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OM Group, Inc. has announced a major step in its strategic evolution with the signing of definitive agreements to exit its Advanced Materials business. The transactions include the sale of the downstream portion of the business, including its cobalt refinery assets in Kokkola, Finland, to a joint venture to be held by Freeport-McMoRan Copper & Gold Inc., Lundin Mining Corporation, and La Generale des Carrieres et des Mines, for total potential consideration of up to $435 million, comprised of initial cash consideration of $325 million and potential future payments of up to an additional $110 million based on the business achieving certain revenue targets over a period of three years. The sale is expected to close before the end of April 2013, subject to customary closing conditions and regulatory approvals. OM Group also announced that its Board of Directors has authorized the repurchase of up to $50 million of its common shares.
"The divestiture of our cobalt business is the final step in exiting our legacy commodity businesses and is consistent with our strategy to move up the value chain into technology-based businesses with attractive growth prospects and more predictable earnings profiles," said Joe Scaminace, chairman and CEO of OM Group. "Following the sale, the company will be well-positioned to achieve its core strategic objectives with a strong balance sheet and a clear vision for the future. We plan to return capital to shareholders via our recently authorized share repurchase program, and we will continue to invest in our businesses to support our growth strategy."
The company said the transactions better position it to achieve its core objectives to:
- Provide specialized, value-added solutions for its customers' complex applications and demanding requirements;
- Expand its leading positions in markets with attractive global growth trends, including automotive systems, electronic devices, aerospace, general industrial, and renewable energy;
- Complement its organic growth with synergistic acquisitions; and
- Maximize total shareholder return through financial discipline, optimal deployment of capital, business growth, and continued operational excellence.
Following the close of the sale, the company expects to have total cash on-hand of over $500 million, which it expects to efficiently deploy to repay a substantial portion of its debt, repurchase up to $50 million of its shares, and support its strategy of profitable organic and strategic growth.
In connection with the sale, OM Group will transfer its equity interests in its DRC-based joint venture known as GTL to its joint venture partners, subject to a security interest in favor of OM Group with respect to the joint venture's performance of certain supply arrangements.
"I want to extend my appreciation to our Advanced Materials associates," said Scaminace. "They have a long track record of operational excellence and commitment to customer success. This transaction further strengthens the business by providing a committed raw material supply stream and support from one of the world's largest and most successful mining companies."
Share Repurchase Program Announced
OM Group also announced that its Board of Directors has authorized the repurchase of up to $50 million of its common shares. The company may utilize various methods to effect the repurchases, which may include open market repurchases, negotiated block transactions, accelerated share repurchases or open market solicitations for shares, some of which may be effected through 10b5-1 Plans. Any repurchases would be funded from cash on hand or borrowings under the company's credit facilities. The timing of repurchases will depend on several factors including market and business conditions, and the repurchases may be discontinued at any time. The authorization represents approximately 7% of the company's current outstanding common shares based on last Friday's closing price.
"We believe the long-term intrinsic value of the company, combined with our increased financial flexibility following the exit of the Advanced Materials business, create an attractive opportunity for repurchasing our shares," said Scaminace. "We believe we have available capital resources to pursue these share repurchases without disrupting our growth strategy, including synergistic Acquisitions."
The company also commented that market conditions remained difficult throughout the fourth quarter of 2012, particularly in Europe and in global consumer electronics markets. The company reiterated its expectation for no rare earth pricing benefits in the fourth quarter of 2012 and stated that it now expects a significant lower-of-cost-or-market charge to principally reflect decreased rare earth prices.
"Business conditions became more challenging than expected in our recent fourth quarter, and these conditions persist at the beginning of 2013," said Scaminace. "As a result, we are now implementing a broad range of cost reduction initiatives. These actions will contribute to our near-term financial performance and improve our long-term cost structure, better positioning the company as macroeconomic conditions improve. The sale of the Advanced Materials business further strengthens our balance sheet and provides the capacity and flexibility to support these operating improvements as well as our overall growth strategy." The company plans to provide more a comprehensive business update during its regular fourth quarter investor conference call on February 19, 2013.
About OM Group
OM Group is a technology-based industrial growth company serving attractive global markets, including automotive systems, electronic devices, aerospace, general industrial, and renewable energy. Its business platforms use innovative technologies and expertise to address customers' complex applications and demanding requirements. For more information, visit www.omgi.com.