Koppers Holdings (KOP) Acquires Cox Industrial for About $200 Million

April 10, 2018 8:34 AM EDT
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Koppers Holdings Inc. (NYSE: KOP), an integrated global provider of treated wood products, wood treatment chemicals and carbon compounds, today reported that Koppers Inc., a wholly-owned subsidiary of Koppers Holdings, signed an agreement to acquire, and expects to fully close at the end of business today, the acquisition of the Industrial division of Cox Industries, Inc. (Cox Industrial) for approximately $200 million in cash. Cox Industrial manufactures and distributes power distribution and transmission poles, pilings and related products to investor-owned utilities, electric cooperatives, municipalities and other entities. The transaction creates a leading utility pole and wood treatment producer and advances Koppers strategy of being a vertically integrated, high-value global supplier of wood-based technologies to infrastructure markets.

Commenting on the transaction, President and CEO Leroy Ball said, "We are thrilled to return to the U.S. utility pole market with a significantly larger presence than when we exited the business in January 2015. While we were working hard during the past several years to restructure our operations and reduce our balance sheet leverage, Cox Industrial grew to become the largest supplier of utility poles in the eastern U.S. The opportunity to re-enter this market with the scale to better compete, along with gaining a growth-focused management team, was attractive and compelling. In addition to numerous synergies being explored, we plan to focus on continuing to grow the business organically as well as through strategic partnerships and select acquisitions."

CEO and President of Cox Industries, Inc., R. Michael Johnson, said, "We know Koppers well, having enjoyed a strong relationship with the management team over the years, and we share a commitment to providing innovative products and strong customer service to our served markets. We believe that our complementary customer-centric mindset, expanded product portfolio, and enhanced innovation and geographic reach should benefit our collective stakeholders."

Cox Industrial is one of a few industry players that competes on a national level due to its capacity, scale and breadth of treatment options, and proven track record of storm response. Cox Industrial facilities are strategically located near railroads and ports to facilitate shipments throughout the U.S. The operations include eight manufacturing locations, three dedicated peeling facilities, and 19 reload yards which support its market leadership position and opportunities for further growth in key expansion markets. On a combined basis, Koppers and Cox Industrial will result in a powerful platform with national scale and local expertise.

Terms of Transaction

Under the terms of the transaction, Koppers is acquiring Cox Industrial for approximately $200 million in cash. Cox Industrial will be renamed as the Utility and Industrial Products unit of Koppers.

The agreement to acquire Cox Industrial has been structured as an acquisition of stock with a mutual 338(h)(10) election, resulting in approximately $24 million of net present value tax benefits to Koppers. Additionally, Koppers expects that the combined company will achieve total synergies of at least $5 million on an annualized basis from overhead cost savings as well as incremental sales opportunities for the company's Performance Chemicals, and Carbon Materials and Chemicals businesses through vertically integrated supply relationships. Koppers expects the acquisition to be accretive to earnings per share in 2018.

Koppers is financing the acquisition through existing bank debt, and expects to enter into a new secured term loan facility, added to the company's existing $600 million revolving credit facility, immediately after the closing of the transaction. The new secured term loan facility will include a secured term loan of $100 million with a quarterly amortization of $2.5 million and a five-year maturity. The initial average borrowing rates under the new facilities are expected to be approximately five percent.

Transaction Advisors

Wells Fargo Securities, LLC acted as financial advisor to Koppers in regard to the transaction, and K&L Gates LLP acted as legal counsel to the company. Committed financing will be provided by PNC Bank, National Association.

Updated 2018 Outlook

Including the Utility and Industrial Products unit, Koppers now expects that 2018 sales will be approximately $1.9 billion, with adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) estimated at $240 million. The revised guidance represents an increase to the prior estimate of $1.7 billion in sales and $210 million in adjusted EBITDA.

On an adjusted basis, the acquisition is expected to contribute $0.15 to $0.20 in earnings per share (EPS) in 2018 before achieving an annualized run rate of $0.40 to $0.50 per share in 2019. The company is in the process of finalizing the estimated effective tax rate for 2018, and therefore, will provide the updated consolidated adjusted EPS outlook for 2018 when first-quarter results are reported on May 3, 2018.

In addition, the company anticipates capital expenditures to be in the range of $60 million to $70 million, which is an increase from the prior estimate of $55 million to $65 million, and reflects the anticipated additional capital investments related to the Utility and Industrial Products unit. The pro-forma net debt to adjusted EBITDA ratio is expected to be below the company's desired ceiling of 4x, and projected to be at or below 3.5x by December 31, 2018.

Investor Conference Call and Web Simulcast

Koppers management will conduct a conference call on Wednesday, April 11, 2018, at 10:15 a.m. to 11:00 a.m. Eastern Time to discuss the transaction and the company's revised outlook for 2018. Presentation materials will be available at least 15 minutes before the call on www.koppers.com in the Investor Relations section of the company's website.

Interested parties may access the live audio broadcast by dialing 877-317-6789 in the United States/Canada, or 412-317-6789 for international, Conference ID number 10119272. Participants are requested to access the call at least five minutes before the scheduled start time in order to complete a brief registration.

In addition, the conference call will be broadcast live online at: https://services.choruscall.com/links/koppers180411.html. (Due to the length of this URL, it may be necessary to copy and paste this hyperlink into your internet browser's URL address field.)

An audio replay will be available approximately two hours after the completion of the call at 877-344-7529 for U.S. toll free, 855-669-9658 for Canada toll free, or 412-317-0088 for international, Conference ID number 10119272. The recording will be available for replay through May 11, 2018.

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