OMNOVA Solutions Announces Intention to Acquire Specialty Chemicals
Manufacturer Eliokem International From AXA Private Equity
FAIRLAWN, Ohio, Sept. 22 /CNW/ --
-- Significantly increases OMNOVA's total size and scale to sales of over
US$1 billion and Adjusted EBITDA of US$129 million, based on last
twelve months through May 2010.
-- Enhances Performance Chemicals segment's growth opportunities
-- Broadens Performance Chemicals' markets, applications and technologies
-- Expected to be accretive to earnings in 2012
-- Management conference call scheduled for September 23 at 11am ET
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<p>OMNOVA Solutions Inc. (NYSE: OMN) today announced that it has entered into an agreement with AXA Private Equity granting the Company a period of exclusivity to acquire specialty chemicals manufacturer Eliokem International. Closing of the proposed transaction is subject to consultation with Eliokem's Works Council in <span class="xn-location">France</span>, completion of a definitive agreement, regulatory approvals, financing and other customary conditions. Subject to these conditions, the Company anticipates completion of the transaction by the end of 2010.</p>
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<p>Under the proposed transaction, OMNOVA will pay <span class="xn-money">227.5 million euros</span> for Eliokem, or approximately US$300 million at current exchange rates. OMNOVA intends to raise US$425 million of new long term debt to fund the transaction and the repayment of all existing OMNOVA and Eliokem debt. In addition, OMNOVA intends to extend and increase the size of its unused asset-based credit facility to US$100 million and expects to have US$40 million of cash at the closing of the acquisition. The Company expects the transaction to be neutral to slightly dilutive to earnings in 2011, but accretive in 2012.</p>
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<p>"This acquisition will transform OMNOVA Solutions into a much larger, more diverse specialty chemical and functional surfaces company with significantly enhanced global capability," said Kevin McMullen, Chairman and CEO of OMNOVA Solutions. "It is an excellent fit with OMNOVA's strategy to grow in existing markets, penetrate new adjacent markets and globalize our Company."</p>
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<p>Eliokem is a worldwide producer of specialty polymers and chemicals, including coating resins, elastomeric modifiers, antioxidants, rubber reinforcing resins, oil and gas drilling chemicals, and latices for specialty applications. Last twelve months sales and Adjusted EBITDA through <span class="xn-chron">May 2010</span> were approximately US$268 million and US$50 million, respectively. Eliokem is headquartered in Villejust, <span class="xn-location">France</span> (near <span class="xn-location">Paris</span>), and has manufacturing sites in Caojing and Ningbo, <span class="xn-location">China</span>; Valia (Gujarat state), <span class="xn-location">India</span>; Le Havre, <span class="xn-location">France</span>; and <span class="xn-location">Akron</span> (Ohio), USA. Eliokem also has regional sales offices in <span class="xn-location">Akron</span>, <span class="xn-location">Singapore</span>, <span class="xn-location">Shanghai</span>, and <span class="xn-location">Mumbai</span>. The company employs about 630 people worldwide.</p>
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<p>OMNOVA plans to integrate Eliokem with its Performance Chemicals segment, a business that has significantly strengthened its competitive position and financial performance over the past several years.</p>
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<p>Upon completion, the Eliokem acquisition will provide OMNOVA with significant strategic benefits:</p>
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-- Globalization: Eliokem's presence in Asia, with over 40% of its sales
in higher growth emerging markets, and with two manufacturing sites in
China and one in India, will accelerate OMNOVA's strategy of growing
its specialty chemicals platform in this region. Asian sales for
OMNOVA's Performance Chemicals segment for the last twelve months
through May 2010 were approximately US$15 million. OMNOVA's
chemical
sales in Europe for the same period were approximately US$30 million,
primarily through alliance manufacturing partners. Eliokem's
manufacturing site in Le Havre, France is well suited to enable
improved growth of high margin specialty chemicals.
-- New Adjacent, Related Markets: Like OMNOVA, Eliokem is focused on
working very closely with its customers to provide application- and
customer-specific value added solutions. Both companies have strong
capabilities in polymer development and manufacturing. While OMNOVA's
primary focus has been on styrene butadiene (SB) based latices,
Eliokem's business will add additional complementary technologies and
applications to OMNOVA's specialty chemicals portfolio.
-- Cost Savings: Synergies are expected to provide savings in
manufacturing, logistics, purchasing and SG&A by leveraging the
resources of an integrated global team.
-- Higher Growth: The acquisition will provide OMNOVA with a significant
position in higher growth market segments and applications, and
improved access to the fastest growing regions of the world through
well-invested assets.
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<p>OMNOVA's Performance Chemicals business segment has led strong earnings growth for the Company, contributing solid double-digit operating profit returns over the last eight quarters. "Thanks to excellent work by our business and technical support teams in <span class="xn-location">Europe</span> and Asia, OMNOVA's chemicals business has continued to grow globally despite the fact that we have had no Company-owned chemical manufacturing assets outside the <span class="xn-location">United States</span>," McMullen pointed out. "The acquisition of Eliokem will allow us to build on this momentum quickly and significantly, and demonstrates our clear commitment to meet the needs of our customers on a worldwide basis."</p>
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<p>Consistent with OMNOVA's strategic emphasis on technical leadership and innovation, the combined assets of OMNOVA and Eliokem will provide regional research laboratories in <span class="xn-location">North America</span>, <span class="xn-location">Europe</span>, <span class="xn-location">India</span> and <span class="xn-location">China</span>. New chemistries will enhance OMNOVA's strong portfolio, enabling an even broader range of customer solutions.</p>
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<p>"The Eliokem product lines will deepen our technology portfolios in markets we currently serve, such as oil field and specialty latices, and will provide exciting growth opportunities in new, but related markets with brands that are already well known and respected," said <span class="xn-person">Jim Hohman</span>, President of OMNOVA's Performance Chemicals business segment."</p>
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<p>OMNOVA's Performance Chemicals segment has continued to grow in 2010. For the last twelve months ended <span class="xn-chron">May 2010</span>, sales were US$466 million, and Adjusted EBITDA increased by 33%, to US$71 million. The combination of OMNOVA and Eliokem will create a chemicals business approaching US$750 million in annual sales, based on results from the last twelve months through <span class="xn-chron">May 2010</span>. Upon completion of the transaction, and including OMNOVA's Decorative Products business segment, OMNOVA Solutions will become a company with over US$1 billion in sales - approximately 40% of which will be outside the <span class="xn-location">United States</span> - and Adjusted EBITDA of approximately US$129 million (based on last twelve months through <span class="xn-chron">May 2010</span> results).</p>
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<p>Conference Call - OMNOVA Solutions has scheduled a conference call for <span class="xn-chron">Thursday, September 23, 2010</span>, at <span class="xn-chron">11:00am ET</span>. OMNOVA management will discuss the acquisition and key events necessary for successful completion of the transaction. The call may be accessed by the public from the Investors section of the Company's website (<a href="http://www.omnova.com">www.omnova.com</a>). Presentation slides will also be available on the website at the time of the call. Webcast attendees will be in a listen-only mode. Following the live webcast, OMNOVA will archive the call and presentation slides on its website until <span class="xn-chron">noon ET</span>, <span class="xn-chron">October 14, 2010</span>. A telephone replay will also be available beginning at <span class="xn-chron">1:00pm ET</span> on <span class="xn-chron">September 23, 2010</span>, and ending at <span class="xn-chron">11:59pm ET</span> on <span class="xn-chron">October 14, 2010</span>. To listen to the telephone replay, callers should dial: (USA) 800-475-6701 or (Int'l) 320-365-3844. The Access Code is 172338.</p>
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<p>Non-GAAP Financial Measures - This press release includes EBITDA and Adjusted EBITDA which are Non-GAAP financial measures as defined by the Securities and Exchange Commission.</p>
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<p>OMNOVA's EBITDA is calculated as income (loss) from continuing operations less interest expense, amortization of deferred financing costs, income taxes and depreciation and amortization expense. OMNOVA's Adjusted EBITDA is calculated as OMNOVA's EBITDA less restructuring and severance expenses, asset impairments, non-cash stock compensation and other items. Segment EBITDA is calculated as segment operating income (loss) less interest expense, amortization of deferred financing costs, income taxes and depreciation and amortization expense. Segment Adjusted EBITDA is calculated as Segment EBITDA less restructuring and severance expenses, asset impairments, non-cash stock compensation and other items.</p>
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<p>Eliokem's EBITDA is calculated as net income less interest expense, amortization of deferred financing costs, income taxes and depreciation and amortization expense. Eliokem's Adjusted EBITDA is calculated as Eliokem's EBITDA less restructuring and severance expenses, asset impairments and other items.</p>
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<p>EBITDA and Adjusted EBITDA are not measures of financial performance under GAAP. EBITDA and Adjusted EBITDA are not calculated in the same manner by all companies and, accordingly, are not necessarily comparable to similarly titled measures of other companies and may not be appropriate measures for comparing performance relative to other companies. EBITDA and Adjusted EBITDA should not be construed as indicators of the Company's operating performance or liquidity and should not be considered in isolation from or as a substitute for net income (loss), cash flows from operations or cash flow data, which are all prepared in accordance with GAAP. EBITDA and Adjusted EBITDA are not intended to represent, and should not be considered more meaningful than or as an alternative to, measures of operating performance as determined in accordance with GAAP. Management believes that presenting this information is useful to investors because these measures are commonly used as analytical indicators to evaluate performance and by management to allocate resources. Set forth below are the reconciliations of these non-GAAP measures to their most directly comparable GAAP financial measure.</p>
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<p> </p>
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Non-GAAP Financial Measures
---------------------------
(LTM: Last 12 months as of May 31, 2010)
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<p> </p>
<pre>
(Dollars in millions) LTM LTM
Ended Ended
May 31, May 31,
2010 2010
OMNOVA Solutions
Consolidated -------- Eliokem International --------
---------------- ---------------------
Income (loss) from
continuing $44.1 Net Income $2.2
operations
Interest expense 7.0 Interest expense 15.8
Amortization of deferred Amortization of deferred
financing 0.6 financing 0.5
costs costs
Income tax 2.6 Income tax 2.0
Depreciation &
amortization 22.6 Depreciation & amortization 13.5
---- ----
EBITDA $76.9 EBITDA $34.0
Restructuring & severance 0.7 Restructuring & severance 4.3
Asset impairments 6.6 Other 11.5
----
Non-cash stock
compensation 3.4 Adjusted EBITDA $49.8
=====
Other (8.5)
----
Adjusted EBITDA $79.1
=====
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<p> </p>
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Performance Chemicals
Segment LTM Combined Adjusted EBITDA $79.1
--------------------- Ended ------------------------
May 31, OMNOVA Solutions
2010 Consolidated
-------- LTM as of May 31, 2010
Segment operating profit $69.3 Eliokem International
Interest expense - LTM as of May 31, 2010 49.8
----
Amortization of deferred Total Combined Adjusted
financing - EBITDA $128.9
costs ======
Income tax -
Depreciation &
amortization 9.8
---
EBITDA $79.1
Restructuring & severance 0.2
Asset impairments -
Non-cash stock
compensation 1.0
Other (9.8)
----
Adjusted EBITDA $70.5
=====
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<p>Forward-looking Statements - This press release includes "forward-looking statements" as defined by federal securities laws. These statements, as well as any verbal statements by the Company in connection with this press release, are intended to qualify for the protections afforded forward-looking statements under the Private Securities Litigation Reform Act of 1995. Forward-looking statements reflect management's current expectation, judgment, belief, assumption, estimate or forecast about future events, circumstances or results and may address business conditions and prospects, strategy, capital structure, sales, profits, earnings, markets, products, technology, operations, customers, raw materials, financial condition, and accounting policies, among other matters. Words such as, but not limited to, "will," "may," "should," "projects," "forecasts," "seeks," "believes," "expects," "anticipates," "estimates," "intends," "plans," "targets," "optimistic," "likely," "would," "could," and similar expressions or phrases identify forward-looking statements. All statements and data in this press release and the accompanying oral remarks on a "pro forma," "post-acquisition" or "combined" basis assume that the Company's proposed acquisition of Eliokem is successfully completed on the proposed terms.</p>
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<p>All forward-looking statements involve risks and uncertainties. Many risks and uncertainties are inherent in business generally and the markets in which the Company operates or proposes to operate. Other risks and uncertainties are more specific to the Company's businesses, including businesses the Company acquires. The occurrence of such risks and uncertainties and the impact of such occurrences is often not predictable or within the Company's control. Any such occurrence could adversely affect the Company's results and, in some cases, such effect could be material.</p>
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<p>All written and verbal forward-looking statements attributable to the Company or any person acting on the Company's behalf are expressly qualified in their entirety by the risk factors and cautionary statements contained herein. Any forward-looking statement speaks only as of the date on which such statement is made, and the Company undertakes no obligation, and specifically declines any obligation other than that imposed by law, to publicly update or revise any forward-looking statements whether as a result of new information, future events or otherwise.</p>
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<p>Risk factors and uncertainties that may cause actual results to differ materially from expected results include, among others: the ability of the Company to successfully complete the acquisition of Eliokem and integrate Eliokem into its operations; the impact of Eliokem's results of operations on the Company's ability to achieve fully the strategic and financial objectives related to the proposed acquisition of Eliokem, including the acquisition being accretive to the Company's earnings; and unexpected costs or liabilities that may arise from the acquisition of Eliokem.</p>
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<p>Additional risk factors include: economic trends affecting the economy in general and/or the Company's end-use markets; prices and availability of raw materials including styrene, butadiene, vinyl acetate monomer, polyvinyl chloride, acrylics and textiles; ability to increase pricing to offset raw material cost increases; product substitution and/or demand destruction due to product technology, performance or cost disadvantages; loss of a significant customer; customer and/or competitor consolidation; customer bankruptcy; ability to successfully develop and commercialize new products; a decrease in demand for domestically manufactured products due to increased foreign competition and off-shoring of production; ability to successfully implement productivity enhancement and cost reduction initiatives; unexpected full or partial suspension of plant operations; the Company's strategic alliance, joint venture and acquisition activities; loss or damage due to acts of war or terrorism, natural disasters, accidents, including fires, floods, explosions and releases of hazardous substances; governmental legislative and regulatory changes, including changes impacting environmental compliance, pension plans, products and raw materials; compliance with extensive environmental, health and safety laws and regulations; rapid inflation in health care costs and assumptions used in determining health care cost estimates; risks associated with foreign operations including political unrest and fluctuations in exchange rates of foreign currencies; prolonged work stoppage resulting from labor disputes with unionized workforce; meeting required pension plan funding obligations; stock price volatility; infringement or loss of the Company's intellectual property; litigation and claims against the Company related to products, services, contracts, employment, environmental, safety, intellectual property and other matters arising out of the Company's business and adverse litigation judgments or settlements; absence of or inadequacy of insurance coverage for litigation, judgments, settlements or other losses; availability of financing at anticipated rates and terms; and loan covenant default arising from substantial debt and leverage and the inability to service that debt, including increases in applicable short-term or long-term borrowing rates.</p>
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<p>OMNOVA Solutions Inc. is a technology-based company with last twelve months sales through <span class="xn-chron">May 2010</span> of US$785 million and a workforce of approximately 2,300 employees worldwide. OMNOVA, which has served the styrene butadiene latex industry since the 1950s, is an innovator of emulsion polymers, specialty chemicals, and decorative and functional surfaces for a variety of commercial, industrial and residential end-uses. Visit OMNOVA Solutions on the internet at <a href="http://www.omnova.com">www.omnova.com</a>.</p>
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For further information: Sandi Noah, OMNOVA, Communications, +1-330-869-4292, [email protected], or Michael Hicks, OMNOVA, Investor Relations, +1-330-869-4411 Web Site: http://www.omnova.com
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