U.S. private equity firm Carlyle Group is quitting its decade-long mining services play in Australia through the A$517 million ($414 million) sale of its controlling stake in the highly leveraged earth-moving equipment provider Coates Hire.
Australian media billionaire Kerry Stokes’s Seven Group Holdings (SVW.AX) said it would buy the 53.3 percent stake it did not already own in Coates from the U.S. investment firm, sending Seven shares up as much as 10 percent in a slightly lower overall market.
Seven, of which Stokes owns three quarters, said it would also assume Coates’s net debts, which total about A$1 billion. It added that it would use the acquisition of Australia’s largest equipment company to boost its industrial services division.
Seven later announced a A$400 million equity raising to help pay for the purchase.
It will issue 33.5 million shares at a price of A$11.20, an 8.8 percent discount to its closing price on Tuesday, to raise A$375 million.
A further A$25 million will be raised through a purchase plan for existing shareholders, a Seven statement said.
If needed, Seven may seek to refinance the debt, as the deal depends on getting approval from its lenders, the company said in a statement to the Australian Securities Exchange.
“We have had a long history with the Coates Hire business and believe with the visible market opportunity associated with East Coast infrastructure activity, along with the current performance of the business and management team, the company is extremely well positioned,” said Seven Group CEO Ryan Stokes, Kerry’s son.
Diversified investment company Seven Group – which also owns a third of television and magazine company Seven West Media Ltd (SWM.AX) – said the deal would increase its fiscal 2017 underlying earnings per share by 15 percent and increase underlying pre-tax profit to A$415 million from A$297 million.
It would fund the purchase with existing debt and cash, including proceeds from its sale of WesTrac China. [nL4N1L8009]
For Carlyle, the deal marks an exit from the Australian mining services sector amid modestly improved conditions, although its plans to float the business remain unfulfilled.
Carlyle, Seven Group and minority shareholders bought Coates in 2008, marking Carlyle’s first leveraged acquisition in Australia. Plans to list the company never materialised and instead Coates’s owners used debt markets to refinance the company’s debts.
Coates is highly exposed to the resources sector but an increased focus on infrastructure projects has helped offset the decline in revenues in the aftermath of the end of Australia’s mining boom.