30th Sep 2005 12:30
Morgan Crucible Co PLC30 September 2005 FOR IMMEDIATE RELEASE 30 September 2005 SALE OF MAGNETICS DIVISION The Morgan Crucible Company plc ("Morgan") agrees the sale of its Magnetics division to One Equity Partners Morgan today announces that it has agreed to sell its Magnetics division to OneEquity Partners ("OEP"), for £225 million payable in cash at completion alongwith the assumption by OEP of unfunded IAS19 pension and employee benefitliabilities. Completion of the transaction, which is subject among other thingsto shareholder approval and clearance from the competition authorities inGermany and Austria, is expected in November 2005. Warren Knowlton, Chief Executive Officer of Morgan, said: "The sale of Magnetics creates both value and opportunity for Morganshareholders. This transaction delivers cash proceeds of £225 million, plus thereduction of our pension and employee benefit liabilities by c.£75 million,giving a total enterprise value of c.£300 million. This represents a post taxgain on disposal of the Magnetics division in excess of £50 million. The saleprice represents a multiple of 1.7x sales and 21.1x EBITA* for the year ended 4January 2005. "This continues the transformation of Morgan. We are now in a position toaccelerate the strategic development of the Group, rigorously focusing on thosebusinesses where we have Number 1 or 2 positions in our target markets, throughboth organic investment and selected bolt-on acquisitions. The Board intends topay down some bank debt and will consider making advance payments into our UKpension funds, and if appropriate, the Board will give consideration to buyingback some shares. "Our profit improvement plan remains firmly on track to meet or exceed the 10%operating margin target by the end of 2006." Enquiries: The Morgan Crucible Company plc 01753 837000Warren Knowlton - Chief Executive OfficerMark Robertshaw - Chief Financial Officer JPMorgan Cazenove 020 7588 2828Julian CazaletRobert ConstantChris Byrne Finsbury 020 7251 3801Rupert YoungerRobin Walker This summary should be read in conjunction with the full text of the followingannouncement. There will be a meeting for analysts at 2.30pm today at Cazenove,20 Moorgate, EC2R 6DA. *EBITA = Operating profit before financing costs, restructuring costs andproperty disposals 30 September 2005 The Morgan Crucible Company plc SALE OF MAGNETICS DIVISION Morgan agrees the sale of Magnetics to One Equity Partners for £300 million INTRODUCTION The Morgan Crucible Company plc ("Morgan") announces that it has today enteredinto a conditional agreement to sell its Magnetics Division ("Magnetics") to OneEquity Partners LLC ("OEP") for c.£300 million, comprising £225 million payablein cash at completion plus the assumption of c.£75 million of InternationalAccounting Standard ("IAS") 19 pension and employee benefits liabilities (the"Sale"). The Sale is conditional among other things on shareholder approval anda circular containing a notice convening an extraordinary general meeting, atwhich a resolution to approve the Sale will be proposed, will be sent toshareholders shortly. INFORMATION ON MAGNETICS DIVISIONMorgan's Magnetics business comprises Vacuumschmelze, a company based in Hanauin Germany and that company's subsidiary operations based in Slovakia, Malaysiaand China. The company was acquired by Morgan from Siemens in 1999 for £115million cash and £25 million debt. Magnetics employs approximately 4,000 peopleworldwide including subcontractors (1,500 employees in Germany; 800 employees inSlovakia; 1,700 employees and subcontractors in Asia). It engineers andmanufactures a wide variety of high quality magnetic materials, parts, inductivecomponents and integrated systems. As a diversified supplier, Magnetics providesits customers with a global, single-point sourcing capability and customisedsolutions to meet their specific needs. Magnetics' products are used in a widevariety of industrial sectors, from aircraft construction to medical technology.Magnetics is led by Dr Hartmut Eisele, Chief Executive Officer, who is assistedby Andrea Bauer as Chief Financial Officer. On an International Financial Reporting Standards ("IFRS") basis, for thefinancial year ended 4 January 2005, Magnetics generated an operating profitbefore financing costs, restructuring costs and property disposals ("EBITA") of£14.2 million on turnover of £181.2 million. As at 4 January 2005, Magnetics hadnet assets of £126.4 million and gross assets of £245.9 million. For the sixmonths ended 4 July 2005, Magnetics generated EBITA of £7.6 million on turnoverof £90.7 million. As at 4 July 2005, Magnetics had net assets of £131.8 millionand gross assets of £250.2 million. BACKGROUND TO AND REASONS FOR THE PROPOSED SALE Since the strategic review that commenced in March 2003, Morgan has concentratedon driving profitability through a robust profit improvement plan to reachdouble digit operating profit margins by the end of 2006. This programme remainsfirmly on track with margins increasing each half year, since the first half of2002 when operating margins were 2.7%, to 8.1% at the end of the first half of2005. Morgan continues to reposition its portfolio of businesses by increasing itsfocus on attractive market segments with less cyclicality and pricecommoditisation. This repositioning, in conjunction with the goal of increasingthe value-added component of its product offering via technological leadership,further strengthens Morgan's commitment of delivering sustained value for itsshareholders. Whilst the Board believes that Magnetics is a high quality business, it believesthat the agreed price, which represents an enterprise value multiple of 1.7xsales and 21.1x EBITA for the year ended 4 January 2005, is an attractive onewhich represents fair value for the Magnetics business. Furthermore, of Morgan's four main divisions, Magnetics has the lowestpercentage of its sales from segments with a number one or two market position.The Board believes that the Group's remaining divisions, which enjoy strongercomparative market positions than Magnetics, will provide excellentopportunities for future growth and returns in the Group and that these will beenhanced by the increased financial resources created by the disposal ofMagnetics. Particular opportunities for growth include a number of new productdevelopments such as piezo ceramics (Technical Ceramics), second generationballistic armour (Carbon), and next generation high temperature Superwool(Thermal Ceramics). USE OF PROCEEDS AND STRATEGIC DEVELOPMENT The net cash proceeds from the Sale are expected to be approximately £200million net of tax and transaction costs. The proceeds of the Sale willsignificantly strengthen Morgan's balance sheet and, as indicated above, willprovide the Company with increased financial flexibility to accelerate thestrategic development of the Group, by investing in profitable growthinitiatives including, if the opportunity arises, selected bolt-on acquisitions.The proceeds from the Sale will improve the Company's balance sheet. Morgan isintending to pay down some bank borrowings to give greater flexibility.Additionally, Morgan will consider making advanced payments into the Morgan UKpension funds to reduce statutory deficits and, if appropriate, the Board willgive consideration to buying back some shares. The Sale is expected to result ina post tax profit on disposal in the current financial year in excess of £50million with consequential effect on the consolidated shareholders' funds of theGroup in the current financial year. CURRENT TRADING AND PROSPECTS FOR THE CONTINUING MORGAN GROUP The Group's geographic markets, taken overall, continue to grow. Within this,European markets are expected to remain soft for the foreseeable future; howeverthe total exposure of Morgan to lower growth Continental European markets hasbeen reduced by the disposal of Magnetics. Demand in the North American andAsian markets continues to be strong. Current trading is in line with the Board's expectations. Through the strategicrepositioning of Morgan and the ongoing delivery of the profit improvementprogramme, the Board is confident in the financial and trading prospects of theGroup for the current financial year. PRINCIPAL TERMS OF THE PROPOSED SALE The consideration for the sale of Magnetics is c.£300 million, of which £225million will be received by Morgan in cash at completion, together with theassumption by the purchaser of c.£75 million of IAS19 pension and employeebenefits liabilities. The cash element of the price is subject to adjustments tobe made in respect of the aggregate amount of cash, debt and working capital incertain companies in the Magnetics business as at 30 September 2005. Completion of the Sale is conditional, among other things, on shareholderapproval, clearance of the Sale by the competition authorities in Germany andAustria, and confirmation being given that the Sellers (being certain Morgansubsidiaries) have effected certain agreed restructuring steps of the holdingcompanies of the Magnetics group and of the amount of capital reserves in thebalance sheets of Vacuumschmelze and the holding companies in the Magneticsgroup. Completion is also conditional on certain warranties being true andcorrect as at the date of completion. If any of the conditions to completion have not been fulfilled or (where capableof waiver) waived by the purchaser by 28 February 2006, or if following suchfulfilment, completion does not occur within 14 days of the agreed completiondate, each of the purchaser and the Sellers shall have the right to terminatethe agreement, unless the failure to fulfil is in the control of the partyseeking to terminate. The agreement may also be terminated prior to completion by the purchaser or anyof the Sellers if certain material adverse changes affecting the Magneticsbusiness occur prior to completion. The Sellers have given various representations, warranties and indemnities,subject to certain limitations, and have given certain undertakings not tocompete with the Magnetics business. Certain representations and warranties willbe repeated at completion. Morgan has assumed joint and several liability forthe obligations of the Sellers under the Sale agreement. Certain governmental approvals and consents in China are required for thetransfer of the shares in the Chinese subsidiary company which forms part of theMagnetics business being sold. The Sale agreement provides that if suchapprovals and consents have not been obtained when the other conditions tocompletion are fulfilled (or, where applicable, waived), transfer of the sharesin the Chinese subsidiary shall be delayed until 10 days after such approvalsand consents have been obtained and £6.8 million of the purchase price shall beheld in escrow until the earlier of (i) the date on which transfer of thoseshares becomes effective and (ii) 29 September 2006. JPMorgan Cazenove Limited, which is authorised and regulated in the UnitedKingdom by the Financial Services Authority, is acting for The Morgan CrucibleCompany plc and no one else in connection with the matters referred to in thisannouncement and will not be responsible to any person other than The MorganCrucible Company plc for providing the protections afforded to clients ofJPMorgan Cazenove, or for providing advice in relation to these matters. Notes to Editors About The Morgan Crucible Company plc Morgan was founded in 1856 and is based in Windsor, near London, in the UnitedKingdom. The company's shares are listed and traded on the London StockExchange. Morgan is a constituent of the FTSE250 index. Following completion ofthe above transaction, Morgan will be composed of 4 Global Business Units("GBUs"), focusing on two main product groups, Carbon and Ceramics. Thecompanies that comprise the GBUs own sites that are located all over the world. The GBUs design, develop and supply a broad range of products made from carbonand ceramic materials. They own many global brands. Their products are used in awide range of applications from transport and aerospace to fire protection andbody armour. About One Equity Partners One Equity Partners ("OEP") manages $5 billion of investments and commitmentsfor JPMorganChase & Co. in direct private equity transactions. Partnering withmanagement, OEP invests in transactions that initiate strategic and operationalchanges in businesses to create long-term value. OEP's investment professionalsare located across North America and Europe, with offices in New York, Chicagoand Frankfurt. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Morgan Advanced Materials