News:RHI and Magnesita agree to merge در کانون توجه

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By Davide Ghilotti
Published: Thursday, 06 October 2016

The new company to be set up, RHI Magnesita, will have a foothold in Europe and Latin America and control the sourcing of key raw materials - such as magnesite-based DMB, CCM and DBD - used in refractory production, ensuring global supply with over 50 facilities.

Leading refractory producers, Austria’s RHI AG and Brazil-based Magnesita GP, have agreed to a merger to create a new entity, RHI Magnesita, to be based in the Netherlands and listed on the London stock exchange.

RHI will acquire a controlling stake of Magnesita – estimated at a 46% share but no more than 50% – from its current majority shareholders, GP Investments and Rhône, which will be payable through a cash transaction of €118m ($132.3m) and 4.6m shares to be issued by the new company.

The deal for 46% ownership of Magnesita is put at a tag price of €208m, and will make RHI the majority shareholder in the Brazilian company.

The agreement will bring together RHI’s 30 production facilities with Magnesita’s 26 industrial and mining sites, creating a vertically-integrated refractory giant serving steelmakers, cement, nonferrous metals, glass, energy and chemical industries globally.

Once up and ruing, RHI Magnesita will have a production foothold in both Europe and Latin America, and will have direct access to raw material sourcing of key minerals such as dolomite and magnesia.

The new company is expected to reach combined consolidated revenues of between €2.6bn and €2.8bn by 2020, according to RHI.

Complementing operations

The companies talked about bringing "under one roof two complementary businesses, both in terms of products and geographical footprint".

Aims include accelerating growth in certain regions, namely Latin America and the US – on the part of Magnesita – and Europe and Asia, where RHI has its stronghold.

This also applies for production capacities: the new company will benefit from a widespread network of production facilities in areas where the two manufacturers lack strong presence on their own.

Besides 16 facilities in Brazil, Magnesita operates three plants in Germany, one in China, one in the US, two in France, one in Belgium, one in Taiwan and one in Argentina, with a total refractory production capacity of over 1.3m tpa. 

RHI will add its own capacity, which tops 1.5m tpa refractory products.

Magnesita operates its own magnesite mine in Brumado, in the Brazilian state of Bahia, processing the ore into dead burned magnesia (DBM), caustic calcined magnesia (CCM) and dead burned dolomite (DBD), which are staple materials in the production of several of RHI’s refractory ranges.

Magnesita’s position in dolomite-based products is described as "highly complementary" to RHI’s asset portfolio, which has a strong focus on high-magnesia products.

The Austrian group currently covers part of its raw material needs from its own extraction sites in Austria, Italy, Turkey and China, as well as from external suppliers.

Driving the merger is also the will to join forces to withstand the competition from China, the world’s largest supplier of refractory raw materials and an aggressive exporter of refractory products.

"This combination will strengthen the competitive position against the Chinese refractory industry, which is expected to consolidate in the coming years as aounced by the Chinese government," the companies said.

Financial benefits

The merging parties hope to be able to achieve improvement in their cost structures by joining aspects of the supply chain such as raw material supply, procurement, freight and marketing administration.

Complementing the regional presence in the Americas would be another way to optimise the business, by combining warehousing needs and related costs.

RHI expects a "minimum" run-rate effect following synergies of some €36m on EBIT by 2020. On top of that, it hopes to achieve cost benefits of €72m related to production efficiency and R&D, and working capital savings of €40m in the coming years.

Migration to the LSE

A global supplier of high-grade refractory products, RHI had revenues of €1.8bn and adjusted EBITDA of €198m in 2015. On its part, Magnesita recorded 2015 revenues of $1bn and adjusted EBITDA of $145m.

Following the completion of the agreement, RHI will cease to be listed on the Viea Stock Exchange. RHI Magnesita will be based in the Netherlands and listed in London on the LSE.

"The migration of RHI to the Netherlands and the subsequent listing on the London Stock Exchange have the objective of reinforcing and underlining the international scope of the enlarged combined company, enhancing its capital markets presence and maximising value potential for shareholders," the companies said.

The merger is expected to be completed in 2017. If the transaction is terminated for reasons not under the control of Magnesita shareholders, RHI will be subjected to a €20m fee payable to the Brazilian counterpart.

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