Chemring Unable To Complete ADG Buy On Original Terms, Amends Deal

24th Jun 2010 14:34

LONDON (Dow Jones)--U.K. defense company Chemring Group PLC (CHG.LN) said Thursday it won't conclude the acquisition of Allied Defense Group Inc (ADG) pursuant to the merger agreement as ADG received a subpoena from the U.S. Department of Justice, or DOJ, on the same day as the deal was announced requesting that ADG produce documents relating to its dealings with foreign governments. MAIN FACTS: -ADG also became aware that day that an employee of its U.S. subsidiary, Mecar USA, Inc., had been indicted by the DOJ for allegedly engaging in schemes to bribe foreign government officials to obtain and retain business. -The unsealed indictment of this employee and the DOJ's press release indicated that the alleged criminal conduct was on behalf of another U.S. company unrelated to ADG or Mecar U.S. -Whilst the DOJ initially agreed that ADG could limit its response to the subpoena to matters related to the indicted former employee of Mecar U.S., the DOJ has recently requested additional documents from ADG and indicated that it would be expanding its review. -Chemring has now entered into a new conditional agreement with ADG to acquire ADG's two principal operating businesses - Mecar S.A., based in Nivelles, Belgium and Mecar U.S., based in Marshall, Texas. -Chemring will acquire Mecar S.A. and the business and assets of Mecar U.S. for $59 million, which will be funded from the proceeds of the private placement of $280 million of fixed interest loan notes completed November 2009. -Approximately $14 million will need to be invested in working capital in the short-term. This, therefore, produces an overall enterprise value for Mecar of $62 million. -Mecar S.A. is a niche manufacturer of medium and large calibre ammunition, particularly for modern, light armored vehicles. Mecar U.S. provides load, assemble and pack and procurement services for the U.S. Government and prime contractors. -In the year ended Dec. 31, 2009, Mecar generated an audited underlying operating profit (before non-recurring costs) of $1.7 million on revenue of $142 million 95 million). Gross assets as at that date were $101 million (GBP68 million). -Mecar's order book is currently valued at around $88 million (GBP59 million). -Acquisition is expected to enhance Chemring's earnings in the first full financial year post-completion. -On completion of the acquisition, Chemring will assume $11 million of net cash at Mecar. -Shares at 1330 GMT down 165 pence, or 5.3%, at 2922 pence valuing the company at GBP1.03 billion. -By Ian Walker, Dow Jones Newswires; 44-20-7842-9296; [email protected] (END) Dow Jones Newswires June 24, 2010 09:34 ET (13:34 GMT)