TIDMSYNT
RNS Number : 3214E
Synthomer PLC
03 July 2019
THIS ANNOUNCEMENT (AND THE INFORMATION CONTAINED HEREIN) IS NOT
FOR RELEASE, PUBLICATION, DISTRIBUTION OR FORWARDING, DIRECTLY OR
INDIRECTLY, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED
STATES, AUSTRALIA, NEW ZEALAND, CANADA, JAPAN OR SOUTH AFRICA OR
ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE
RELEVANT LAWS OF SUCH JURISDICTION.
THIS ANNOUNCEMENT IS NOT A PROSPECTUS BUT AN ADVERTISEMENT.
INVESTORS SHOULD NOT SUBSCRIBE FOR THE SECURITIES REFERRED TO IN
THIS ANNOUNCEMENT EXCEPT ON THE BASIS OF THE INFORMATION CONTAINED
IN THE PROSPECTUS TO BE PUBLISHED BY SYNTHOMER PLC AND AVAILABLE
FROM ITS REGISTERED OFFICE IN DUE COURSE.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION. PLEASE SEE THE
IMPORTANT NOTICE AT THE OF THIS ANNOUNCEMENT.
3 July 2019
SYNTHOMER PLC
PROPOSED GBP654 MILLION ACQUISITION OF OMNOVA SOLUTIONS INC. AND
GBP204 MILLION RIGHTS ISSUE
A STEP CHANGE TRANSACTION CREATING A GLOBAL SPECIALITY CHEMICALS
COMPANY AND ENHANCED SHAREHOLDER VALUE
Synthomer plc ("Synthomer" or the "Company"), a FTSE 250
speciality chemicals company, and one of the world's major
suppliers of aqueous polymers, is pleased to announce that it has
reached an agreement with OMNOVA Solutions Inc. ("OMNOVA"), which
develops, manufactures and markets polymers, dispersions,
elastomers and other speciality chemicals, on the terms of a
recommended acquisition of the entire issued and to be issued share
capital of OMNOVA at a price of US$10.15 per OMNOVA Share (the
"Acquisition").
Strategic Highlights
-- Creation of a global speciality chemicals company with
greater scale and a strong platform from which to invest in future
growth.
-- Strong synergy potential with target run-rate pre-tax cost
synergies of US$29.6 million per annum by the end of the third year
following completion of the Acquisition ("Completion").
-- Natural strategic fit with complementary chemistries and end
market presence as well as materially strengthening Synthomer's
footprint in North America and increasing its presence in Europe
and Asia.
-- Increased exposure to markets offering GDP+ growth and blue chip customer base.
Financial Summary
-- Acquisition values OMNOVA's entire issued and to be issued
share capital at US$473 million (approximately GBP375 million),
with implied enterprise value of US$824 million (approximately
GBP654 million).
-- Acquisition represents an enterprise value multiple for
OMNOVA of 9.9 times OMNOVA's May 2019 LTM Adjusted EBITDA before
Acquisition-related synergies and 9.6 times OMNOVA's FY2018
EBITDA.
-- Attractive post-synergy multiple with target run-rate pre-tax
cost synergies of US$29.6 million per annum by the end of the third
year following Completion.
-- Conservatively financed Acquisition with an estimated
leverage of approximately 2.5x net debt / EBITDA expected at
Completion with strong cash flow generation driving expected
deleveraging to below 2.0x by the end of the second full financial
year following Completion.
-- Earnings accretion expected in the first full financial year
following Completion and strongly accretive thereafter.
Transaction Rationale
The Directors believe the Acquisition represents an attractive
opportunity for Synthomer to strengthen its global position as a
major speciality chemicals company underpinned by significant
growth opportunities.
-- Strong strategic fit with the Acquisition creating a global
speciality chemicals company with greater scale and a strong
platform from which to invest in future growth: Following the
Acquisition, the Company and its subsidiaries (the "Enlarged
Group") will benefit from increased scale becoming a major global
player in water-based polymer solutions, having greater customer
reach and strong operational capabilities, and will be in a
stronger position to invest in growth, innovation, and people.
-- Expansion and diversification of product portfolio into new
attractive end-sectors: The Acquisition will broaden and strengthen
Synthomer's current portfolio with entry and/or increased exposure
to attractive end-sectors, most particularly the oil and gas
drilling, cementing and stimulation sectors. Following the
Acquisition, the Enlarged Group will have the ability to leverage
OMNOVA's brand recognition and technical expertise in new
application areas.
-- Enhanced focus on speciality products supported by strong
R&D and innovation capabilities: OMNOVA's focus on commercial
excellence, innovation and inorganic growth initiatives in its
Specialty Solutions segment has led to the development of over 60
products in the past three years and will allow Synthomer to
bolster its speciality products offering by leveraging the Enlarged
Group's best-in-class process technology and R&D platform.
-- Global geographic coverage with increased customer proximity
and access to attractive international markets: The Acquisition
will materially strengthen Synthomer's presence in North America,
as well as increase its presence in Europe and Asia, including
further penetration into the high growth Chinese market.
-- Ability to leverage manufacturing excellence expertise to
drive productivity and cost improvements: Synthomer intends to
utilise best practices from across the Enlarged Group to improve
productivity and reduce costs. The Enlarged Group will benefit from
excellent raw materials integration and Synthomer's strong track
record of safe conversion of hazardous feedstocks into water-based
polymers.
Synergies and Financial Effects of the Acquisition
-- The Acquisition is expected to result in estimated recurring
run-rate pre-tax cost synergies of US$29.6 million per annum by the
end of the third year following Completion.
-- The Acquisition is expected to be earnings accretive in the
first full financial year following Completion and strongly
accretive thereafter.
-- Synthomer's return on invested capital associated with the
Acquisition is expected to exceed its cost of capital in the third
full financial year following Completion.
-- The Acquisition will be conservatively financed with an
estimated leverage of approximately 2.5x net debt / EBITDA expected
at Completion with strong cash flow generation driving an expected
deleveraging to below 2.0x by the end of the second full financial
year following Completion.
Financing and Expected Timetable
-- The Company intends to finance the Acquisition and related
fees and expenses from the gross proceeds of a rights issue of up
to GBP204 million (approximately US$257 million) (the "Rights
Issue"); and drawings under new debt facilities.
-- The Acquisition constitutes a Class 1 transaction for the
purposes of the Listing Rules, and therefore requires the approval
of Synthomer shareholders. Accordingly, a General Meeting will be
convened to approve the Acquisition and further details, including
the notice of the General Meeting, will be set out in a circular
that will be sent to shareholders in July 2019 (the
"Circular").
-- In addition, Synthomer shareholders will be asked to approve
an increase of the borrowing limit set out in the Articles of
Association from GBP750 million to GBP1,500 million to enable the
Company to finance the debt consideration.
-- Assuming satisfaction or waiver of all conditions to the
Acquisition, Completion is expected to take place in late 2019 /
early 2020.
Commenting on today's announcement, Calum MacLean, Chief
Executive of Synthomer, 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.
I am delighted to welcome OMNOVA employees to the business and
look forward to working with them to take the combined business to
the next level. "
ANALYST AND INVESTOR PRESENTATION
The Company will host a meeting for the Company's analysts and
investors at 09.00 a.m. (London time) today at Canaccord Genuity
Limited (88 Wood Street, London EC2V 7QR).
The presentation will be webcast on the Company's website
www.synthomer.com.
Participants may also join by conference call using the
following dial-in details:
International Access: + 44 (0) 20 3037 9315
UK Toll Free: 0800 368 2276
Password: Synthomer
Please note that those joining remotely and wishing to
participate in the Q&A session should dial into the conference
call facility.
ENQUIRIES:
Synthomer plc Tel: + 44 (0) 1279
Stephen Bennett, Chief Financial Officer 436211
Tim Hughes, Head of Investor Relations
Joint Financial Adviser, Sponsor, Joint Corporate Broker, Sole
Global Coordinator and Joint
Bookrunner
Barclays Bank PLC, acting through its Investment Tel: + 44 (0) 20
Bank ("Barclays") 7623 2323
Neal West
Nishant Amin
Robert Mayhew
Joint Financial Adviser
The Valence Group ("Valence") Tel: + 44 (0) 20
Kirk McIntosh 7291 4670
Ian George
Joint Corporate Broker and Joint Bookrunner
Canaccord Genuity Limited ("Canaccord") Tel: + 44 (0) 20
Chris Connors 7523 8000
Adam James
Sam Lucas
Joint Bookrunner
HSBC Bank plc ("HSBC") Tel: +44 (0) 20
Mark Dickenson 7991 8888
Sam Barnett
Joint Bookrunner
Citigroup Global Markets Limited ("Citi") Tel: +44 (0) 20
Robert Way 7986 4000
Christopher Tubeileh
Sean Weissenberger
Financial Public Relations Adviser
Teneo Tel: + 44 (0) 7703
Charles Armitstead 330 269
Synthomer also received financial advice in connection with the
Acquisition from Citi and HSBC.
SYNTHOMER PLC
PROPOSED GBP654 MILLION ACQUISITION OF OMNOVA SOLUTIONS INC
AND GBP204 MILLION RIGHTS ISSUE
1. Introduction
Synthomer is a FTSE 250 speciality chemicals company and one of
the world's major suppliers of aqueous polymers. With strong
geographic diversity, operating in 18 countries, and product
differentiation, Synthomer is a major player in a wide range of
sectors including coatings, construction, textiles, paper and
healthcare.
OMNOVA develops, manufactures and markets emulsion polymers,
speciality chemicals and decorative products. It provides
engineered surfaces for various commercial, industrial and
residential end uses. OMNOVA uses strategically-located
manufacturing and technical facilities in North America, Europe,
China and Thailand to service a broad customer base. OMNOVA's
operations consist of two business segments: Specialty Solutions
and Performance Materials. For the financial year 2018, OMNOVA
derived 63% of its net sales from Specialty Solutions and 37% from
the Performance Materials segment.
The Directors believe that the creation of the Enlarged Group
will accelerate the growth potential of both businesses. It will
benefit from increased scale, greater customer reach and strong
operational capabilities and have a strengthened ability to invest
in growth and innovation, and to invest in and attract the best
people. The Acquisition represents a step change for Synthomer, and
the Enlarged Group will have greater potential for further
consolidation through opportunistic bolt-on acquisitions.
2. Strategy and Rationale for the Acquisition
Strong strategic fit with the Acquisition creating a global
speciality chemicals company with greater scale and a strong
platform from which to invest in future growth
The combination with OMNOVA will create a major global
speciality chemicals company with a broad range of chemistries
ranging from acrylic, vinylic and speciality emulsions polymers to
styrene butadiene ("SB") and acrylonitrile--butadiene ("NB")
latexes catering to a diverse range of attractive end--sectors.
OMNOVA's Speciality Solutions business segment will enable
Synthomer to build on its strategy of focusing on application
development, with the opportunity to secure new long term customer
relationships through value-added solutions.
The Acquisition will also further enhance Synthomer's global
platform in speciality coatings and ingredients, increasing its
exposure to attractive coatings and additives for oil and gas
drilling, cementing and stimulation end-sectors, as well as
creating a major global player in water-based polymer
solutions.
Expansion and diversification of product portfolio into new
attractive end-sectors
The Directors believe that the majority of OMNOVA's Specialty
Solutions portfolio are exposed to GDP+ growth rates, supported by
underlying structural trends including preference for lightweight
materials, rising mobilisation, and growing energy demand. The
Acquisition will enable Synthomer to strengthen its current
portfolio with entry and/or increased exposure to attractive
end-sectors, most particularly the oil and gas drilling, cementing
and stimulation sectors.
OMNOVA is a major supplier of speciality wellbore chemicals used
in demanding applications globally. It offers a wide range of
solutions including fluid loss control and sealing, emulsifiers,
lubricants and rheological modifiers. The sector is expected to
grow driven by growing energy demand and rising well values.
Following the Acquisition, the Enlarged Group will have greater
end-sector diversification with the ability to utilise OMNOVA's
brand recognition and technical expertise in new application
areas.
Enhanced focus on speciality products supported by strong
R&D and innovation capabilities
The Directors believe that the key strength of OMNOVA's
portfolio is its presence in more speciality, high-growth
applications. During its financial year ended 30 November 2018,
OMNOVA derived approximately 63% of its net sales from its
Specialty Solutions business segment.
OMNOVA's focus on commercial excellence, innovation and
inorganic growth initiatives in the Specialty Solutions segment has
led to the development of over 60 products in the past three years,
supported by its advanced technology centres across three
continents. OMNOVA will bolster Synthomer's coatings technology and
product portfolio with an increased presence in light industrial
performance coatings as well as complement its product range of
solutions for non-woven textiles and Synthomer intends to leverage
the Enlarged Group's best-in-class process technology and R&D
platform. The Directors believe there is opportunity to accelerate
commercialisation of both businesses innovation programmes,
capitalising on the Enlarged Group's technical expertise.
Global geographic coverage with increased customer proximity and
access to attractive international markets
The Acquisition will enhance Synthomer's position as an
international supplier by increasing its presence in North America,
Europe and Asia. OMNOVA has a flexible operation structure with 13
plants located principally throughout the United States, France,
Portugal and China.
In particular, the Acquisition will materially strengthen
Synthomer's presence in North America. In its financial year ended
30 November 2018, OMNOVA derived 58% of its revenue from North
America. This compares to Synthomer, which generated 6% of its
revenue from North America in its financial year ended 31 December
2018. As a result of the Acquisition, Synthomer will acquire 8 new
production facilities in North America which have access to
advantaged US shale gas feedstocks. The Enlarged Group is expected
to derive 58% of its revenue from Europe, with 19% of its revenue
from North America and 23% from Asia and the rest of the world.
Synthomer will also benefit from further penetration into Asia,
notably the high growth Chinese market. OMNOVA's manufacturing
footprint in China is partly located in the Shanghai Chemical
Industrial Park (SCIP) with base load business to benefit
Synthomer's Chinese sales and technology base.
Together, Synthomer and OMNOVA, through the Enlarged Group, will
be able to better serve customers across three continents and
provide geographic diversification of their portfolios.
Ability to leverage manufacturing excellence expertise to drive
productivity and cost improvements
The Directors believe the combination will allow Synthomer to
leverage its enhanced scale to deliver productivity and cost
reductions from a range of areas. The combined business is expected
to benefit from increased scale to be able to deliver benefits from
logistics optimisation and raw material procurement
integration.
Synthomer intends to utilise best practices across the 38
facilities across the Enlarged Group to drive non-manpower fixed
cost efficiencies and deliver manufacturing optimisation and
excellence. The Directors also believe that the Enlarged Group will
benefit from Synthomer's strong track record of safe conversion of
hazardous feedstocks into water-based polymers.
3. Synergies and Integration
The Directors believe that the Acquisition will enhance
shareholder value. The Directors expect that the Acquisition will
be earnings accretive in the first full financial year following
Completion (the financial year ending 31 December 2020) and
strongly accretive thereafter. The Directors expect the Acquisition
to result in estimated recurring run-rate pre-tax cost synergies of
US$29.6 million per annum by the end of the third year following
Completion. The Directors believe the Acquisition represents a
significant opportunity to deliver potential cost synergies across
the following areas:
(i) De-listing and head office cost savings (expected to
contribute approximately 50% of the full run-rate pre-tax cost
synergies).
(ii) Operational performance improvement, R&D and
procurement (expected to contribute approximately 30% of the full
run-rate pre-tax cost synergies).
(iii) Regional and property efficiencies (expected to contribute
approximately 20% of the full run-rate pre-tax cost synergies).
The Directors expect that the realisation of these cost
synergies will require one-off implementation costs of
approximately US$31.6 million (approximately GBP25.1 million), of
which approximately US$3.6 million relates to capital expenditure.
These are expected to be phased across a three-year period
following Completion.
Furthermore, the Directors expect Synthomer's return on invested
capital associated with the Acquisition to exceed its cost of
capital in the third full financial year after completion.
4. Information on Synthomer
Synthomer is a FTSE 250 specialist chemicals company and one of
the world's major suppliers of aqueous polymers. With strong
geographic diversity, operating in 18 countries, and product
differentiation, Synthomer is a major player in a wide range of
sectors including coatings, construction, textiles, paper and
healthcare.
The Company continues to see significant opportunities to drive
improvement from existing businesses with the support of a strong
balance sheet. Innovation continues to be a core pillar of business
growth providing the opportunity for Synthomer to secure improved
market positions and solutions to generate added value for existing
customers.
Synthomer remains focused on its goal to become a major
chemicals company with strong global reach. A new global business
structure was launched on 1 January 2019 that the Directors believe
enable Synthomer to benefit from its global product portfolio,
expand the reach of its R&D capabilities and bring greater
operational focus to its business.
5. Synthomer Trading Update
Synthomer's performance in H1 2019 has been in line with the
Board's expectations. Following a slower start to 2019, where Q1
2019 was impacted by ongoing challenging conditions in styrene
butadiene rubber ("SBR") and lower volumes in the Functional
Solutions division, the Group's Q2 performance normalised and is
expected to be marginally ahead of Q2 2018. Whilst H1 2019 is
likely to be lower than the strong comparative period in 2018, the
Group's outlook for 2019 remains unchanged.
On a divisional basis, Performance Elastomers had a solid H1 in
2019, driven by Nitrile Butadiene Latex ("Nitrile") where good
demand led to higher Nitrile volumes and improved unit margins
relative to a strong H1 2018. The Group also started to benefit
from the additional 90 kilotonnes of capacity introduced in Q4 2018
at its Pasir Gudang site in Malaysia. SBR sector conditions
remained challenging, with the subdued demand seen in Q4 2018
continuing throughout H1 2019. Weaker demand was especially
pronounced in the Group's European paper business.
The Functional Solutions division made good progress in H1 2019.
Whilst reported volumes were lower than the corresponding period in
2018 due to a slower start to the year in Europe and the sale of
51% of the Group's Dubai operations in July 2018, unit margins were
stronger. Additional capacity at the Group's Worms (Germany) and
Roebuck (USA) dispersions facilities were successfully commissioned
at the end of June 2019, and saleable volumes are starting to be
delivered to customers.
The Industrial Specialities division's results for H1 2019 were
in line with expectations. The improving trend seen in the later
part of Q1 2019 continued through Q2 2019 with demand now back to
more normalised levels.
With lower comparatives in the second half of 2019 and improved
conditions in most parts of the business, the Group is confident of
continued progress in H2 2019. SBR in Europe is likely to remain
challenging, offset by the further benefits of additional capacity
and continued strength in Nitrile. Subsequently, the Board's
expectations for the Group's Full Year 2019 performance remain
unchanged.
6. Information on OMNOVA
OMNOVA develops, manufactures and markets emulsion polymers,
speciality chemicals and decorative products. It provides
engineered surfaces for various commercial, industrial and
residential end uses. OMNOVA uses strategically-located
manufacturing and technical facilities with 13 manufacturing
facilities in North America, Europe, and Asia to service a broad
customer base. OMNOVA's operations consist of two business
segments: Specialty Solutions and Performance Materials. For the
financial year 2018, OMNOVA derived 63% of its net sales from
Specialty Solutions and 37% from the Performance Materials
segment.
The Specialty Solutions segment consists of three business
lines: Specialty Coatings & Ingredients, Oil & Gas and
Laminates & Films. The Specialty Solutions segment develops,
designs, produces, and markets a broad range of speciality products
for use in coatings, adhesives, sealants, elastomers, laminates,
films, nonwovens, and oil & gas products. The segment's
products are functional ingredients or compounds that improve the
performance of customers' products, including stain, rust and
ageing resistance; surface modification; gloss; softness or
hardness; dimensional stability; high heat and pressure tolerance;
and binding and barrier (e.g. moisture, oil) properties.
The Performance Materials segment serves sectors including
plastics, paper, carpet and coated fabrics with a broad range of
polymers based primarily on styrene butadiene, styrene butadiene
acrylonitrile ("SBA"), styrene butadiene vinyl pyridine, high
styrene pigments, polyvinyl acetate, acrylic, styrene acrylic,
calcium stearate, glyoxal, and bio-based chemistries. Performance
Materials' custom-formulated products are tailored latexes, resins,
binders, antioxidants, hollow plastic pigment, coated fabrics and
rubber reinforcing which are used in tire cord, polymer
stabilisation, industrial rubbers, carpet, paper and various other
applications. Its products provide a variety of functional
properties to enhance OMNOVA's customers' products, including
greater strength, adhesion, dimensional stability, ultraviolet
resistance, improved processability and enhanced appearance.
OMNOVA was incorporated in Ohio, United States. OMNOVA became an
independently, publicly-traded company on 1 October 1999, when it
was spun off by GenCorp Inc., its former parent company. OMNOVA
Shares are listed on the NYSE under the trading name "OMN". As at
30 November 2018, OMNOVA employed approximately 1,900 employees
globally.
7. Summary of the Key Terms of the Acquisition
On 3 July 2019, Synthomer, OMNOVA, Synthomer USA LLC and Spirit
USA Holdings Inc. ("MergerCo"), a wholly owned subsidiary of
Synthomer, entered into an agreement and plan of merger (the
"Merger Agreement"), which sets out the terms and conditions of the
Acquisition, pursuant to which MergerCo will, subject to the
satisfaction of certain conditions, merge with and into OMNOVA and
OMNOVA shareholders will receive a cash price of:
US$10.15 per OMNOVA Share (the "Merger Consideration").
This values the entire issued and to be issued share capital of
OMNOVA at US$473 million (approximately GBP375 million), with
implied enterprise value of US$824 million (approximately GBP654
million). The Acquisition represents an enterprise value multiple
for OMNOVA of 9.9 times the OMNOVA May 2019 LTM Adjusted EBITDA
before Acquisition-related synergies.
Synthomer intends to finance the Acquisition, and related fees
and expenses, from the gross proceeds of a rights issue of up to
GBP204 million (approximately US$257 million) and drawings under
the New Debt Facilities, as summarised below.
Upon Completion, Synthomer will, indirectly, hold all equity
interests in OMNOVA.
Conditions to the Acquisition
The obligations of the parties to the Merger Agreement to effect
the Acquisition are subject to the satisfaction or waiver of
certain conditions, including:
(i) the affirmative vote of the holders of issued and
outstanding OMNOVA shares entitling such holders to exercise at
least two thirds of the voting power of OMNOVA;
(ii) the affirmative vote in favour of approval of the
Resolutions required to approve and implement the Acquisition by
Synthomer shareholders representing a simple majority of the votes
represented in person or by proxy at the General Meeting;
(iii) the expiration or termination of the applicable waiting
period (or extension thereof) under the Hart-Scott-Rodino Antitrust
Improvements Act of 1976, as amended and the receipt of certain
other applicable antitrust approvals;
(iv) the representations and warranties of each party to the
Merger Agreement being true and correct as at the date of the
Merger Agreement and as at the completion date, subject to certain
exceptions based on materiality, material adverse effect and
similar standards;
(v) each party to the Merger Agreement having performed or
complied in all material respects with the covenants and agreements
contained in the Merger Agreement to be performed or complied with
by it prior to or on the completion date;
(vi) the absence of any fact, condition, circumstance,
occurrence, effect, change, event or development that, individually
or in the aggregate, has had or would reasonably be expected to
have a material adverse effect on OMNOVA and its subsidiaries;
(vii) Synthomer and MergerCo each having provided a certificate
dated the Completion Date signed on its respective behalf by a duly
authorised executive to the effect that the conditions set out in
(iv) and (v) above have been satisfied and OMNOVA having provided a
certificate dated the Completion Date signed on its behalf by a
duly authorised executive to the effect that the conditions set out
in (iv), (v) and (vi) above have been satisfied;
(viii) the absence of any law that makes illegal or otherwise
prohibits the consummation of the Acquisition, or any order by a
competent governmental authority that enjoins or otherwise
prohibits or makes illegal the consummation of the Acquisition;
and
(ix) the absence of an order imposing a burdensome condition on
obtaining any required approval from an antitrust authority.
OMNOVA is required to pay Synthomer the sum of US$15.8 million
(approximately GBP12.5 million) in certain circumstances, including
if the Merger Agreement is terminated by Synthomer where the OMNOVA
Board changes its recommendation to its shareholders to vote in
favour of the Acquisition. Synthomer is required to pay OMNOVA the
sum of US$15.8 million (approximately GBP12.5 million)
(representing 1% of the market capitalisation of Synthomer as at
the date of the signing of the Merger Agreement) if the Merger
Agreement is terminated (i) by OMNOVA where, prior to the General
Meeting, the Synthomer Board has changed its recommendation to
Shareholders to vote in favour of the Acquisition; or (ii) by
Synthomer or OMNOVA as a result of the failure to obtain required
regulatory approvals.
8. Financing
Synthomer intends to finance the Acquisition, related fees and
expenses, and certain of OMNOVA and Synthomer's existing debt
facilities, from:
-- the gross proceeds of the Rights Issue of up to GBP204
million (approximately US$257 million); and
-- drawings from the Bridge Facilities and Syndicated Facilities
(each as defined below) (the Bridge Facilities and the Syndicated
Facilities, together, the "New Debt Facilities").
Rights Issue
The Company is proposing to raise gross proceeds of up to GBP204
million from the Rights Issue, which has been fully underwritten by
Barclays, Canaccord, HSBC Bank plc ("HSBC") and Citigroup Global
Markets Limited ("Citi") (the "Underwriters") (other than the New
Shares that Kuala Lumpur Kepong Berhad Group ("KLK") has
irrevocably undertaken to take up pursuant to its entitlement in
the Rights Issue as discussed below). The offer is to be made to
Qualifying Shareholders at 240 pence per new Synthomer ordinary
share (the "Issue Price"). The Issue Price represents a 30.4%
discount to the theoretical ex-Rights price based on the closing
middle-market price of 371.2 pence per Synthomer Share on 2 July
2019.
The Rights Issue will be made on the basis of:
1 New Share at 240 pence per New Share for every 4 Existing
Shares
held by Synthomer shareholders who are on the Company's register
at the Record Date ("Qualifying Shareholders") at the close of
business on the Record Date (as set out in the Circular).
Qualifying Shareholders with registered addresses in the United
States or in any of the other Excluded Territories will not be sent
Provisional Allotment Letters or will not have their CREST stock
accounts credited with Nil Paid Rights, except where the Company
and the Underwriters are satisfied that such action would not
result in the contravention of any registration or other legal or
regulatory requirement in such jurisdiction.
The New Shares, when issued and fully paid, will rank pari passu
in all respects with the Existing Synthomer Shares, including the
right to receive dividends or distributions made, paid or declared
after the date of issue of the New Shares.
The Rights Issue will result in up to 84,970,192 New Shares
being issued (representing approximately 25% of the existing issued
share capital and approximately 20% of the enlarged issued share
capital of Synthomer immediately following completion of the Rights
Issue).
The Rights Issue is not conditional on the Acquisition
proceeding. If the Acquisition does not proceed, Synthomer intends
to retain the net proceeds raised by the Rights Issue for the
purpose of pursuing future acquisition opportunities or, if no
suitable acquisition opportunities can be found within a reasonable
period, the Company will consider, to the extent possible in the
circumstances, returning the net proceeds raised by the Rights
Issue to Synthomer shareholders in a tax efficient way.
A prospectus in respect of the Rights Issue is expected to be
published in July 2019 (the "Prospectus"). Any decision to
participate in the Rights Issue must be made solely on the basis of
the Prospectus.
Bridge Facilities
On 3 July 2019, Synthomer entered into a bridge facilities
agreement with, among others, Barclays Bank PLC, Citigroup Global
Markets Limited, HSBC Bank plc and Banco Santander, S.A., London
Branch as mandated lead arrangers and bookrunners, Barclays Bank
PLC, Citibank, N.A., London Branch, HSBC Bank plc and Banco
Santander, S.A., London Branch as original lenders and HSBC Bank
plc as agent.
The Bridge Facilities comprise two unsecured credit
facilities:
-- a GBP200 million bridge term loan facility ("Bridge Facility
A"); and
-- a EUR520 million (approximately GBP466 million) bridge term
loan facility ("Bridge Facility B").
The Directors do not expect Bridge Facility A to be utilised
following receipt of the gross proceeds of the Rights Issue.
Subject to prevailing market conditions, the Directors intend that
Bridge Facility B will be refinanced by bond issuances or other
form of refinancing in due course.
Syndicated Facilities
On 3 July 2019, Synthomer entered into a multicurrency term loan
and revolving facilities agreement with, among others, Barclays
Bank PLC, Citigroup Global Markets Limited, HSBC Bank plc and Banco
Santander, S.A., London Branch as mandated lead arrangers and
bookrunners, Barclays Bank PLC, Citibank, N.A., London Branch, HSBC
Bank plc and Banco Santander, S.A., London Branch as original
lenders and HSBC Bank plc as agent.
The Syndicated Facilities comprise two unsecured credit
facilities which mature on 3 July 2024:
-- a term loan facility in an aggregate principal amount of up
to US$260 million (approximately GBP206 million); and
-- a EUR460 million (approximately GBP412 million) multicurrency
revolving credit facility.
9. Irrevocable Undertakings
The Directors have irrevocably undertaken to vote or procure
that the registered holders vote in favour of the Resolutions in
respect of their beneficial holdings and shares in respect of which
they have an interest amounting to 8,965,963 Synthomer Shares in
aggregate, representing approximately 2.6% of the existing ordinary
share capital of Synthomer in issue as at 2 July 2019 (the "Latest
Practicable Date").
In addition, each Director who holds Synthomer Shares has
irrevocably undertaken to take up in full their rights to subscribe
for New Shares under the Rights Issue or to sell a sufficient
number of their Nil Paid Rights during the nil paid dealing period
to meet the costs of taking up the balance of their entitlements to
New Shares.
KLK, which holds 66,879,401 Synthomer Shares, representing
approximately 19.7% of the existing ordinary share capital of
Synthomer in issue as at the Latest Practicable Date, has
irrevocably undertaken to vote in favour of the Resolutions.
In addition, KLK has irrevocably undertaken to take up its
entitlement pursuant to the Rights Issue in full. This will result
in KLK acquiring an aggregate of 16,719,850 New Shares,
representing approximately 19.7% of the New Shares to be issued
pursuant to the Rights Issue. KLK is being paid a commission of
0.75% of the aggregate value, at the Issue Price, of the New Shares
KLK has agreed to take up pursuant to the Rights Issue. The Company
is not paying an underwriting fee in respect of these New
Shares.
10. Resolutions
The size of the Acquisition means that it constitutes a Class 1
transaction for the purposes of the Listing Rules. Accordingly, the
Acquisition is conditional the approval of the Synthomer
shareholders at the General Meeting.
In addition, Shareholders will be asked at the General Meeting
to approve an increase in the borrowing limit set out in the
Articles of Association of the Company from GBP750 million to
GBP1,500 million to enable the Company to finance the consideration
payable in respect of the Acquisition and repayment of the existing
OMNOVA Group debt and to provide sufficient headroom for future
borrowings to be made.
11. Dividend Policy
Following the Acquisition, and subject to the Enlarged Group's
trading prospects being satisfactory, the Company intends to
maintain its existing dividend policy.
12. De-listing of OMNOVA Shares
If the Acquisition completes, there will no longer be any
publicly held OMNOVA Shares. Accordingly, OMNOVA Shares will be
delisted from the NYSE as promptly as practicable following
Completion and will be deregistered under the Securities Exchange
Act of 1934 (the "Exchange Act") as promptly as practicable after
such delisting. OMNOVA will no longer be subject to reporting
obligations under the Exchange Act in respect of OMNOVA Shares
after such deregistration.
13. Expected Timetable to Completion
The Circular and Prospectus containing further details on the
Acquisition, the Board's recommendation, the terms of the Rights
Issue, the notice of the General Meeting and the Resolutions are
expected to be sent to Synthomer shareholders (other than Synthomer
shareholders with a registered address in certain excluded
jurisdictions) in July 2019. Subject to satisfaction of the
conditions to the Acquisition, Completion is expected to occur in
late 2019 / early 2020.
Appendix
Bases and Sources
1. Enterprise value multiple for OMNOVA of 9.9 times OMNOVA's
May 2019 LTM Adjusted EBITDA before Acquisition-related synergies:
Based on OMNOVA announced May 2019 LTM Adjusted EBITDA of US$73.5m
(OMNOVA Q4 press release) plus: (i) pre acquisition results of
Resiquimica relating to the period from 1 June 2018 to 25 September
2018, when Resiquimica was acquired by OMNOVA, of US$0.9m; (ii)
pre-tax cost savings of the Resiquimica acquisition (as previously
announced by OMNOVA) of US$1.1m (with US$0.9m expected to be
realised during OMNOVA's H2 2019 and an additional pre-tax cost
savings of US$0.2m expected to be realised during the year ending
30 November 2020); and (iii) pre-tax cost savings relating to the
Green Bay disposal (as previously announced by OMNOVA) of US$7.7m
(with US$3.85m expected to be realised during OMNOVA's H2 2019 and
total pre-tax cost savings of US$7.7m expected to be realised
during the year ending 30 November 2020).
2. OMNOVA's FY2018 EBITDA: Based on OMNOVA's 2018 Adjusted
EBITDA as announced in its Q4 2018 Earnings Release.
3. Estimated leverage of approximately 2.5x net debt / EBITDA
expected at Completion: Based on estimated net debt following a
hypothetical completion date of October 2019 and completion of the
Rights Issue and Acquisition. Estimated EBITDA for the Enlarged
Group is based on OMNOVA's May 2019 LTM Adjusted EBITDA (see
paragraph 1 above), Synthomer's 2018 EBITDA and estimated 50% of
run-rate pre-tax cost synergies for the Acquisition. The estimated
net debt is a forward looking statement and an estimate at a
hypothetical date. There can be no assurance that Completion will
occur on that date.
4. Expected deleveraging to below 2.0x by the end of the second
full financial year following Completion: End of the second full
financial year following a hypothetical completion date of October
2019. The estimated leverage is a forward looking statement and an
estimate at a hypothetical date. There can be no assurance that
Completion will occur on that date.
5. 38 production facilities across the Enlarged Group: Based on
Synthomer's 25 production facilities as at 31 December 2018 and
OMNOVA's 13 production facilities as at 30 November 2018.
6. The Enlarged Group is expected to derive 58% of its revenue
from Europe, with 19% of its revenue from North America and 23%
from Asia and the rest of the world: Based on Synthomer's reported
revenue for the year ended 31 December 2018 and OMNOVA's reported
revenue for the year ended 30 November 2018, and an $ / GBP average
exchange rate for 2018 of 1.3410 as derived from data provided by
Bloomberg.
7. Historical financial information relating to OMNOVA: Unless
otherwise indicated, the historical financial information relating
to the OMNOVA Group in this announcement has been extracted without
material adjustment from OMNOVA's Form 10-K for the year ended 30
November 2018.
8. Historical financial information relating to Synthomer:
Unless otherwise indicated, the historical financial information
relating to the Synthomer Group in this announcement has been
extracted without material adjustment from Synthomer's audited
financial statements for the year ended 31 December 2018.
9. Exchange rates: $ / GBP exchange rate of 1.2595 and EUR / GBP
exchange rate of 1.1160 as at 2 July 2019 as derived from data
provided by Bloomberg.
IMPORTANT NOTICE:
This announcement has been issued by and is the sole
responsibility of Synthomer. This announcement is not a circular or
a prospectus but an advertisement and investors should not acquire
any nil paid rights, fully paid rights or New Shares referred to in
this announcement except on the basis of the information contained
in the Prospectus to be published by the Company in connection with
the Acquisition and the Rights Issue in due course. The information
contained in this announcement is for background purposes only and
does not purport to be full or complete. The information in this
announcement is subject to change. Copies of the Circular and
Prospectus when published will be available from the registered
office of the Company and on the Company's website, provided that
such Circular and Prospectus will not, subject to certain
exceptions, be available to certain shareholders in certain
restricted or excluded territories. The Circular and Prospectus
will give further details of the Acquisition and the Rights
Issue.
This announcement contains inside information for the purposes
of Article 7 of Regulation (EU) No 596/2014 ("MAR"). The person
responsible for arranging the release of this announcement on
behalf of the Company is Richard Atkinson. In addition, market
soundings (as defined in MAR) were taken in respect of the Rights
Issue and the Acquisition with the result that certain persons
became aware of inside information (as defined in MAR), as
permitted by MAR. This inside information is set out in this
announcement. Therefore, those persons that received inside
information in a market sounding are no longer in possession of
such inside information relating to Synthomer and its
securities.
Any decision to participate in the Rights Issue must be made
solely on the basis of the Prospectus to be published by the
Company in due course. Recipients of this announcement should
conduct their own investigation, evaluation and analysis of the
business, data and property described in this announcement. This
announcement does not constitute a recommendation concerning any
investor's decision or options with respect to the Acquisition or
the Rights Issue. The price and value of securities can go down as
well as up. Past performance is not a guide to future performance.
The contents of this announcement are not to be construed as legal,
business, financial or tax advice. Each shareholder or prospective
investor should consult his, her or its own independent legal
adviser, business adviser, financial adviser or tax adviser for
legal, financial, business or tax advice.
This announcement is for information purposes only and is not
intended to and does not constitute or form part of any offer to
sell or issue, or any solicitation of an offer to purchase,
subscribe for or otherwise acquire, any securities in any
jurisdiction. In particular, the securities referred to herein have
not been and will not be registered under the United States
Securities Act of 1933, as amended (the "Securities Act") or with
any securities regulatory authority of any state or jurisdiction of
the United States, and may not be offered or sold in the United
States absent registration under the Securities Act or an available
exemption from, or transaction not subject to, the registration
requirements of the Securities Act. There will be no public offer
of the securities in the United States. None of this announcement
or any other document connected with the Rights Issue or
Acquisition has been or will be approved or disapproved by the
United States Securities and Exchange Commission or by the
securities commissions of any state or other jurisdiction of the
United States or any other regulatory authority, and none of the
foregoing authorities or any securities commission has passed upon
or endorsed the merits of the offering of nil paid rights, fully
paid rights or New Shares or the accuracy or adequacy of this
announcement or any other document connected with the Rights Issue
or Acquisition. Any representation to the contrary is a criminal
offence in the United States.
The release, publication or distribution of this announcement in
certain jurisdictions may be restricted by law and therefore
persons in such jurisdictions into which these materials are
released, published, distributed or forwarded should inform
themselves about and observe such restrictions. The information
contained herein is not for release, publication, distribution or
forwarding, directly or indirectly, in, into or from the United
States, Australia, New Zealand, Canada, Japan or South Africa or
any jurisdiction where to do so would constitute a violation of the
relevant laws of such jurisdiction. Any failure to comply with any
such restrictions may constitute a violation of the securities laws
of such jurisdiction.
Barclays, Canaccord, Citi and HSBC (together, the "Banks") are
each authorised by the Prudential Regulation Authority (other than
Canaccord) and regulated in the United Kingdom by the Prudential
Regulation Authority (other than Canaccord) and the Financial
Conduct Authority. TVG Limited ("The Valence Group" or "Valence")
is authorised and regulated by the Financial Conduct Authority.
Each of the Banks and Valence is acting exclusively for the Company
and no one else in connection with the Rights Issue and the
Acquisition and will not regard any other person (whether or not a
recipient of this announcement) as a client in relation to the
Rights Issue and the Acquisition and will not be responsible to
anyone other than the Company for providing the protections
afforded to their respective clients or for providing advice in
relation to the Rights Issue and the Acquisition or any matters,
transactions or arrangements referred to in this announcement.
Apart from the responsibilities and liabilities, if any, which
may be imposed on the Banks or Valence by the Financial Services
and Markets Act 2000, as amended ("FSMA") or the regulatory regime
established thereunder, none of the Banks or Valence accept any
responsibility whatsoever or make any representation or warranty,
express or implied, for the contents of this announcement including
its accuracy, completeness or verification or for any statement
made or purported to be made by it, or on its behalf, in connection
with the Company, the nil paid rights, the fully paid rights, the
New Shares, the Rights Issue or the Acquisition and nothing in this
announcement shall be read as a promise or representation in this
respect whether as to the past or future. The Banks and Valence
accordingly disclaim, to the fullest extent permitted by law, all
and any liability whatsoever arising in tort, contract or otherwise
which it might otherwise have in respect of this announcement or
any such statement.
Each of the Banks, Valence and/or their respective directors,
officers, employees, advisers or affiliates ("Affiliates") in
relation to any purchase of or subscription for securities, acting
as investors for their own accounts, may, in accordance with
applicable legal and regulatory provisions, engage in transactions
in relation to the nil paid rights, the fully paid rights, the New
Shares and/or related instruments for their own account for the
purpose of hedging their underwriting exposure or otherwise.
The Banks and Valence, in accordance with applicable legal and
regulatory provisions, may engage in transactions in relation to
nil paid rights, fully paid rights, the New Shares and/or related
instruments for their own account for the purpose of hedging their
underwriting exposure or otherwise. In connection with the Rights
Issue, the Banks, Valence and any of their respective affiliates,
acting as investors for their own accounts may acquire New Shares
as a principal position and in that capacity may retain, subscribe
for, purchase, sell, offer to sell or otherwise deal for their own
accounts in such New Shares and other securities of the Company or
related investments in connection with the Rights Issue or
otherwise. Accordingly, references in this document to the New
Shares being issued, offered, subscribed, acquired, placed or
otherwise dealt in should be read as including any issue, offer,
subscription, acquisition, placing or dealing by each of the Banks,
Valence and any of their respective Affiliates acting as investors
for their own accounts. In addition, certain of the Banks, Valence
or their respective Affiliates may enter into financing
arrangements (including swaps or contracts for difference) with
investors in connection with which such Banks or Valence (or their
respective Affiliates) may from time to time acquire, hold or
dispose of New Shares. Except as required by applicable law or
regulation, the Banks, Valence and their respective Affiliates do
not propose to make any public disclosure in relation to such
transactions.
In the event that the Banks subscribe for New Shares which are
not taken up by Qualifying Shareholders, the Banks may co-ordinate
disposals of such shares in accordance with applicable law and
regulation. Except as required by applicable law or regulation, the
Banks and their respective Affiliates do not propose to make any
public disclosure in relation to such transactions.
Neither the contents of the Company's website nor any website
accessible by hyperlinks on the Company's website is incorporated
in, or forms part of, this announcement.
This announcement should not be considered a recommendation by
the Banks, Valence or any of their respective Affiliates in
relation to any purchase of or subscription for securities. None of
the Banks, Valence nor any of their respective Affiliates accepts
any responsibility or liability whatsoever for or makes any
representation or warranty, express or implied, as to this
announcement, including the truth, accuracy, fairness, sufficiency
or completeness of the information or the opinions or beliefs
contained in this announcement (or any part hereof). None of the
information in this announcement has been independently verified or
approved by the Banks, Valence or any of their respective
Affiliates. Save in the case of fraud, no liability is accepted by
the Banks, Valence or any of their respective Affiliates for any
errors, omissions or inaccuracies in such information or opinions
or for any loss, cost or damage suffered or incurred howsoever
arising, directly or indirectly, from any use of this announcement
or its contents or otherwise in connection with this
announcement.
No person has been authorised to give any information or to make
any representations other than those contained in this announcement
and, if given or made, such announcements must not be relied on as
having been authorised by the Company or any of the Banks, Valence
or any of their respective Affiliates. Subject to the Listing
Rules, the Prospectus Rules, the Disclosure Guidance and
Transparency Rules and MAR, the issue of this announcement and any
subsequent announcement shall not, in any circumstances, create any
implication that there has been no change in the affairs of the
Group since the date of this announcement or that the information
contained in it is correct as at any subsequent date.
This announcement contains "forward-looking statements" which
includes all statements other than statements of historical fact,
including, without limitation, those regarding the Company's
financial position, business strategy, plans and objectives of
management for future operations, or any statements preceded by,
followed by or that include the words "targets", "believes",
"expects", "aims", "intends", "will", "may", "anticipates", "would,
"could" or similar expressions or negatives thereof. Such
forward-looking statements involve known and unknown risks,
uncertainties and other important factors beyond the Company's
control that could cause the actual results, performance or
achievements of the Company to be materially different from future
results, performance or achievements expressed or implied by such
forward-looking statements. Such forward-looking statements are
based on numerous assumptions regarding the Company's present and
future business strategies and the environment in which the Company
will operate in the future. These forward-looking statements speak
only as at the date of this announcement. None of the Company, the
Banks, Valence or their respective Affiliates undertakes or is
under any duty to update this announcement or to correct any
inaccuracies in any such information which may become apparent or
to provide you with any additional information, other than any
requirements that the Company may have under applicable law or the
Listing Rules, the Prospectus Rules, the Disclosure Guidance and
Transparency Rules or MAR. To the fullest extent permissible by
law, such persons disclaim all and any responsibility or liability,
whether arising in tort, contract or otherwise, which they might
otherwise have in respect of this announcement. The information in
this announcement is subject to change without notice.
The New Shares will not be admitted to trading on any stock
exchange other than the London Stock Exchange.
Unless otherwise indicated, references to pounds sterling,
sterling, pence, p or GBP are to the lawful currency of the United
Kingdom and references to dollar, US dollar, $ or US$ are to the
lawful currency of the United States.
None of the Company, Banks, Valence or any of their respective
Affiliates is making any representation to any offeree or purchaser
of the New Shares in the Rights Issue regarding the legality of an
investment by such offeree or purchaser under the laws applicable
to such offeree or purchaser.
Information to Distributors
Solely for the purposes of the product governance requirements
contained within: (a) EU Directive 2014/65/EU on markets in
financial instruments, as amended ("MiFID II"); (b) Articles 9 and
10 of Commission Delegated Directive (EU) 2017/593 supplementing
MiFID II; and (c) local implementing measures (together, the "MiFID
II Product Governance Requirements"), and disclaiming all and any
liability, whether arising in tort, contract or otherwise, which
any "manufacturer" (for the purposes of the MiFID II Product
Governance Requirements) may otherwise have with respect thereto,
the nil paid rights, the fully paid rights and the New Shares have
been subject to a product approval process, which has determined
that such securities are: (i) compatible with an end target market
of retail investors and investors who meet the criteria of
professional clients and eligible counterparties, each as defined
in MiFID II; and (ii) eligible for distribution through all
distribution channels as are permitted by MiFID II (the "Target
Market Assessment").
Notwithstanding the Target Market Assessment, distributors
should note that: the price of the nil paid rights, the fully paid
rights and the New Shares may decline and investors could lose all
or part of their investment; the nil paid rights, the fully paid
rights and the New Shares offer no guaranteed income and no capital
protection; and an investment in nil paid rights, the fully paid
rights and the New Shares is compatible only with investors who do
not need a guaranteed income or capital protection, who (either
alone or in conjunction with an appropriate financial or other
adviser) are capable of evaluating the merits and risks of such an
investment and who have sufficient resources to be able to bear any
losses that may result therefrom. The Target Market Assessment is
without prejudice to the requirements of any contractual, legal or
regulatory selling restrictions in relation to the Rights Issue.
Furthermore, it is noted that, notwithstanding the Target Market
Assessment, the Banks will only procure investors who meet the
criteria of professional clients and eligible counterparties.
For the avoidance of doubt, the Target Market Assessment does
not constitute: (a) an assessment of suitability or appropriateness
for the purposes of MiFID II; or (b) a recommendation to any
investor or group of investors to invest in, or purchase, or take
any other action whatsoever with respect to the nil paid rights,
the fully paid rights or the New Shares.
Each distributor is responsible for undertaking its own target
market assessment in respect of the nil paid rights, the fully paid
rights and the New Shares and determining appropriate distribution
channels.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
ACQLIFEEDRIVIIA
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