Canadian industrial chemicals and services provider Chemtrade Logistics Income Fund (TSX: CHE.UN) has agreed to purchase General Chemical Holding Co for US$860 million. The transaction, which Reuters first reported last month, will see Chemtrade buy the Parsippany, New Jersey-based manufacturer of sulphuric acid and other chemicals from its current owner, U.S. private equity firm American Securities. American Securities took General Chemical private in 2009 for US$673 million. Chemtrade, which said the acquisition will strengthen and expand its existing platform, will finance the deal with US$1 billion in credit facilities and a $300 million equity raise. Update: Osler, Hoskin & Harcourt LLP is acting as a legal advisor to Chemtrade.
Chemtrade Announces Acquisition of General Chemical, Strengthening and Expanding Its Existing Platform
Purchase price of US$860 million representing a transaction multiple of 7.8x LTM EBITDA (7.2x including US$10 million of expected cost synergies)
Chemtrade pro forma LTM Revenue and EBITDA of approximately $1.3 billion and $255 million, respectively
On a pro forma LTM basis:
– The Transaction is approximately 17% accretive to DCPU
– Payout ratio reduced to approximately 50% and distributions maintained at $1.20 per unit per year
TORONTO, Ontario, December 4, 2013 – Chemtrade Logistics Income Fund (TSX: CHE.UN) (“Chemtrade”) announced today that it has entered into a definitive agreement to acquire Parsippany, New Jersey-based General Chemical Holding Company (“General Chemical”) for US$860 million in cash (the “Purchase Price”), subject to certain adjustments as described below (the “Transaction”). The Transaction will be structured as a merger in accordance with the laws of the State of Delaware pursuant to which Chemtrade will acquire all of the outstanding shares of ASP GT Holding Corp., General Chemical’s parent company, from certain funds controlled by American Securities LLC, a private equity firm.
“This is a historic event for Chemtrade. The acquisition of General Chemical adds significant size, scale and scope to Chemtrade’s existing product and service platform,” said Chemtrade President and Chief Executive Officer, Mark Davis. “General Chemical has strong portfolio alignment with our current business, enhancing our existing sulphuric acid geographic footprint and greatly expanding our water treatment business so it now extends across most of North America. The acquisition of General Chemical also moves Chemtrade into new but related product categories and end markets, and positions Chemtrade to capitalize on new growth opportunities.”
General Chemical is a North American manufacturer of a broad portfolio of inorganic chemical products with three business units: Water Treatment Chemicals, Sulphuric Acid and Specialty Chemicals. The business operates 45 facilities across the United States and Canada, and employs approximately 540 people. General Chemical serves a diverse customer base in a variety of end markets including municipal water treatment, general industrial production, pulp and paper, food and beverage, agriculture, and pharmaceuticals. No single customer accounted for more than 8% of total 2012 revenue. For the last twelve months ended September 30, 2013 (“LTM”), General Chemical generated total revenue of US$390 million and Adjusted EBITDA of US$110 million, resulting in an Adjusted EBITDA margin of 28%.
The acquisition of General Chemical is consistent with Chemtrade’s four-pronged strategy:
– Adds significant scale to Chemtrade’s existing platform
– Meaningful growth opportunities in both Water Treatment Chemicals and Specialty Chemicals
– North American manufacturer with broad product portfolio of inorganic chemical solutions
– Enhanced scale allows continued development of best practices to continually improve asset quality and efficiency
Attractive Business Model
– High-quality earnings consistent with Chemtrade’s risk mitigating business model derived through a diverse customer base, risk-shared contracts and market leading positions across different geographies
– Industry-leading EBITDA margins and robust free cash flow conversion
– Highly accretive to distributable cash per unit (“DCPU”) and reduces payout ratio
– Maintains strong balance sheet
The Transaction is approximately 17% accretive to Chemtrade’s DCPU on a pro forma basis for the twelve month period ended September 30, 2013, including synergies. Chemtrade’s pro forma payout ratio would have been approximately 50% over the same period. The Transaction is expected to deliver operating cost synergies of US$10 million through reduction of duplicate services, particularly certain head office functions. The synergies are expected to be fully realized within one year from the closing of the Transaction. On a combined basis, the pro forma company would have generated LTM revenue of approximately $1,254 million and LTM EBITDA (before synergies) of approximately $255 million.
Financing of the Transaction
Chemtrade intends to finance the Purchase Price through a combination of: (i) US$1.0 billion syndicated senior secured credit facilities consisting of a US$600 million term loan and a US$400 million revolver with a US$150 million optional accordion; and (ii) an approximate $300 million equity raise. At closing of the Transaction, the term loan is expected to be fully drawn and the revolver is expected to have approximately US$216 million drawn, primarily for the refinancing of Chemtrade’s existing credit facility. If the equity raise is not completed prior to closing, Bank of Montreal, BMO Capital Markets and The Bank of Nova Scotia have provided Chemtrade with fully committed credit facilities for the full Purchase Price plus transaction expenses. At closing, and assuming completion of the equity raise, Chemtrade’s senior secured debt to LTM EBITDA ratio is expected to be approximately 3.3x, which is well below the financial covenants contained in the credit facilities.
Purchase Price Adjustments
The Purchase Price is subject to a customary working capital adjustment. In addition, the Purchase Price will be adjusted based on a formula for any variance between the one day volume weighted average unit price of Chemtrade for the second business day after the date upon which certain financial statements are delivered to Chemtrade by General Chemical (the “Target Price”) and the reference price of $17.00 per unit (the “Reference Price”). If the Target Price is less than the Reference Price, the Purchase Price will be reduced, or if the Target Price is higher than the Reference Price, the Purchase Price will be increased. For every $0.50 difference between the Target Price and the Reference Price, the Purchase Price will be adjusted by approximately 1%.
Closing of the Transaction and Other Information
Closing of the Transaction is subject to customary conditions, including the receipt of relevant regulatory approvals, including Hart–Scott–Rodino approval.
There can be no assurance that the Transaction or the equity raise will be completed. This press release does not constitute a solicitation of an offer to purchase, or an offer to sell, any securities.
Following closing of the Transaction, Chemtrade intends to maintain its current annual distribution rate of $1.20 per unit. Holders of units who are non-residents of Canada will be required to pay all withholding taxes payable in respect of any distributions of income by the Fund.
Advisors and Counsel
BMO Capital Markets and Jefferies LLC are acting as financial advisors to Chemtrade. Osler, Hoskin & Harcourt LLP and Covington & Burling LLP are legal advisors to Chemtrade.
Conference Call and Webcast
Chemtrade will hold a conference call on December 4, 2013 at 10:00 a.m. ET to review the acquisition. To access the conference call by telephone, dial 416-764-8652 or 1-888-396-8063. Please connect approximately 15 minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay until January 4, 2014. To access the archived conference call, dial 416-764-8691 or 1-877-674-6060 and enter the reservation number 691955.
A live audio webcast of the conference call and slide presentation will be available at www.chemtradelogistics.com and www.newswire.ca.
Chemtrade operates a diversified business providing industrial chemicals and services to customers in North America and around the world. Chemtrade is one of North America’s largest suppliers of sulphuric acid, liquid sulphur dioxide and sodium hydrosulphite, and a leading processor of spent acid. Chemtrade is also a leading regional supplier of sulphur, sodium chlorate, phosphorous pentasulphide, zinc oxide, and water treatment chemicals. Chemtrade also provides industrial services such as processing hydrogen sulphide and other by-products and waste streams.
Non-IFRS and Non-U.S. GAAP Measures
This news release makes reference to certain non-IFRS and non-U.S. GAAP measures. These non-IFRS measures are not recognized measures under IFRS, do not have a standardized meaning prescribed by IFRS and are therefore unlikely to be comparable to similar measures presented by other companies. Rather, these measures are provided as additional information to complement IFRS measures by providing further understanding of operations from management’s perspective. Accordingly, non-IFRS measures should never be considered in isolation nor as a substitute for analysis of financial information reported under IFRS. Management presents non-IFRS measures, specifically EBITDA, adjusted EBITDA, adjusted EBITDA margin, Distributable Cash after Maintenance Capital Expenditures per unit (“DCPU”) and payout ratio, as it believes these non-IFRS measures are frequently used by securities analysts, investors and other interested parties as measures of financial performance and to provide a supplemental measure of operating performance and thus highlight trends that may not otherwise be apparent when relying solely on IFRS financial measures. The definitions of the non-IFRS measures contained in this release are as follows:
EBITDA is calculated as net earnings before any deduction for net finance costs, taxes, depreciation and amortization and other charges such as unrealized foreign exchange gains and losses.
Adjusted EBITDA has been calculated as EBITDA adjusted upwards in aggregate by approximately US$2 million comprised of: (i) expenses that are not expected to continue after the acquisition, such as management fees and non-cash compensation items; and (ii) items which are considered by management as not indicative of underlying business operating performance such as gain/loss on the disposal of assets. Adjusted EBITDA margin is adjusted EBITDA divided by revenue.
Distributable Cash after Maintenance Capital Expenditures per unit is Distributable Cash after Maintenance Capital Expenditures divided by the number of Chemtrade’s equity units outstanding. Distributable Cash after Maintenance Capital Expenditures is cash flow from operating activities adjusted by removing changes in non-cash working capital and other items, including contributions to frozen defined benefit pension plans and other post-employment benefit plans and by deducting maintenance capital expenditures. Maintenance capital expenditures are all capital expenditures other than capital expenditures that are: (a) pre-funded, usually as part of a significant acquisition and related financing; (b) considered to expand the capacity of Chemtrade’s operations; (c) significant environmental capital expenditures that are considered to be non-recurring; or (d) capital expenditures to be reimbursed by a third party.
Payout ratio equals distributions paid to unit holders divided by Distributable Cash after Maintenance Capital Expenditures.
Caution Regarding Forward-Looking Statements
Certain statements contained in this news release constitute forward-looking statements within the meaning of certain securities laws, including the Securities Act (Ontario). Forward-looking statements can be generally identified by the use of words such as “anticipate”, “continue”, “estimate”, “expect”, “expected”, “intend”, “may”, “will”, “project”, “plan”, “should”, “believe” and similar expressions. Specifically, forward-looking statements in this news release include statements respecting certain future expectations about: the Fund’s ability to close the acquisition transaction, its structure, timing and the amount of the Purchase Price after adjustment; how the acquisition is to be financed, the amount to be drawn and the uses thereof; the Fund’s ability to accomplish an equity raise and its timing; the ability of the Fund to achieve certain synergies, their timing and amount; the Fund’s ability to meet its debt covenants and their expected level; the ability of the Fund to maintain its distribution rate and the amount of distributions. Forward-looking statements in this news release describe the expectations of the Fund and its subsidiaries as of the date hereof. These statements involve known and unknown risks, uncertainties and other factors that may cause actual results or events to differ materially from those anticipated in such forward-looking statements for a variety of reasons, including without limitation the risks and uncertainties detailed under the “RISK FACTORS” section of the Fund’s latest Annual Information Form and the “RISKS AND UNCERTAINTIES” section of the Fund’s most recent Management’s Discussion & Analysis.
Although the Fund believes the expectations reflected in these forward-looking statements and the assumptions upon which they are based are reasonable, no assurance can be given that actual results will be consistent with such forward-looking statements, and they should not be unduly relied upon. With respect to the forward-looking statements contained in this news release, the Fund has made assumptions regarding: there being no significant disruptions affecting the operations of the Fund and its subsidiaries, whether due to labour disruptions, supply disruptions, power disruptions, transportation disruptions, damage to equipment or otherwise; the ability of the Fund to obtain products, raw materials, equipment, transportation, services and supplies in a timely manner to carry out its activities and at prices consistent with current levels or in line with the Fund’s expectations; the timely receipt of required regulatory approvals; the cost of regulatory and environmental compliance being consistent with current levels or in line with the Fund’s expectations; the ability of the Fund to successfully access tax losses and tax attributes; the ability of the Fund to obtain financing on acceptable terms; currency, exchange and interest rates being consistent with current levels or in line with the Fund’s expectations; and global economic performance.
The Fund disclaims any intention or obligation to update any forward-looking statement even if new information becomes available, as a result of future events or for any other reason. The forward-looking statements contained herein are expressly qualified in their entirety by this cautionary statement.
Further information can be found in the disclosure documents filed by Chemtrade Logistics Income Fund with the securities regulatory authorities, available at www.sedar.com.
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For further information:
President & CEO
Tel: (416) 496-4176
Vice President, Finance & CFO
Tel: (416) 496-4177
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