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Quaker Chemical logo (above) and Houghton International logo (below)

Image: Quaker Chemical

Coolants & Lubricants (Promotion) Quaker Chemical & Houghton to combine

May 15, 2017

Combining the two companies’ product solutions and service offerings will allow the new company to better serve customers in the automotive, aerospace, heavy equipment, metals, mining, machinery, marine, offshore, and container industries

Quaker Chemical Corporation and Houghton International recently announced that they have executed a definitive agreement to combine the companies. Both the companies are headquartered in the Philadelphia area. Speaking on this initiative, Michael F Barry, Chairman & CEO, Quaker Chemical, said, “The proposed combination of Quaker Chemical and Houghton International represents the next phase of our evolution and stays true to the vision of growing in our core specialties. Joining forces with Houghton International combines two highly complementary businesses, each having a long history of building tremendous expertise, technology and customer-centric cultures dedicated to delivering long-term sustainable value to customers, shareholders and associates. The new company will capitalize on best practices and expertise from both businesses."

Further elaborating on this initiative was Sanjay Hinduja, Chairman, Houghton International, who shared, “We are pleased to enter this agreement to unite these two distinguished and global companies. Together, we will strengthen our capabilities and business models to better serve the global market and all our stakeholders.”

Terms of the agreement

According to the agreement, Houghton International shareholders will receive $172.5 million of cash and 24.5 per cent ownership of the combined company, representing approximately 4.3 million shares of newly issued Quaker Chemical stock. In addition, Quaker Chemical will assume Houghton International’s debt and cash, with net debt of approximately $690 million at year-end 2016. The agreement has been approved by both Quaker Chemical's board of directors and Houghton International’s board of directors with full support of the Hinduja Group, which will become Quaker Chemical’s largest shareholder. Both the companies are known for a commitment to innovation in a highly specialised and technologically demanding industry.

Expanding on this, Mike Shannon, CEO, Houghton International, said, “In addition to our complementary businesses, we are each committed to creating solutions for our customers through innovation, strong technical expertise and global reach with localised applications expertise.”

Highly complementary transaction

Combining the two companies’ product solutions and service offerings will allow the new company to better serve customers in the automotive, aerospace, heavy equipment, metals, mining, machinery, marine, offshore, and container industries. The business will have one of the world’s most expansive metalworking platforms comprised of specialty products that include removal fluids, forming fluids, protecting fluids, heat treating fluids, industrial lubricants and greases.

The expanded portfolio is expected to generate significant cross-selling opportunities and will allow further expansion into growth markets that include India, Korea, Japan, and Mexico. By combining resources, the new company will increase the breadth of its innovative technology, accelerate its product development initiatives and time to market, and diversify its long-term R&D pipeline.

The company’s customer-intimate business model will be further strengthened with an expanded chemical management offering. The enhanced portfolio, industry-expert associates and applications expertise will enable the combined company to bring additional value to its customers’ overall performance and operations.

Value creation for shareholders

For 2016, Quaker Chemical had revenue of $747 million, $107 million of adjusted EBITDA, and $22 million of net cash. During the same period, Houghton International had revenue of $767 million, $120 million of adjusted EBITDA, and $690 million of net debt. After the close of the transaction, shares of the combined company will continue to be listed on the New York Stock Exchange.

The company anticipates achieving cost synergies of approximately $45 million, the majority of which will be realised within two years of closing. These synergies are expected to be driven primarily by supply efficiencies and cost reductions. Additional value creation is expected through cross-selling opportunities and the ability to provide an expanded array of products and solutions for customers. Post-transaction, the combined company expects to continue to maintain its dividend and use its strong cash flow generation to quickly reduce debt, improving its pro forma net debt to adjusted EBITDA ratio from approximately 3.7 times at close to approximately 2.5 times within two years after close.

Financing, governance and leadership

Quaker Chemical has secured $1.15 billion in committed financing from Bank of America Merrill Lynch and Deutsche Bank Securities to support the transaction, which includes $200 million of additional liquidity for future needs. The company estimates that the annual ongoing interest costs of the financing will be in the 3 per cent range at current interest rates. The completion of the transaction, which is expected by the end of 2017 or early 2018, is subject to customary closing conditions, including regulatory approvals and approval by Quaker Chemical shareholders. The companies will continue to operate independently until the transaction is completed.

Following the closing of the transaction, the new company is expected to have a 12-member board of directors, consisting of 9 directors from Quaker Chemical and 3 directors to be nominated by the Hinduja Group. Michael F Barry will continue as Chairman and Chief Executive Officer of the new business, and the structure of the company will be determined in the period between signing and closing.

In-case of any further clarifications, please contact Quaker Chemical at: sales_in@quakerchem.com

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