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Harsco to Sell Infrastructure Business Into Joint Venture
09/17/2013 - Diversified global industrial company Harsco Corporation announced an agreement to sell Harsco's Infrastructure division into a joint venture with Clayton, Dubilier & Rice (CD&R) under a transaction that will combine the Infrastructure division with Brand Energy & Infrastructure Services, Inc. (Brand), which CD&R is simultaneously acquiring from First Reserve.
The combined company, which will continue under the name Brand Energy & Infrastructure Services, will be a leading, single-source provider of specialized industrial services to the worldwide energy and infrastructure sectors. Upon closing of the transaction, Harsco will receive cash proceeds of approximately US$300 million and a 29% equity stake in the combined company, which has an enterprise value of approximately US$2.5 billion.
"This transaction is the first major step in the strategic transformation of Harsco," said Patrick Decker, Harsco president and chief executive officer. "It follows a period of extensive consideration and offers a number of compelling benefits to our shareholders. First, it immediately strengthens the financial profile of the Company while providing the financial flexibility to pursue higher return, higher growth opportunities. Second, it reduces the complexity of our business, consistent with our objectives for internal simplification and greater operating efficiency. Third, by maintaining an equity position in a stronger and more profitable combined business, Harsco stands to benefit from the additional value that will be created by the new venture."
Transaction Benefits to Harsco
• Strengthens Harsco's financial profile. Immediately upon the close of the transaction, Harsco will receive approximately US$300 million in cash, which will significantly strengthen the Company's balance sheet and enable the Company to reallocate capital to higher-return opportunities. On a pro forma basis, Harsco expects the transaction to improve margins, be immediately accretive to earnings in the first year after close and improve the Company's return on capital.
• Positions Harsco to pursue opportunities with attractive return and growth profiles. Harsco believes there are a number of organic growth and bolt-on acquisition opportunities to create differential value and generate improved returns and growth.
• Reduces the complexity of the Harsco portfolio. This transaction is aligned with Harsco's stated objectives to generate more attractive returns and improve the underlying performance of its businesses, particularly its Metals & Minerals segment. Under its ongoing Simplification initiative, Harsco is streamlining its operational structure and processes to improve internal execution and efficiency. Going forward, Harsco expects to reduce its overhead cost profile commensurate with its reduced complexity and simplified structure.
• Creates the opportunity for additional value creation. Harsco will benefit from its equity position in a stronger and larger business with a more diversified portfolio of services and offerings.
The New Brand Energy & Infrastructure Services
Pro forma 2013 annual revenues for the combined company are estimated at nearly US$3 billion and EBITDA margin is expected to be in the low double digits. Approximately two-thirds of the combined company's revenues are expected to be generated from the energy sector, with a significant level of recurring revenue driven by required maintenance work.
Paul T. Wood, current chairman and chief executive officer of Brand, will continue to serve in this role in the combined company. The Board of Directors will include representatives from CD&R, Brand and Harsco. CD&R Partner John Krenicki, former vice chairman of General Electric Company and former head of its energy business, will serve as lead director. The new company will be headquartered in suburban Atlanta, Ga., the current headquarters of Brand.
"We are excited to help build a global leader in both specialized industrial services and infrastructure services," said Nathan K. Sleeper, a CD&R partner. "We believe that the combined company has a well-positioned global platform, very favorable growth prospects and a deep set of capabilities to serve customers across its diverse end markets."
Mr. Wood added, "The integration with Harsco Infrastructure directly aligns with our company's strategy to expand our specialty service offering. The combination of these two groups of strong local operating companies and management teams creates a true global leader in both specialized industrial services and forming & shoring. The resulting global footprint will enable us to offer best in class operating capabilities to our customers in the growing energy and infrastructure markets."
Additional Terms of the Transaction
Under the terms of the transaction, Harsco will receive approximately US$300 million in cash and an equity stake in the combined company initially valued at US$225 million, valuing Harsco's Infrastructure division at US$525 million. The enterprise value of the combined company is estimated to be approximately US$2.5 billion, which includes US$1.7 billion in debt financing.
Financing and Approvals
The transaction, which was unanimously approved by the Harsco board of directors, is expected to close before the end of this year, subject to customary closing conditions and regulatory approvals, as well as satisfactory conclusion of the relevant works council/trade union consultation procedures.
A commitment for financing the transaction has been provided by Morgan Stanley, Citigroup Global Markets Inc., Goldman Sachs Bank USA and UBS Investment Bank.
Harsco Corporation's diversified businesses serve major industries that are fundamental to worldwide economic development, including steel and metals production, construction, railways and energy. Harsco's common stock is a component of the S&P MidCap 400 Index and the Russell 1000 Index.
