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Management Side
GL&V Sells its Process Group to FLSmidth for $950 M and Spins Off to Shareholders its Water Treatment and Pulp and Paper Groups
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Montreal, Quebec, Canada, 20 April 2007 -- /PRNewswire/ -- Groupe LaPerriere & Verreault Inc. (GL&V; ticker symbols GLV.A, GLV.B/TSX) and the Danish company FLSmidth & Co. (FLS; ticker symbol FLS B/CSE) announced today that they have entered into an agreement whereby, through a court-approved plan of arrangement, FLS will acquire all the outstanding Class A subordinate voting shares and Class B multiple voting shares of GL&V.

In connection with the arrangement, GL&V will transfer its Water Treatment, Pulp and Paper, and Manufacturing groups into a new corporation (NewCo), which will be seeking a listing on the TSX Exchange and that will be spun off to shareholders. Following the arrangement, FLS will effectively own 100% of GL&V's Process Group in exchange for a consideration of CAD 840 M in cash (equivalent to CAD 33 per share) and the assumption of net debt of approximately CAD 110 M.

Pursuant to the arrangement, each GL&V shareholder will receive a per-share consideration consisting of CAD 33 in cash and one share of NewCo. Holders of Class A subordinate voting shares and Class B multiple voting shares of GL&V will receive respectively Class A subordinate voting shares and Class B multiple voting shares of NewCo for each corresponding share held. According to management, the cash consideration of CAD 33 per GL&V share and the share of NewCo (the "Consideration") represents an attractive premium over GL&V's share price.

Laurent Verreault, chairman of the board and chief executive officer of GL&V, indicated this transaction is perfectly consistent with GL&V's core objective of maximizing shareholder value. "The price offered by FLS not only provides our shareholders with a significant immediate return on the Process Group's assets, but also offers them the opportunity to continue participating, as NewCo shareholders, in the growth of the Water Treatment and Pulp and Paper Groups, two well-established global entities equipped with solid technologies. Furthermore, the development of these groups will continue to be driven by the same vision, entrepreneurial culture, rigorous management, and corporate governance upon which GL&V has built its strength and success."

According to Verreault, the price offered by FLS for the Process Group (approximately CAD 950 M, including the assumption of net debt) reflects the added value recognized by the ore processing industry, which is undergoing consolidation, in global suppliers capable of offering comprehensive solutions that complete their customers' process flowsheets.

"Over the past seven years, GL&V has built its Process Group through selective acquisitions and well performed integrations. In 1999 and 2002, the acquisitions of Dorr-Oliver and EIMCO spearheaded this group's international expansion and provided it with complementary liquid/solid separation technologies. With the acquisition of Krebs International in December 2006, we completed the Process Group's offering in liquid/solid separation technologies for the mining industry, which greatly increased its value. For its part, FLS has, over the years, built a market leadership in technological solutions targeted to almost all stages of mineral processing (extraction, comminution, pyroprocessing, and handling) except one: liquid/solid separation. At a time when industry consolidation calls for a transaction of this type and size, this deal is beneficial to both GL&V and FLS."

"This timely and opportune transaction is a win-win situation, not only for GL&V's and FLS's respective shareholders, but also for customers who will benefit from stronger value-added solutions, as well as for the Process Group's employees who will pursue their career in a company that will be the industry leader. GL&V's other employees will continue to exercise their professional skills in NewCo, through a seamless transition in terms of structure, management style, leadership, and objectives. In addition, NewCo's officers and managers will be able to focus their efforts and energies on developing NewCo's business and entrepreneurial culture. In other words, the transaction provides shareholders with the opportunity to participate in 'another GL&V,' whose priority will be to continue creating shareholder value".

Transaction Structure

The proposed arrangement is subject to shareholder approval by resolution approved by no less than 75% of the votes cast in each class of shares (Class A Subordinate Voting and Class B Multiple Voting) and GL&V expects to present the matter to shareholders at a special meeting. The arrangement is also subject to a number of conditions including approval by the Superior Court of Quebec, acceptance by the TSX Exchange and other regulatory approvals.

Laurent Verreault and Richard Verreault, representing directly or indirectly approximately 0.2% of GL&V's Class A subordinate voting shares and 65.1% of GL&V's Class B multiple voting shares, have entered into a soft lock-up agreement with FLS to vote in favor of the arrangement.

The support agreement contains customary provisions prohibiting GL&V from soliciting any other acquisition proposal, but allowing termination in certain circumstances upon exercise by the board of directors of its fiduciary duties, subject to the payment by GL&V of a termination fee to FLS of CAD 25 M.

In addition, GL&V's board of directors has received a fairness opinion from CIBC World Markets Inc. to the effect that, as of the date hereof and based on and subject to the factors, assumptions and limitations described in the CIBC World Markets opinion, the consideration offered to GL&V's shareholders pursuant to the Arrangement is fair, from a financial point of view, to GL&V's shareholders. Upon the recommendation of a transaction committee comprised of independent board members, GL&V's board has concluded unanimously (Laurent Verreault and Richard Verreault abstaining) that shareholders should vote in favor of the Arrangement.

Tax Considerations

The transaction will create two taxable events for GL&V shareholders:

- Subject to tax authorities' confirmation, the distribution of NewCo
shares will constitute a return of capital of approximately CAD 2.65 per
class A share and will reduce adjusted cost base (return of capital on
Class B shares, if any, will be minimal). Difference between NewCo fair
market value (FMV) and the return of capital will constitute an
eligible dividend for tax purposes.

- The sale of GL&V's shares will constitute proceeds of disposition for
tax purposes.

Further details will be contained in an arrangement circular that is expected to be mailed to shareholders on or about 15 June 2007, in connection with a special meeting that will be held to consider the Arrangement and the arrangement agreement.

NewCo Positioned to Take Advantage of Market Trends

NewCo will be managed by GL&V's current senior management team (with the exception of the Process Group's officers and managers), including Laurent Verreault, who will continue to act as chairman of the board and chief executive officer; Richard Verreault, president and chief operating officer; Marc Barbeau, vice president and chief financial officer; Graham Lawes, vice president and general manager of the Water Treatment Group; and William Mahoney, senior vice president of the Pulp and Paper Group. NewCo's board of directors will consist of a majority of independent members, selected with the view of ensuring continuity between GL&V and NewCo and maintaining the same quality of governance. The list of senior officers and future directors of NewCo will be provided in the Arrangement Circular, which is expected to be mailed to GL&V's shareholders on or about June 15, 2007.

Richard Verreault, indicated that NewCo will inherit and operate a solidly established worldwide business with an excellent product portfolio and a large, diversified customer base, together with some 1500 skilled employees and an experienced management team. NewCo will also benefit from the Water Treatment and Pulp and Paper groups recent acquisitions and efficient integrations. These two groups have completed eleven acquisitions over the past two years, six since April 2006.

"NewCo's mission will be to become a world leader in targeted industrial and municipal solutions, with a strong focus on the fast-growing environmental technology sector," Verreault said. "We intend to foster NewCo's profitable growth and creation of long-term shareholder value by replicating the same business model and strategies that have proven successful for GL&V over the last three decades. We will continue to concentrate on targeted expansion through the acquisition and efficient integration of complementary businesses, enhancing our technology portfolio to provide customers with complete high-performance solutions, building our aftermarket business and maintaining an optimal cost structure through efficient outsourcing.

"The global water treatment industry holds considerable growth and consolidation potential for the future. In recent years, GL&V has rolled out substantial efforts, first to set up its Water Treatment Group, and then to provide it with the latest technologies to competitively position it in promising niches within this industry, which is still fragmented and expected to undergo consolidation in upcoming years. Subsequent to our most recent acquisitions, we are structuring this group to improve its profitability and market response. We are confident regarding the future of this group, which will continue to expand through acquisitions in order to, among others, complete its technological portfolio. The Pulp and Paper Group has acquired various technologies over the past two years in response to new trends in the global marketplace, including certain state-of-the-art pulp process equipment in December 2006, which recently allowed it to win a contract in Portugal worth approximately CAD 60 M," Verreault said.

Financial Overview of NewCo

For the 12-month period ended 31 December 2006, the operations that will comprise NewCo generated revenues of CAD 374 M while, on 31 December 2006, its order backlog totalled CAD 257 M (excluding the close to CAD 60 M contract recently awarded to the Pulp and Paper Group).

"Based on a combination of factors including the current order backlog, our assessment of market conditions, acquisitions made over the past year and the expected reduction in head office expenses due to the transfer of the Process Group to FLS, we estimate that NewCo will achieve sales of between CAD 500 M and CAD 545 M and EBITDA of between CAD 25 M and CAD 30 M within its first full year of operation following the transaction," said Barbeau. NewCo will benefit from a healthy capital structure that will provide it with the ability to grow. At closing, NewCo will assume a total net debt of CAD 50 M.

Pursuant to the Arrangement, the share capital of NewCo will consist of 22,781,521 Class A subordinate voting shares and 2,607,359 Class B multiple voting shares, which corresponds to the number of such issued and outstanding shares of GL&V as of the date hereof, assuming the exercise of all the stock options outstanding. The provisions relating to the two share classes will be substantially similar to those in GL&V's articles.

National Bank Financial Inc. acted as financial advisor to GL&V in connection with the transaction. Furthermore, NewCo obtained a fully underwritten and committed loan facility of CAD 175 M from National Bank Financial Inc.

About GL&V

Founded in 1975, GL&V is a world leader in liquid/solid separation technologies used in a large number of industrial, municipal, and environmental processes. The Process Group, which is intended to be transferred to FLS pursuant to the terms of the Arrangement, offers an extensive selection of liquid/solid separation solutions intended for metal and minerals processing, as well as various other industrial markets such as pulp and paper, energy, chemicals, petrochemicals and food processing. The Pulp and Paper Group, which will be transferred to NewCo pursuant to the terms of the Arrangement, specializes in the design and marketing of equipment used in various stages of pulp and paper production, notably chemical pulping, pulp preparation, and sheet formation. It is a recognized leader in rebuilding, upgrading, and optimization services for existing pulp and paper equipment. The Water Treatment Group, also to be transferred to NewCo pursuant to the terms of the Arrangement, specializes in the development and marketing of equipment for the treatment of municipal and industrial wastewater, drinking water and process water used in various industrial processes, and water intake screening solutions for power stations and refineries. Finally, an operating unit, GL&V Manufacturing, which will also be transferred to NewCo pursuant to the terms of the Arrangement, specializes in the production of large custom-made parts for external customers involved mainly in the pulp and paper and energy sectors, as well as GL&V's other units. GL&V is present in 40 countries on six continents and currently has approximately 2400 employees.

A presentation on the transaction will be posted early 20 April 2007, in the Investor Relations section of GL&V's Web site, at www.glv.com.


Selected Financial Information Fact Sheet
(All figures are in thousands of Canadian dollars, except when otherwise indicated)
-------------------------------------------------------------------------
FLS OFFER

- Approximately CAD 840M in cash (CAD 33 per share)
- Assumption of GL&V's net debt, except for a net debt of $50M assumed
by NewCo (approx. $110M as at 31 December 2006)
- Total acquisition price of approximately CAD 950M
- EV/PF 2007E EBITDA of Process Group(1): 14.2x
-------------------------------------------------------------------------

NEWCO

Segmented Information (unaudited)

Water Pulp & Other &
Treatment Paper Elimi-
Group Group nation Total
-----------------------------------------------
LTM Figures as at
Dec-31-06(2)
Revenues 165,118 204,822 3,669 373,609
EBITDA 7,453 14,254 -17,040 4,667
EBITDA with projected
head office savings 7,453 14,254 -11,250 10,457

Next 12 months Guidance
Revenues 280,000 242,000 -2,000 520,000
EBITDA 22,400 19,600 -15,000 27,000

Sales Backlog as at
31 December 2006 93,934 174,384 -11,759 256,559

Pro Forma Selected Balance
Sheet Items as at 31
December 2006
Net working capital 82,500
Net debt 50,000
Shareholders' equity 125,000
Fully diluted book value per share $ 4.92
-------------------------------------------------------------------------

TAX CONSIDERATIONS OF THE TRANSACTION, in Canadian dollars (for illustrative purposes)(3)

Adjusted cost base
calculation for GL&V
Class A shares
Adjusted cost base (for
illustrative purposes) $20.00
Return of capital(4)(5) $ 2.65
--------
Revised adjusted cost base $17.35

Capital gain
Cash consideration $33.00
Revised adjusted cost base $17.35
--------
Capital gain $15.65

Eligible dividend
FMV of NewCo share (for
illustrative purposes) $ 6.00
Return of capital(4)(5) $ 2.65
--------
Eligible dividend $ 3.35
-------------------------------------------------------------------------
(1) Adjusted for the acquisition of Krebs and excluding corporate costs
(2) Not adjusted to reflect a full year of acquired operations
(3) For illustrative purposes only and as such, should not be interpreted
or construed to be tax advice; further details will be disclosed in
the Arrangement Circular
(4) Return of capital on Class B shares will be minimal, if any
(5) Subject to tax authorities' confirmation

Source: Groupe LaPerriere & Verreault, Inc.

 

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