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Quaker Chemical to Merge with Houghton International

The new company will offer one of the world’s largest metalworking fluids portfolios.

Quaker Chemical Corporation (Conshohocken, PA) and Houghton International Inc. (Valley Forge, PA), two companies with a combined 250-year history as providers of process fluids, chemical specialties, and technical expertise to the global primary metals and metalworking industries, have announced that they have executed a definitive agreement to combine the two firms, which are both headquartered in the Philadelphia area.

“This proposed combination of represents the next phase of our evolution, and stays true to the vision of growing in our core specialties,” said Michael F. Barry, the chairman and chief executive officer of Quaker Chemical. “Joining forces with them 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 capitalize on best practices and expertise from both businesses.”

“We are pleased to enter this agreement to unite these two distinguished and global companies,” added Sanjay Hinduja, the chairman of Houghton International, which is owned by the Hinduja Group through its Gulf Oil business. “Together we will strengthen our capabilities and business models to better serve the global market and all our stakeholders.” 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. In addition, Quaker Chemical will assume Houghton International’s debt and cash, with net debt of approximately $690 million at year-end 2016. This agreement has been approved by the boards of directors of both companies with full support of the Hinduja Group, which will become Quaker Chemical’s largest shareholder.

Both companies are known for a commitment to innovation in a highly specialized and technologically demanding industry. “In addition to our complementary businesses,” said Mike Shannon, the chief executive officer of Houghton International, “we are each committed to creating solutions for our customers through innovation, strong technical expertise and global reach with localized applications expertise.” Combining the product solutions and service offerings of both companies will allow the new company to better serve users in the automotive, aerospace, heavy equipment, metals, mining, machinery, marine, offshore, and container industries.

This new business will have one of the world’s most expansive metalworking platforms, comprised of specialty products that include removal fluids, forming fluids, protecting fluids, heat treating fluids, industrial lubricants and greases. 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 research and development pipeline. The company’s user-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 Chemical had revenue of $747 million, $107 million of adjusted EBITDA, and $22 million of net cash. During the same period, Houghton International 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 realized 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 Chemical 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, which is expected by the end of 2017 or early 2018, is subject to customary closing conditions, including regulatory approvals and approval by Quaker Chemical shareholders. The companies will continue to operate independently until the transaction is completed.

Following closing of the transaction, the new company is expected to have a 12-member board of directors, consisting of nine directors from Quaker Chemical and three directors to be nominated by the Hinduja Group. Barry will continue as chairman and chief executive officer of the new business, and the structure of the company will be determined in the period between signing and closing. Deutsche Bank Securities Inc. is serving as Quaker Chemical’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.

quakerchem.comwww.houghtonintl.com

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