As part of the combination of RHI AG with Magnesita S.A., which was announced in a press release on October 5, 2016, it is required to make a cash compensation offer to exiting shareholders for the cross-border merger of RHI AG into RHI – MAG N.V. planned within this transaction.
The Management Board today set the price of the cash compensation of EUR 26.50 per share. This assessment is based on a pure stand-alone view of RHI not including the synergies after closing of the planned transaction.
Further details regarding the merger will be announced in the course of the disclosure of the transaction documentation by June 30, 2017.
In the first quarter of 2017, the RHI Group’s sales volume increased by 4.8% compared with the same period of 2016 to roughly 483,000 tons. While the Steel Division recorded an increase by 5.3% due to higher deliveries in Europe, North America, Africa and the Middle East, the Industrial Division’s sales volume rose by 10.4% due to a positive development in nearly all business units.
The RHI Group’s revenue in the first quarter of 2017, at € 418.8 million, exceeded the revenue of the comparative period of 2016, at € 389.7 million, and was slightly lower than in the fourth quarter of 2016, at € 423.9 million.
Operating EBIT amounted to € 37.9 million in the first quarter of 2017, after € 30.3 million in the comparative period of 2016, thus also exceeding the figure of the fourth quarter of 2016, at € 25.2 million. The increase compared with the first quarter of 2016 is among other things due to a friendlier market environment in many customer industries and the related better order situation as well as the resulting higher utilization of production capacities and product mix effects. The operating EBIT margin, at 9.0% in the first quarter of 2017, thus exceeded that of the comparative period of 2016, at 7.8%, and that of the fourth quarter of 2016, at 5.9%. The external costs associated with the planned business combination of RHI and Magnesita incurred in the past quarter total € 3.8 million.
EBIT amounted to € 32.6 million in the first quarter of 2017 and primarily includes a negative net effect from the power supply contract in Norway amounting to € 4.3 million as a result of lower electricity future prices.
Equity was € 555.0 million at March 31, 2017, compared with € 524.0 million at December 31, 2016. This corresponds to an equity ratio of 30.5%. Working capital increased from € 465.1 million at the end of the year 2016 to € 491.3 million at March 31, 2017. This is primarily attributable to higher inventories due to an increase in the order level by roughly 15% compared with December 31, 2016. Free cash flow amounted to € 12.0 million in the past quarter compared with € 22.1 million in the same period of 2016. Net debt declined slightly from € 332.8 million at the end of 2016 to € 325.2 million at March 31, 2017. The number of employees amounted to 7,460 at the end of the past quarter.
Outlook In its forecast published in April 2017, the International Monetary Fund predicts global economic growth of 3.5% in the current year after 3.1% in the year 2016. However, there is considerable uncertainty regarding the impact of the policies of the newly elected US government. Although the environment in the advanced economies improved, the pace of growth in the emerging markets will continue to influence the global economy to a significant extent. Based on a current study, the research institute CRU expects a decline in steel production in China by roughly 1% in the year 2017 and an increase in steel production outside China by an ambitious 5%. Based on these estimates, RHI expects a more positive market environment in 2017. The focus will stay on the generation of free cash flow in the current financial year in order to reduce net debt further. RHI is currently working on meeting the conditions precedent to the successful closing of the planned combination with Magnesita (the “Combined Group”) and is preparing the integration of the two companies. In the context of these activities, external costs will be incurred.
In the past quarter, uncertainties arose due to a shortage in the supply situation of refractory raw materials in China. Striving to improve environmental and safety standards, Chinese authorities introduced stricter requirements and carried out production controls. As a result, many local manufacturers of sintered and fused magnesia had to completely shut down their production in the past quarter. Due to this new situation, market prices are now rising. It can currently not be estimated when this situation will ease. As raw material supply from China is getting less secure, supply concepts are adapted continuously within the RHI Group.
Update on the planned combination with Magnesita RHI filed for merger control clearance with the competition authorities in Brazil at the end of March and in Europe at the beginning of May and expects to have a clearer picture of the outcome of the proceedings around the end of the first half of 2017.
Based on their financial statements for the year 2016, the combined revenue of RHI and Magnesita amounted to approximately € 2.5 billion. RHI has revised its aspirational financial targets1) for the Combined Group in the course of a corporate strategy update. These targets replace any earlier financial targets (which are thus withdrawn) for the Combined Group and include the following. In the medium term, RHI’s aspiration for the Combined Group is to have organic revenue growth in line with the volume growth in its customers’ industries and an operating EBIT margin of more than 12% after capturing the Combined Group’s envisaged net synergies of approximately € 70 million in case of a delisting of Magnesita. RHI’s aspiration for the Combined Group is 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’s aspiration is to increase dividend payments from the Combined Group, as a result of stronger cash flow generation resulting from synergies, organic growth and de-leveraging of the company’s capital structure.
1) Management’s financial targets are not forecasts and there can be no guarantee that the actual results will resemble the targets in the medium term or mid- to long-term. RHI has not defined, and does not intend to define, “medium term” and “mid- to long-term”, and these financial targets should not be read as indicating that RHI is targeting such metrics for any particular fiscal year.
| in € million Revenue EBITDA EBITDA margin Operating EBIT 1) Operating EBIT margin EBIT EBIT margin Profit before income tax Profit after income tax | Q1/2017 418.8 48.5 11.6% 37.9 9.0% 32.6 7.8% 30.2 18.5 | Q1/2016 389.7 43.2 11.1% 30.3 7.8% 27.1 7.0% 23.8 14.8 | Delta 7.5% 12.3% 0.5pp 25.1% 1.2pp 20.3% 0.8pp 26.9% 25.0% | Q4/2016 423.9 40.4 9.5% 25.2 5.9% 15.0 3.5% 13.8 11.9 | Delta (1.2)% 20.0% 2.1pp 50.4% 3.1pp 117.3% 4.3pp 118.8% 55.5% |
1) EBIT before expenses from derivatives from supply contracts, impairment and restructuring effects
At its meeting on April 3, 2017, the RHI Supervisory Board approved the annual financial statements 2016 of RHI AG and the consolidated financial statements 2016. The preliminary results of the RHI Group as published on March 14, 2017 are thus confirmed.
The annual report for the year 2016 is available for download at the RHI website: www.rhi-ag.com / Investor Relations / Financial Reports
Link: http://www.rhi-ag.com/internet_en/investor_relations_en/Financial_reports_Channel
At today’s meeting, the Supervisory Board appointed Dr. Gerd Schubert (56) Chief Operations Officer and Chief Technology Officer of the Management Board of RHI AG for a period of five years with effect from January 1, 2017. Before joining RHI, Dr. Schubert held international management positions in operations as well as research and development at Ferro Corporation. Having extensive experience in the management of complex transformations, he will support the Management Board team in the course of the planned combination of RHI and Magnesita. Mr. Franz Buxbaum will resign from the Management Board of RHI AG by mutual agreement.
1st Quarter Due to a weaker business development of the Steel and Industrial Divisions, the RHI Group’s revenue, at € 389.7 million in the first quarter of 2016, was lower than revenue of the comparative period of 2015, at € 424.1 million, and lower than revenue of the fourth quarter of 2015, at € 440.0 million.
The operating EBIT amounted to € 30.3 million in the first quarter of 2016, after € 34.5 million in the comparative period of 2015, and was thus lower than in the fourth quarter of 2015, at € 32.7 million. While the Raw Materials Division increased its operating EBIT compared with the first quarter of 2015 due to better utilization of the raw material production capacities, the operating EBIT of the Steel and Industrial Divisions decreased due to declining revenues. In comparison with the fourth quarter of 2015 the Steel Division increased its operating EBIT significantly, among other things due to a positive development in Europe and North America as a result of an improved product mix. The decline in the operating EBIT of the Industrial Division can be explained by the high number of project deliveries at the end of the year. The operating EBIT margin of the RHI Group, at 7.8% in the first quarter of 2016, was lower than in the comparative period of 2015, at 8.1%, but exceeded that of the fourth quarter of 2015, at 7.4%.
EBIT includes a negative net effect from the power supply contract in Norway. Here, financial liabilities of roughly € 1.9 million were reversed through profit and loss due to own use and the sale at market prices; however, due to a decline in electricity future prices, a negative non-cash effect on earnings of roughly € 5.1 million had to be recognized.
Equity amounted to € 486.8 million at March 31, 2016, after € 491.4 million at December 31, 2015. This development is among other things due to a reduction of the actuarial interest rate to determine pension and termination benefit obligations predominantly in Austria and Germany. Working capital, which consists of inventories, trade receivables less trade payables and prepayments received, was reduced from € 532.6 million at the end of the year 2015 to € 516.4 million at March 31, 2016 due to lower receivables. Free cash flow amounted to € 22.1 million in the past quarter after € 12.4 million in the comparative period of 2015. As a result, net debt dropped from € 397.9 million at the end of the year 2015 to € 378.9 million at March 31, 2016.
The number of employees declined slightly from 7,898 at the end of the year 2015 to 7,876.
Outlook For the full year 2016, the Management Board of the RHI Group still expects revenue (2015: € 1,752.5 million) below and operating EBIT (2015: € 124.1 million) at the level of the past financial year, provided that the macroeconomic environment and exchange rates remain stable, with the first half of 2016 slightly weaker than the second half of the year. The expected decline in revenue in the Steel Division is related especially to an expected slowdown of the business development in South America and a highly competitive environment. In the Industrial Division, a weaker nonferrous metals and cement business could cause a decrease in revenue.
Due to the development in the customer industries, RHI is currently working on further optimizing the plant structure, which could lead to an adjustment of production capacities in Europe in the current financial year. In addition, different cost measures have been defined in the sales and general administrative departments. The planned continuation of the reduction of working capital should support the generation of free cash flow and lead to a further reduction of net debt.
| in € million Revenue EBITDA EBITDA margin Operating EBIT 1) Operating EBIT margin EBIT EBIT margin Profit before income tax Profit after income tax | Q1/2016 389.7 43.2 11.1% 30.3 7.8% 27.1 7.0% 23.8 14.8 | Q1/2015 424.1 51.2 12.1% 34.5 8.1% 34.5 8.1% 29.9 21.1 | Delta (8.1)% (15.6)% (1.0)pp (12.2)% (0.3)pp (21.4)% (1.1)pp (20.4)% (29.9)% | Q4/2015 440.0 (2.3) (0.5)% 32.7 7.4% (53.9) (12.3)% (54.7) (38.4) | Delta (11.4)% 1,978.3% 11.6pp (7.3)% 0.4pp 150.3% 19.3pp 143.5% 138.5% |
1) EBIT before expenses from derivatives from supply contracts, impairment and restructuring effects
In the first nine months of 2016, the RHI Group’s revenue dropped by 6.5% compared with the same period of 2015 and amounted to € 1,227.3 million. In the Steel Division revenue declined by 4.6% due to a weaker business development in South America, Europe and China and the opening of the product portfolio to lower-performance products. These products support the sales volume and margin development, but lead to lower revenue due to the lower price level. In the Industrial Division the decrease in revenue of 11.3% compared with the same period of 2015 is among other things due to lower deliveries in the cement/lime and environment, energy, chemicals business units.
Despite the decline in revenue, the operating EBIT rose by 7.2% from € 91.4 million in the first nine months of 2015 to € 98.0 million in the current financial year. This development is primarily attributable to a positive earnings situation in the Steel Division due to favorable product mix effects and better utilization of the production capacities resulting from the increase in sales volume. In addition, the operating EBIT of the Raw Materials Division improved due to good capacity utilization at the Austrian raw material plants, which predominantly produce basic mixes for the steel industry, especially for the use in electric arc furnaces. Overhead cost savings also supported the earnings development. In contrast, the Industrial Division’s operating EBIT was lower than in the previous year due to a decline in revenue. The RHI Group’s operating EBIT margin increased from 7.0% in the first nine months of 2015 to 8.0% in the current financial year.
EBIT amounted to € 101.1 million in the first nine months of 2016 and includes negative effects on earnings of € 4.6 million from the deconsolidation of the US subsidiary RHI Monofrax, LLC following the sale to the German private equity fund Callista, and € 3.6 million related to the social plan for staff layoffs and changes in the production portfolio at the site in Porsgrunn, Norway. In contrast, a positive effect of € 11.3 million resulted from the measurement of the power supply contract in Norway.
Free cash flow amounted to € 75.5 million in the first nine months of 2016, after € 74.8 million in the comparative period of 2015. Net debt declined from € 397.9 million at the end of the financial year 2015 to € 364.0 million at September 30, 2016. The number of employees decreased from 7,898 at the end of the year 2015 to 7,568.
Q3/2016 In the third quarter of 2016, revenue dropped by 9.9% to € 397.1 million compared with the strong second quarter of 2016. This is attributable to seasonally weaker business in Europe during the summer months and a weaker business development in the Middle East in the Steel Division as well as a decrease in project deliveries in the environment, energy, chemicals, and nonferrous metals business units.
As a result of declining revenues, the operating EBIT dropped from € 39.9 million in the second quarter of 2016 to € 27.8 million in the past quarter. In addition, external expenses of € 3.7 million related to the planned combination of RHI and Magnesita incurred in the third quarter of 2016 had a negative impact on the earnings development. These expenses totaled € 3.9 million in the first nine months of 2016.
EBIT amounted to € 32.5 million in the third quarter of 2016 and includes costs of € 3.6 million for the social plan and the changes in the production portfolio as well as positive net effects from the power supply contract in Norway. Based on own use, the sale at market prices and an increase in electricity future prices, financial liabilities of € 8.3 million were reversed. Income tax expenses in the past quarter were positively influenced by the reversal of a provision of € 6.3 million related to a tax audit in Turkey.
Outlook For the full year 2016, the Management Board of the RHI Group expects revenue below the level of the past financial year if the macroeconomic environment and exchange rates remain stable. The operating EBIT margin is expected to reach roughly 8%, adjusted for external expenses related to the planned combination of RHI and Magnesita, which corresponds to an increase by roughly one percentage point compared with the previous year.
Should the current evaluation regarding the optimization of the plant structure provide first decision-relevant results in the fourth quarter of 2016, this may lead to non-cash impairment losses of a maximum of €10 million. The planned continuation of the reduction of working capital and different cost measures in the sales and general administrative departments should support the generation of free cash flow and lead to a further reduction of net debt.
| in € million Revenue EBITDA EBITDA margin Operating EBIT 1) Operating EBIT margin EBIT EBIT margin Profit before income tax Profit after income tax | 9M/16 1,227.3 148.7 12.1% 98.0 8.0% 101.1 8.2% 92.0 64.0 | 9M/15 1,312.5 142.3 10.8% 91.4 7.0% 91.4 7.0% 82.1 56.0 | Delta (6.5)% 4.5% 1.3pp 7.2% 1.0pp 10.6% 1.2pp 12.1% 14.3% | 3Q/16 397.1 48.1 12.1% 27.8 7.0% 32.5 8.2% 29.1 25.1 | 2Q/16 440.5 57.4 13.0% 39.9 9.1% 41.5 9.4% 39.1 24.1 | Delta (9.9)% (16.2)% (0.9)pp (30.3)% (2.1)pp (21.7)% (1.2)pp (25.6)% 4.1% |
1) EBIT before expenses from derivatives from supply contracts, impairment and restructuring effects
The Supervisory Board of RHI AG gave its approval to the resolutions proposed by the Management Board regarding the acquisition of a controlling stake of at least 46%, but no more than 50% plus one share of the share capital in Magnesita (the “Transaction”) at its meeting today. The Management Board of RHI AG is thus authorized to take all actions stipulated in the share purchase agreement and to make any declaration necessary in the context of implementing the share purchase agreement.
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 € 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.
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 € 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 € 19.52, the implied value of the 46% stake amounts to € 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 € 1,753 million and adjusted EBITDA of € 198 million. Brazil-based Magnesita is a global provider of integrated refractory solutions, services and industrial minerals, with revenues of US$ 1,013 million (€ 914 million) and adjusted EBITDA of US$ 145 million (€ 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 € 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 € 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 € 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 € 19.52, the implied value for the entire share capital of Magnesita will be € 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. € 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. € 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 € 2 million and € 7 million annually, while aggregate working capital savings of € 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 € 50 million to € 90 million, while non-cash integration costs, effectively write-offs, should vary between € 20 million and € 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 € 2.6 billion to € 2.8 billion (previously € 2.0 to € 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. € 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$5.0 billion from international investors and has acquired 54 companies in 15 sectors. In May 2006, GP Investments concluded its initial public offering (IPO), becoming the first listed private equity firm in Brazil.
About Rhône With 20 years of investing experience, Rhône, together with its affiliates, is a global alternative asset management firm with a focus on investments in market leading businesses with a pan-European or transatlantic presence and expansion prospects. Currently investing capital from its fifth private equity fund, Rhône has offices in London and New York and prior investment experience in the business services, chemicals, consumer products, food, packaging, security services, specialty materials and transportation sectors
1 Magnesita net revenues and adjusted EBITDA converted at 2015 average €/US$ exchange rate of 1.11. Magnesita EBITDA adjusted for other operating income and expenses. RHI EBITDA adjusted for negative effects on earnings of approx. € 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
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.
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 € 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. The exchange ratio applied in the Transaction is 0.19 newly issued RHI Magnesita shares for 1 Magnesita share. Based on RHI’s six-month volume weighted average price of € 19.52 as of 4 October 2016, the implied value of the 46% stake amounts to € 208 million, implying a value for Magnesita’s entire share capital of € 451 million.1
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 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 € 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. As a consequence of the Transaction, RHI Magnesita will become the ultimate holding company of RHI Group while 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.
If the Transaction is terminated for reasons not under the control of Magnesita’s Controlling Shareholders, an aggregate break fee of up to € 20 million is payable by RHI to Magnesita’s Controlling Shareholders.
Following completion of the Transaction, which is expected for 2017, a mandatory tender offer will be launched by RHI Magnesita or one of its affiliates for the remaining shares in Magnesita (“Offer”). As part of the Offer, a maximum number of 5.0 to 5.4 million RHI Magnesita shares will be issued, depending on the stake acquired within the Transaction, thereby 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 € 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 at least 1.5 to 1.9 million and at most 3.4 million additional new RHI Magnesita shares, thereby increasing their total number of RHI Magnesita shares to a maximum of 8.0 million. RHI Magnesita 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.
The Transaction will be financed by additional debt and the issuance of 4.6 to 5.0 million RHI Magnesita shares to Magnesita’s Controlling Shareholders. At the same time, 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.
As result of the Transaction, RHI’s mid-term financial targets will surpass RHI’s current targets as communicated in RHI’s Strategy 2020. RHI expects the combined company to generate fully consolidated revenues of € 2.6 billion to € 2.8 billion (previously € 2.0 billion to € 2.2 billion) with an operating EBIT margin of more than 12% (previously more than 10%) by 2020, primarily as a result of planned synergies.
1 Based on 10 million newly issued RHI Magnesita shares (which implies that all of Magnesita’s other shareholders elect to receive RHI Magnesita shares in the Offer), and 52,631,881 million Magnesita ordinary shares.
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 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.
09/26/16
At its meeting on September 26, 2016, the Supervisory Board of RHI AG appointed Mr. Stefan Borgas, Lic. Oec. (HSG) new CEO with effect from December 1, 2016. In order to enable an orderly handover of tasks, Dr. Wolfgang Ruttenstorfer will continue to be available as interim Chairman of the Management Board until November 30, 2016.
Mr. Franz Struzl will resign as member of the Management Board with the expiry of November 30, 2016 and act as a consultant to the company once he has fully recovered.
Having studied business management at the University of Saarbrücken and the University of St. Gallen, Stefan Borgas, 52, started his career in the chemical industry. After joining BASF, he held several management positions in the US, Germany and China and was responsible as Vice President for the business unit “Fine Chemicals” from 2002. In 2004, he was appointed CEO in the Management Board of the Swiss Lonza Group and transformed the company into a leading life science group. In 2012, he joined the special chemicals manufacturer Israel Chemicals Ltd. as President & CEO.