INEOS Group Limited (“IGL”, together with its group companies “INEOS Group”) proposes selling INEOS ChlorVinyls to the Kerling Group (being Kerling plc and its subsidiaries) for a valuation of €398 million.
Based on LTM September EBITDA of €65 million, this represents a sale multiple of 6.1x. It is proposed that completion of the transaction takes place by the end of January 2010 and is contingent on the raising of finance by Kerling plc to fund the acquisition.
The proposed transaction incorporates the transfer to the Kerling Group of a number of pension schemes with a combined deficit valued by the parties at €170 million, as well as the €160 million aggregate principal amount senior notes (plus accrued interest of €3 million) issued by INEOS Vinyls Finance plc. The senior notes are to be redeemed in connection with the transfer. Any existing intercompany balances between the INEOS and the Kerling Group will be settled on or before completion, resulting in an expected net cash payment to the INEOS Group of €65 million at close.
Kerling plc is currently the owner of (i) INEOS Norway SPV Limited, which acquired the PVC/chlor-alkali business from Norsk Hydro ASA in February 2008 (“INEOS Norway”); and (ii) INEOS Enterprises Limited, a diversified business consisting of a collection of assets ranging from brine extraction to biodiesel production. Both INEOS ChlorVinyls and INEOS Norway operate PVC/chlor-alkali assets and are already run by a common management team. Formally combining the businesses under a single financing structure would create Europe’s largest PVC producer by volume.
For IGL, the effect of the transaction will be to reduce net debt by €225 million; to significantly reduce the pension deficit and uncertainty over future pension contributions; and to increase available liquidity (by means of both the cash received and the cancellation of approximately €30 million letters of credit at closing). The transaction will also reduce refinancing risk by eliminating the December 2011 maturity of the INEOS Vinyls notes.
IGL and Kerling plc are under common control. The transaction will be supported by a fairness opinion from Grant Thornton (as to the disposal being on terms no less favourable than might have been obtained in a comparable transaction at such time on an arm’s length basis from a non-affiliate) and the sole disinterested director of INEOS Group Holdings plc as issuer under the IGH bond confirming his support for the transaction.
The disposal of the companies comprising INEOS ChlorVinyls is permitted under Clause 20.16(kk) of the IGL Senior Facilities Agreement. It is not expected that any requirement will arise under clause 12.6 to apply the net proceeds in prepayment of the facilities.