Cleveland, Ohio-based cobalt giant
Umicore will also assume the business’s pension liabilities of E57 million, or US$66.9 million.
The OM Group’s precious metals business has divisions in Europe, North and South America, Asia and Africa. Roughly 3,500 people are employed at these operations, which last year accounted for US$4.4 billion in combined sales and US$78 million in operating profits.
The assets include automotive catalysts, fuel cells, precious metals chemistry, technical materials, jewelry and electroplating businesses, as well as a major metals-management business. The only Canadian asset is a manufacturing facility in Burlington, Ont.
OM originally acquired the assets in August 2001 from Degussa, Germany’s third-largest chemicals company, for a net US$577 million.
OM and Umicore expect the deal to close by the end of July, pending approvals from U.S. and European regulators.
Martin Hess and Pascal Reymondet, two OM executives in charge of the precious metals businesses, will join Umicore’s executive committee.
Umicore will initially fund the acquisition with a bridge financing arranged by Dutch-based Fortis Bank, to be followed by long-term equity and debt financings.
Umicore says the acquisition “marks a major step in [its] strategy of expanding activities towards more technology-intensive materials.”
Umicore believes that combining OM’s precious-metals business with its own precious metals refining and recycling businesses will result in “significant, short and medium-term benefits.”
For its part, OM expects to pocket net proceeds of about US$700 million, which it will use to pay down debt.
At March 31, OM had current liabilities of US$466 million and a long-term debt US$1.2 billion, but the company estimates it will have US$430 million in debt following the closing of the transaction.
“Completing the sale of the precious metals business will be a major milestone in the strategic plan announced to investors in December 2002,” says James Mooney, OM’s chairman and CEO. “Deciding to sell all the precious metals businesses was as difficult as any decision we’ve made to date.”
Five months ago, with cobalt prices at record lows, OM flirted with bankruptcy and was forced into a major restructuring that focused the company on its historical strengths in the only two businesses where it remained vertically integrated: cobalt and nickel.
In the fourth quarter, OM took an aftertax restructuring charge of US$174-million (US$6.16 per diluted share) and entered into debt agreements that require the company to sell assets and generate US$75 million in gross proceeds by June 30, 2003, and US$425 million in net proceeds by the end of 2003.
Heat stabilizer
OM has also reached an agreement to sell its small PVC heat-stabilizer business, which is primarily related to calcium, barium and zinc usage. However, the buyer will not be announced until after the deal is closed, later this month.
Chief Financial Officer Thomas Miklich says OM’s cobalt business “remains strong and on track as the higher metal price, coupled with improved margins, is helping offset the negative effects of a strong euro.”
OM’s nickel business, however, is expected to register “significantly lower profits” in the current quarter as a result of low sales and production volumes and a strong euro.
OM expects to earn US12-16 per diluted share in the second quarter, down from a previous estimate of US15-19.
In the first quarter, OM lost US$7.7 million (US27 per diluted share) on net sales from continuing operations of US$1.32 billion, compared with a profit of US$23.4 million (US85 per diluted share) on net sales of US$1.16 billion in the corresponding period of 2002.
Net sales in the recent first quarter consisted of US$209 million from base metals chemistry (compared with US$167 million a year earlier), US$433 million from precious metals chemistry (US$383 million), and US$763 million from metals management (US$667 million).
In all of 2002, OM lost US$328 million (US$11.69 per diluted share) on sales of US$4.9 billion, compared with the previous year’s net profit of US$76 million (US$3.09 per share) on US$2.2 billion in sales.
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