Mercer International Inc. (Nasdaq: MERC)
("
Mercer", the "
Company",
"
we", "
our") today announced that
it has entered into an agreement to acquire all of the outstanding
shares of the parent company of HIT for consideration of €270
million, inclusive of forecasted net working capital of
approximately €43 million (the "
Transaction").
HIT owns, among other things, 100% of a timber
processing and value-add pallet production facility in Torgau,
Germany (the "HIT Facility") and a wood processing
facility in Dahlen, Germany that produces garden products.
The Transaction is subject to customary closing
conditions, including receipt of requisite regulatory anti-trust
approvals. The Transaction is expected to close in the third or
early fourth quarter of 2022.
Sangra Moller LLP acted as legal advisor for
Mercer.
Facility Highlights
The HIT Facility:
- is a modern, high
performance, fully integrated wood processing facility and its
production capabilities include wood pallets, lumber, biofuels
(briquettes and pellets), garden products and bio-electricity;
- is the world's
largest producer of EPAL pallets and Europe's largest single site
pallet producer with an annual capacity of up to 17 million
pallets;
- has the ability to
process up to 410 MMfbm of lumber today, with various potential
high return investment opportunities to expand capacity;
- includes five
biomass-fueled power plants, with the ability to generate up to 15
MW of electricity;
- generates zero
waste through utilizing 100% of raw materials consumed; and
- has an experienced
workforce of approximately 700 full time employees.
Pallets
The European flat wooden pallet market
traditionally focuses on block pallets. The largest share of the
European wood pallet market are standard format block pallets, most
of which are part of exchange and pooling systems. Within the
German market, 80% of wood pallets are exchanged in open pooling
systems, while 20% are exchanged in closed pooling systems.
The EPAL wood pallet open pool is a licensing
system setting norms for pallets and standards for handling of the
EPAL certified pallets. HIT is the largest EPAL open pool
participant in the German and European region.
Operating Synergies
We believe the acquisition of HIT and the
integration of its facilities with our existing operations can
generate operating synergies of approximately $16 million per year,
realizable within six to twelve months of ownership, primarily
through procurement opportunities, optimization of logistics /
fiber and other cost benefits. Further, we believe there is an
opportunity to optimize the HIT Facility to align it with our
existing Friesau sawmill and improve their combined ability to
produce lumber for the U.S. and European lumber
markets.
CEO Comments
Mr. Juan Carlos Bueno, Chief Executive Officer,
stated: "This acquisition significantly increases our solid wood
operations in Germany. It will allow us to capitalize on synergies
with our German operations, including complementing our Friesau
sawmill. Additionally, the acquisition will allow us to diversify
our product mix with the introduction of pallets and biofuels."
Mr. Bueno continued: "This is a highly strategic
transaction for us that leverages our core competencies and is in
line with our long-term growth strategies. The Transaction creates
a platform for immediate cash flow generation and earnings
accretion. It is an important step in our long-term value-add
strategy of growth in timber processing.”
Mr. Bueno concluded: "The HIT Facility has solid
operating platforms in place, which can be further enhanced through
improved efficiencies and capital improvements. We are delighted to
welcome the employees of HIT to the Mercer team and, consistent
with all our operations, we look forward to integrating the HIT
operations within our core values of health and safety,
sustainability, integrity, innovation, performance excellence as
well as diversity, equity and inclusion.”
Purchase Price
The aggregate purchase price is €270 million
(approx. $275.4 million), inclusive of forecasted net working
capital of approximately €43 million (approx. $43.9 million). The
Transaction is structured on a “cash free and debt free” basis.
We intend to satisfy payment of the purchase
price using our existing cash on hand and/or our revolving credit
facilities. In connection with the Transaction, we have a mandate
with our current German bank agent for our existing €200 million
Pan-German revolving credit facility to replace it with a new
five-year facility with increased total availability of €300
million.
Mercer International Inc. is a global forest
products company with operations in Germany, USA and Canada with a
consolidated annual production capacity of 2.3 million tonnes of
pulp, 550 million board feet of lumber, and 140 thousand cubic
meters of cross-laminated timber. To obtain further information on
the Company, please visit its website at www.mercerint.com.
Non-GAAP Financial Measures
This press release contains references to
Adjusted EBITDA, which is a non-GAAP metric. Adjusted EBITDA is
defined as net income, plus taxes, interest, depreciation,
amortization and non-recurring items. We believe certain investors
and financial analysts use these measures to evaluate financial
performance. Adjusted EBITDA is also included to help facilitate
comparisons of the historic operating performance of the assets to
be acquired with other companies in our industry. They are not
measures of financial performance under GAAP and should not be
considered as an alternative to operating income or any other
measure of financial performance presented in accordance with GAAP.
Adjusted EBITDA excludes some, but not all, items that affect
operating income. The following table sets forth a reconciliation
of HIT's net income to Adjusted EBITDA for 2021 and for the first
quarter of 2022 (in millions):
|
2021(1)(2) |
|
Three Months endedMarch 31,
2022(1)(3) |
Net Income |
$ |
37 |
|
|
$ |
14 |
|
Add: Taxes |
$ |
12 |
|
|
$ |
6 |
|
Add: Interest |
$ |
4 |
|
|
$ |
1 |
|
Add: Depreciation and
amortization |
$ |
23 |
|
|
$ |
4 |
|
Add: Non-Recurring
Items(4) |
$ |
5 |
|
|
$ |
- |
|
Adjusted EBITDA |
$ |
81 |
|
|
$ |
25 |
|
________________(1) Reported pursuant to German
GAAP based on materials as prepared by
HIT.(2) Euros converted to U.S. dollars at a rate
of 1.1830, being the annual average rate on December 31,
2021.(3) Euros converted to U.S. dollars at a rate
of 1.1216, being the year-to-date average rate on March 31,
2022.(4) Primarily relates to a litigation
settlement and certain other non-recurring amounts related to prior
refinancing activities.
The preceding includes forward-looking
statements, including statements regarding the expected completion
of the acquisition of HIT, expectations regarding the impact of the
acquisition on our earnings, our ability to integrate HIT and its
operations with our existing business and realize upon potential
synergies and capital upgrade opportunities. Words such as
"expects", "anticipates", "projects", "intends", "designed",
"will", "believes", "estimates", "may", "could" and variations of
such words and similar expressions are intended to identify such
forward-looking statements. Actual results and outcomes may differ
materially from what is expressed or forecasted in these
forward-looking statements. Such statements are qualified in their
entirety by the inherent risks and uncertainties surrounding future
expectations. Among those factors which could cause actual results
to differ materially are the following: uncertainties as to the
timing of completion of the Transaction, our ability to obtain
required consents and approvals in connection with the Transaction,
we may not realize all or any of the expected synergies, HIT may
not be integrated successfully with our business or such
integration may be more difficult, time-consuming or costly than
expected, capital upgrades may not receive expected results, the
highly cyclical nature of our business, raw material costs, our
level of indebtedness, competition, foreign exchange and interest
rate fluctuations, our use of derivatives, expenditures for capital
projects, environmental regulation and compliance, disruptions to
our production, market conditions and other risk factors listed
from time to time in our SEC reports.
APPROVED BY:
Jimmy S.H. LeeExecutive Chairman(604) 684-1099
Juan Carlos BuenoChief Executive Officer(604) 684-1099
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