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Shawcor to Acquire ZCL Composites

Company Release - 1/20/2019 11:02 PM ET
  • Purchase price of $10.00 per share, representing an aggregate equity value of $308 million
  • Low double-digit adjusted EPS1 accretion to Shawcor in the first year post closing
  • Financed with cash and new credit facility
  • Expected closing early in the second quarter of 2019

TORONTO, Jan. 20, 2019 (GLOBE NEWSWIRE) -- Shawcor Ltd. (“Shawcor” or the “Company”) (TSX: SCL) announced today that it has entered into an arrangement agreement (the “Arrangement Agreement”) to acquire all of the issued and outstanding shares of ZCL Composites Inc. (“ZCL”) (TSX: ZCL) for $10.00 per share in cash by way of a statutory plan of arrangement (the “Arrangement”).  The price per share implies an aggregate fully diluted equity value for ZCL of approximately $308 million.  ZCL is North America’s largest manufacturer and supplier of environmentally friendly fibreglass reinforced plastic (“FRP”) underground storage tanks. ZCL has two plants in Canada, four in the US and one in The Netherlands. ZCL serves the Fuel, Water & Wastewater and Oil & Gas markets.

"The acquisition of ZCL is compelling for Shawcor as it allows us to leverage our material science expertise to broaden our composite product and service offering. From a financial perspective, the acquisition will generate meaningful accretion to our shareholders without any dilution and add further stability to our earnings base” said Mr. Steve Orr, Shawcor’s President and Chief Executive Officer.  “We are very much looking forward to welcoming ZCL’s employees to Shawcor and to working with them as we strive to address the challenges of our customers."

Transaction Rationale

The acquisition of ZCL is a continuation of Shawcor’s strategy to broaden its product and service offering, and is an attractive opportunity from three perspectives:

Fit with Shawcor

  • ZCL’s business and Shawcor’s business are both supported by similar long-term fundamentals, including aging infrastructure, reserve depletion and increasing public and regulatory scrutiny.
  • The combination broadens Shawcor’s use of advanced composites technology and leverages its material science expertise to provide customers with superior systems for their conveyance and storage needs.
  • Provides an opportunity to leverage Shawcor’s operational strengths to restore ZCL’s margins.

Strengthens Shawcor

  • Gives Shawcor access to an expanded product portfolio and potential customer base and will increase addressable markets served.
  • Increases stability of Shawcor earnings and cash flow stream through a business that operates at arms-length to energy markets.
  • Anticipated to be low double-digit accretive to 2019 adjusted EPS1, based on $4 million of annualized cost savings.

Enables Shawcor

  • Furthers evolution from a provider of discrete products and services to complete systems.
  • Creates opportunities to sell Shawcor’s products through ZCL’s well developed fuel distribution channels and ZCL’s products through Shawcor’s global oil and gas distribution channels.
  • Provides an established and credible entry point into the water and wastewater market. 

The Arrangement

Pursuant to the Arrangement, ZCL shareholders will receive $10.00 in cash per share.  This represents a 37% premium to the closing price on the TSX on January 18, 2019.  The Arrangement values ZCL at an enterprise value of approximately $312 million, including $4 million of net debt outstanding as at September 30, 2018. 

The Arrangement is not subject to a financing condition.  Shawcor will finance the Arrangement with a combination of cash on hand and drawing on its new credit facility, as described further below.   

ZCL Support of the Arrangement

The Board of Directors of ZCL (the “ZCL Board”), after consultation with its financial and legal advisors, has determined that the Arrangement is fair to ZCL shareholders and is in the best interests of ZCL. The ZCL Board recommends that ZCL shareholders vote in favour of the Arrangement.

Key Details of the Arrangement Agreement

The Arrangement will be considered by ZCL shareholders at a special meeting expected to be held in March 2019, and will require the approval of at least 66 2/3% of the votes cast by ZCL shareholders at the meeting. It is expected that ZCL will prepare and mail a management information circular to shareholders in February 2019. The Arrangement Agreement provides for, among other things, customary non-solicitation covenants on the part of ZCL and a right in favour of Shawcor to match any unsolicited superior proposal. The Arrangement will also be subject to a number of other customary conditions, including court and regulatory approvals, as set forth in the Arrangement Agreement. Subject to the receipt of the required regulatory approval, Shawcor expects the Arrangement to close early in the second quarter of 2019. ZCL shareholders are encouraged to review the detailed information to be contained in the ZCL management information circular. The management information circular, a copy of the Arrangement Agreement, the plan of arrangement, and related documents will be filed with Canadian securities regulators and will be available at www.sedar.com.

New Credit Facility

Shawcor has entered into a commitment letter with The Toronto-Dominion Bank and National Bank of Canada as co-lead arrangers providing a US$500 million, four-year senior unsecured revolving credit facility (the “Credit Facility”).  The Credit Facility will be used to fund the Arrangement and replace Shawcor’s existing senior credit facility.  Shawcor anticipates that a portion of the Credit Facility will be syndicated to other banks or financial institutions. 

Advisors

National Bank Financial Inc. is acting as financial advisor to Shawcor.  Stikeman Elliott LLP is acting as legal advisor to Shawcor. 

1 Adjusted EPS is a Non-GAAP measure and does not have a standardized meaning under GAAP and is not necessarily comparable to similar measures provided by other companies. See Non-GAAP Measures section in this press release for further details.

About Shawcor

Shawcor Ltd. is a global energy services company specializing in products and services for the pipeline and pipe services segment of the oil and gas industry and related products for the petrochemical and industrial market. The Company operates through a global network of fixed and mobile manufacturing and service facilities and is valued for its integrity, technology and proven capability to execute the most complex projects in its industry.

Forward-Looking Information

This news release contains forward-looking information within the meaning of applicable securities laws. Words such as "may", "will", "should", "anticipate", "plan", "expect", "believe", "predict", "estimate" or similar terminology are used to identify forward-looking information. This forward-looking information is based on assumptions, estimates and analysis made in the light of the Company's experience and its perception of trends, current conditions and expected developments, including that the proposed transaction will be completed and the expected low double-digit accretion to the 2019 adjusted EPS will be achieved, as well as other factors that are believed by the Company to be reasonable and relevant in the circumstances. Forward-looking information involves known and unknown risks, uncertainties and other factors which may cause actual results, performance or achievements to be materially different from those predicted, expressed or implied by the forward-looking information. The forward-looking information is provided as of the date of this news release and the Company does not assume any obligation to update or revise the forward-looking information to reflect new events or circumstances, except as required by law.

Non-GAAP Measures

This press release references adjusted earnings per share which is a financial measure that is not prepared in conformity with generally accepted accounting principles (GAAP) under International Financial Reporting Standards.  We refer to such measures as non-GAAP measures. These non-GAAP measures do not have standardized meanings under IFRS and are not necessarily comparable to similar measures provided by other companies. The Company discloses these measures because it believes that they provide further information and assist readers in understanding the results of the Company’s operations and financial position. These measures should not be considered in isolation or used in substitution for other measures of performance prepared in accordance with GAAP.  We define adjusted earnings per share as fully diluted earnings per share attributable to shareholders as calculated under IFRS, before acquisition-related and integration items, including transaction costs and financing fees; cost reduction and integration related initiatives such as separation benefits, retention payments, other exit costs and certain costs associated with integrating an acquired company's operations; gains or losses from early termination of debt and hedging activities; gains and losses on the disposal of assets; asset impairment charges; and hyperinflation adjustment for Argentina; and the tax effect of the pre-tax adjustments above at applicable tax rates and certain other tax items. 

Conference Call

Shawcor will be hosting a shareholder and analyst conference call and webcast on Monday, January 21, 2019 at 8 am ET, which will discuss the Arrangement.

To participate via telephone, please dial 1-877-776-4039 or 315-625-6955 Conference Call ID: 7465478#; alternatively, please go to the following website address to participate via webcast:  https://edge.media-server.com/m6/p/fqyai3pm

Please visit our website at www.shawcor.com for further details.

For further information, please contact:

Gaston Tano
Senior Vice President, Finance and CFO
Telephone: 416.744.5539
E-mail:  gaston.tano@shawcor.com 
Website: www.shawcor.com

 

Shawcor_Logo_CMYK_shaded_positive.jpg

Source: Shawcor Ltd.

 

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