Elementis cuts up-front price of Mondo acquisition, shares still fall

11th Sep 2018 07:47

(Sharecast News) - Elementis has cut the up-front price of its acquisition of industrial talc group Mondo Minerals by $100m after the deal was poorly received by investors.The FTSE 250 chemicals group said on Tuesday that it will buy the business for $500m on a cash free, debt free basis, down from the $600m originally agreed.Elementis, which expects to complete the deal on 23 October, will also pay Luxembourg's Advent Mondo up to €45.7m in earn-out payments if Mondo achieves certain performance targets over a three-year period ending on 31 December 2020. If all targets are hit, then the full price for Mondo will therefore rise to $553m.Chief executive Paul Waterman said: "Mondo Minerals is a high quality business with significant opportunities for future growth. Following engagement with our shareholders, we have agreed terms of a revised deal with Advent that we believe represents compelling value."Shares in Elementis had fallen around 17% after the deal was initially announced, and even with the company's subsequent public acknowledgement on 31 July of investors' concerns, casting the deal into doubt, the shares were still down around 12% at the close on Monday.To finance the deal Elementis aims to raise $230m from a fully underwritten rights issue, down from the $280m originally proposed in June, combined with new $775.0m of bank facilities. Management expect to draw roughly $600m under the at completion to fund part of the cash consideration for the acquisition and to refinance certain indebtedness of Mondo and Elementis.The 1-for-4 rights issue at 152p per share, which will be payable in full by 1100 BST on 18 October, equates to a discount of 34.7% to the theoretical ex-rights price, based on Monday's closing price.The revised terms for the acquisition equates to a multiple of 10.4 times adjusted EBITDA based on the seven months to July 2018, compared with 12.5x on the original terms. The earn-out equates to a multiple of 8.8x the earn-out adjusted EBITDA.Waterman expects the acquisition to be accretive to adjusted earnings per share in the first full year following completion, including modest pre-tax cost synergies, plus a post-tax return on invested capita (ROIC) above weighted average cost of capital (WACC) in the second full year following completion.Moreover, leverage for the enlarged group is expected to be 2.5 times EBITDA, compared with 2.75x as outlined in the June 2018 announcement, with strong cash generation expected to drive leverage this below 2.0x EBITDA by the end of calendar 2019.Elementis shares fell 4% to 242.6p on early trading on Tuesday.Credit Suisse said the $500m initial cost was "the tipping point for the deal becoming value accretive".