3rd Jul 2019 08:58
(Alliance News) - Synthomer PLC on Wednesday said it has agreed the USD824 million acquisition of fellow speciality chemicals firm OMNOVA Solutions Inc using proceeds from a GBP204 million rights issue.
FTSE-250-listed Synthomer will pay USD10.15 per share for the New York Stock Exchange listed company, a 58% premium to OMNOVA's closing price on Tuesday of USD6.42.
The deal values the entire share capital of OMNOVA, a US company which spun off from former parent GenCorp Inc in 1999, at USD473 million for an implied enterprise value including debt of USD824 million.
The deal will be financed using proceeds from an up to GBP204 million rights issue, around USD257 million, as well as drawings from new debt facilities. For this, shareholders must approve the deal and the increase of Synthomer's borrowing limit to GBP1.50 billion from GBP750 million.
According to Synthomer, the acquisition is "conservatively financed" and will produce an estimated leverage of around 2.5 times net debt to earnings before interest, depreciation, taxation, and amortisation. This is set to drop to less than 2.0 times by the end of the second year once the buy is complete.
The rights issue will be made on a basis of one new share at 240 pence per new share for every four existing shares. This will result in a maximum of 85.0 million new share issues, or around 25% of existing shares. If the acquisition is abandoned, Synthomer still intends to keep its rights issue proceeds for use in other acquisitions.
Shares in Synthomer were down 1.5% at 367.20 pence on Wednesday morning.
Synthomer noted the "strong synergy potential" of the deal and said it will target pre-tax cost synergies of USD29.6 million per annum by the end of the third year following the acquisition.
In its year to November 30, Ohio-based OMNOVA posted net sales of USD769.8 million, down from USD783.1 million in 2017. Its income before taxes was USD14.5 million, swinging from a USD4.1 million loss in 2017. OMNOVA uses manufacturing and technical facilities located in North America, China, Europe, and Thailand
Earnings accretion is due to occur in the first year after completion, and the deal is due to be "strongly accretive thereafter".
Synthomer Chief Executive Calum MacLean said: "This transaction is an important step in the continued execution of Synthomer's strategy with an acquisition that is both strategically and financially compelling. The acquisition of OMNOVA represents an attractive opportunity to materially expand our international business into North America and expand our presence in Europe and Asia, creating a global speciality chemical company.
"The acquisition provides an attractive financial profile with significant expected synergy benefits. Synthomer has been disciplined waiting for the right opportunity to deliver value through our inorganic growth strategy and this acquisition will provide an additional platform for Synthomer to continue to grow into the medium term."
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