Quaker, Houghton merger create global leader in metalworking

Quaker, Houghton merger to create global leader in metalworking

9:59 AM, 6th April 2017
Quaker, Houghton logo

CONSHOHOCKEN, US: Quaker Chemical Corporation (KWR) and Houghton International Inc have executed a definitive agreement to merge.

Both companies have a combined 250-year history as providers of process fluids, chemical specialities, and technical expertise to the global primary metals and metalworking industries. And both are headquartered in Philadelphia, US.

Under the terms of the agreement, Houghton shareholders will receive $172.5 million of cash and 24.5 percent ownership of the combined company, representing approximately 4.3 million shares of newly issued Quaker Chemical stock.

Moreover, Quaker will assume Houghton's debt and cash, with net debt of approximately $690 million at year-end 2016. The agreement has been approved by both boards of directors with a full support of the Hinduja Group, which will become Quaker Chemical's largest shareholder.

The Hinduja Group is one of India's premier diversified and transnational conglomerate.

Highly balancing deal

This combination will allow the new company to better serve customers in the automotive, aerospace, heavy equipment, metals, mining, machinery, marine, offshore, and container industries.

The business will have one of the world's most expensive metalworking platforms comprised of speciality products that include removal fluids, forming fluids, protecting fluids, heat treating fluids, industrial lubricants and greases.

The expanded portfolio is expected to generate significant cross-selling opportunities and allow further expansion into growth markets that include India, Korea, Japan, and Mexico. 

By combining resources, the new company will increase the breadth of its innovative technology, accelerate its product development initiatives and time to market, and diversify its long-term R&D pipeline.

The company's customer-intimate business model will be further strengthened with an expanded chemical management offering. The enhanced portfolio, industry-expert associates and applications expertise will enable the combined company to bring additional value to its customers' overall performance and operations.

Value creation for shareholders

For 2016, Quaker had revenue of $747 million, $107 million of adjusted EBITDA, and $22 million of net cash. During the same period, Houghton had revenue of $767 million, $120 million of adjusted EBITDA, and $690 million of net debt. After the close of the transaction, shares of the combined company will continue to be listed on the New York Stock Exchange.

The company anticipates achieving cost synergies of approximately $45 million, the majority of which will be realised within two years of closing. These synergies are expected to be driven primarily by supply efficiencies and cost reductions.

Additional value creation is expected through cross-selling opportunities and the ability to provide an expanded array of products and solutions for customers.

Post-transaction, the combined company expects to continue to maintain its dividend and use its strong cash flow generation to quickly reduce debt, improving its pro forma net debt to adjusted EBITDA ratio from approximately 3.7 times at close to approximately 2.5 times within two years after close.

Financing, governance and leadership

Quaker has secured $1.15 billion in committed financing from Bank of America Merrill Lynch and Deutsche Bank Securities Inc to support the transaction, which includes $200 million of additional liquidity for future needs. The company estimates that the annual ongoing interest costs of the financing will be in the 3 percent range at today's interest rates.

The completion of the transaction is expected by the end of 2017 or early 2018. The companies will continue to operate independently until the transaction is completed.

Following the closing, the new company is expected to have a 12-member board of directors, consisting of 9 directors from Quaker and 3 directors to be nominated by the Hinduja Group. 

Michael Barry, chairman and CEO of Quaker Chemical will continue as chairman and CEO of the new business, and the structure of the company will be determined in the period between signing and closing.

"Joining forces with Houghton International combines two highly complementary businesses, each having a long history of building tremendous expertise, technology and customer-centric cultures dedicated to delivering long-term sustainable value to customers, shareholders and associates. The new company will capitalise on best practices and expertise from both businesses," said Michael Barry.

"We are pleased to enter this agreement to unite these two distinguished and global companies. Together we will strengthen our capabilities and business models to better serve the global market and all our stakeholders," said Sanjay Hinduja, chairman of Houghton International, which is owned by the Hinduja Group through its Gulf Oil business.

"In addition to our complementary businesses. we are each committed to creating solutions for our customers through innovation, strong technical expertise and global reach with localised applications expertise," concluded Mike Shannon, CEO of Houghton.

Deutsche Bank Securities Inc is serving as Quaker's lead financial advisor. Drinker Biddle & Reath LLP are acting as its legal advisors. The Valence Group provided a fairness opinion to the board of directors.

RBC Capital Markets LLC is serving as exclusive financial advisor to Houghton International. Mayer Brown LLP are acting as its legal advisors.

© Worldofchemicals News 

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