBITDA converted at 2015 average EUR/US$
exchange rate of 1.11. Magnesita EBITDA adjusted for other operating income and
expenses. RHI EBITDA adjusted for negative effects on earnings of approx. EUR 58
million related to a necessary change in the measurement of long-term energy
supply contract.
(2) Assuming that 10 million RHI Magnesita shares will be issued
For further information please contact
RHI
Investor Relations / Simon Kuchelbacher
Phone +43 (0)50213-6676
E-mail: simon.kuchelbacher@rhi-ag.com
Media Relations / Randolf Fochler
Phone +43 (0)50213-6120
E-mail: randolf.fochler@rhi-ag.com
Magnesita
CFO and Investor Relations Officer / Eduardo Gotilla
Phone +55 (11) 3152-3203
E-mail: ri@magnesita.com
GP Investments
CFO and Investor Relations Officer / Alvaro Lopes
Phone +55 (11) 3556-5505
E-mail: ir@gp-investments.com
_
Disclaimer:
This document is for information purposes and shall not be treated as giving any
investment advice, financial analysis and/or recommendation whatsoever; it does
not constitute an offer or marketing of securities of RHI, nor a prospectus.
This press release contains forward-looking statements based on the management's
current views and certain presumptions and is subject to risks and
uncertainties; if those materialize, actual results may vary materially. Many
factors could cause our results of operations, financial condition, liquidity,
and the development of the industries in which we compete, to differ materially
from those expressed or implied by the forward-looking statements contained
herein. Subject to applicable securities law requirements, RHI does not intend
or assume any obligation to update or revise these forward-looking statements.
This document is addressed exclusively to persons legally entitled to receive it
and is in particular not addressed to U.S. persons or persons residing in,
Australia, Canada, Japan, Ireland or the United Kingdom; it may not be
distributed to the USA.
Further inquiry note:
RHI AG
Investor Relations
Mag. Simon Kuchelbacher
Tel: +43-1-50213-6676
Email: simon.kuchelbacher@rhi-ag.com
end of announcement euro adhoc
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company: RHI AG
Wienerbergstrasse 9
A-1100 Wien
phone: +43 (0)50213-6676
FAX: +43 (0)50213-6130
mail: rhi@rhi-ag.com
WWW: http://www.rhi-ag.com
sector: Refractories
ISIN: AT0000676903
indexes: ATX Prime, ATX
stockmarkets: official market: Wien
language: English