CHEMTRADE ANNOUNCES ACQUISITION OF MARSULEX, ENHANCING ITS EXISTING INDUSTRIAL CHEMICALS PLATFORM, AND ANNOUNCES EQUITY OFFERING

  • Transaction Value of $419.5 million, excluding MET
  • Immediately accretive to distributable cash per unit, without taking synergies into account
  • $10 million of highly realizable operating cost synergies
  • 60% Marsulex shareholder to vote in support of the transaction
  • $130 million subscription receipt offering

TORONTO, May 5 /CNW/ - Chemtrade Logistics Income Fund (TSX: CHE.UN) ("Chemtrade" or the "Company") announced today that it has entered into a definitive arrangement agreement with Marsulex Inc. (TSX: MLX) ("Marsulex") to purchase all of the businesses of Marsulex, other than Marsulex Environmental Technologies Corporation ("MET") (the "Transaction") for an aggregate transaction value of $419.5 million (the "Transaction Value"). The Transaction will be structured as a court-approved plan of arrangement under the Canada Business Corporations Act, pursuant to which Chemtrade will acquire all of the common shares of Marsulex, and Marsulex existing shareholders will receive cash and/or common shares of Investis U.S., Inc., which owns MET.

Marsulex's largest shareholder, Birch Hill Equity Partners Management Inc., has entered into a lock-up agreement with Chemtrade to vote the outstanding common shares of Marsulex that it holds (approximately 60% of the outstanding common shares) in favour of the Transaction.

Chemtrade intends to finance the Transaction through a combination of (i) syndicated senior secured credit facilities; and (ii) a $130 million underwritten equity offering (the "Offering").

Marsulex is a leading provider of sulphur-based industrial and water treatment chemicals and services. Chemtrade's management believes that the acquisition of Marsulex is consistent with the Company's strategy and business model. The assets and services being acquired are well known to Chemtrade and build upon Chemtrade's core competencies. Strategically, the acquisition diversifies Chemtrade's existing portfolio into new but related product and service offerings and into new geographic and industrial end markets. Similar to those of Chemtrade, certain of Marsulex's customer and supplier contracts contain provisions that mitigate and, in some cases, eliminate typical commodity risks to ensure sustainable and stable long-term earnings.

"We are excited to announce an acquisition in which the operations and the business model of the target company dovetail so well with our own," said Chemtrade President and Chief Executive Officer Mark Davis. "The acquisition fits directly within our core competency of providing critical non-core services to various industries. It diversifies our customer base and expands both our product portfolio and geographic mix. Marsulex has also structured its business with risk-sharing contracts that produce a high quality earnings base. The ability to add further scope, scale and diversification to our business with this acquisition and to continue to strengthen our Chemtrade team with the talent within the Marsulex organization is of significant benefit to Chemtrade."

The Transaction will be immediately accretive to Chemtrade's distributable cash per unit on a pro forma basis, without taking into account any synergies. The Transaction is expected to deliver realizable operating synergies of $10 million through the elimination of management fees, salaries, duplicative public company costs and other SG&A costs. On a combined basis, for the twelve months ended December 31, 2010 the pro forma company would have generated revenue of approximately $748 million and EBITDA (before synergies) of approximately $136 million.

The combined business offers several growth prospects creating a comprehensive North American sulphuric acid and liquid SO2 marketing operation. Chemtrade's robust logistical network provides operational and commercial growth opportunities with the addition of Marsulex-sourced volume. In addition, Chemtrade's management believes that Marsulex's strong relationships with Syncrude and Suncor and its strategically located acid regeneration plant offer meaningful opportunities to benefit from continued growth in oil sands production.

The Transaction has received the approval of the Marsulex board of directors and the board is expected to unanimously recommend that the Marsulex shareholders vote in favour of the Transaction. The Transaction is subject to the approval of the Marsulex shareholders by two-thirds of the votes cast at a special meeting, receipt of regulatory approvals, and satisfaction of other customary closing conditions. The special meeting is expected to be held in June 2011, with the closing of the Transaction expected to occur in late June 2011.

Equity Offering

A syndicate of underwriters co-led by Scotia Capital Inc. and BMO Capital Markets (collectively, the "Underwriters") have agreed to purchase for resale to the public, on a bought deal basis, 9.56 million subscription receipts ("Subscription Receipts") of Chemtrade at a price of $13.60 per Subscription Receipt (the "Offering Price") to raise gross proceeds of $130 million. The net proceeds of the Offering will be used to fund a portion of the purchase price. Chemtrade has granted the Underwriters an option (the "Over-Allotment Option") to purchase an additional 1.43 million Subscription Receipts exercisable at the Offering Price on the date of closing of the Offering and for a period of 30 days following the date of closing of the Offering for additional gross proceeds of up to $19.5 million.

Completion of the Offering is subject to certain conditions including the receipt of all necessary regulatory approvals, including the approval of the Toronto Stock Exchange. The Subscription Receipts will be offered in each of the provinces of Canada by way of a short-form prospectus and in the United States on a private placement basis pursuant to exemptions from the registration requirements under Rule 144A and/or Regulation D of the United States Securities Act of 1933, as amended.

Closing of the Offering is expected to occur on or about May 26, 2011. The gross proceeds of the Offering will be held in escrow pending delivery by the Company to the Underwriters of a certificate to the effect that all conditions (other than payment of the purchase price) necessary to complete the Transaction have been satisfied. If the Transaction is completed on or before September 6, 2011, the net proceeds will be released to Chemtrade and each Subscription Receipt will be exchanged for one unit of Chemtrade for no additional consideration. If the Transaction is not completed on or before September 6, 2011 or the Transaction is terminated at an earlier time, holders of Subscription Receipts will receive a cash payment equal to the offering price of the Subscription Receipts and any interest that was earned thereon during the term of the escrow.

Credit Facilities

Chemtrade has entered into a commitment letter with The Bank of Nova Scotia and BMO Capital Markets as co-lead arrangers providing for senior secured credit facilities in the aggregate amount of approximately $460 million (the "Credit Facilities") as follows: (i) $380 million, representing a 4-year term loan, to be used to fund the Transaction and replace Chemtrade's existing senior term credit facility, and (ii) $80 million revolving credit facility to replace Chemtrade's existing senior revolving credit facility, to fund a portion of the Transaction, and for general corporate purposes. Chemtrade anticipates that a portion of the Credit Facilities will be syndicated to other banks or financial institutions.

Distributions

Following closing of the Marsulex acquisition, Chemtrade intends to maintain its current annual distribution rate of $1.20 per unit. Approximately one third of this distribution amount is expected to qualify as a taxable Canadian dividend. Chemtrade does not expect that this transaction will give rise to any taxes under the Specified Investment Flow Through ("SIFT") rules which came into effect in 2011.

Advisors and Counsel

BMO Capital Markets and Scotia Capital Inc. are acting as financial advisors to Chemtrade. Osler, Hoskin & Harcourt LLP and Pepper Hamilton LLP are legal advisors to Chemtrade. BMO Capital Markets and Scotia Capital Inc. have each provided an opinion to the Chemtrade board of trustees that, subject to the assumptions, limitations, and qualifications set out therein, the Transaction Value is fair, from a financial point of view, to Chemtrade.

About Chemtrade

Chemtrade operates a diversified business providing industrial chemicals and services to customers in North America and around the world. Chemtrade is one of North America's largest suppliers of sulphuric acid, liquid sulphur dioxide and sodium hydrosulphite, and a leading processor of spent acid. Chemtrade is also a leading regional supplier of sulphur, sodium chlorate, phosphorous pentasulphide, and zinc oxide.

This news release contains certain statements which may constitute "forward-looking" statements within the meaning of certain securities laws, including the "safe harbour" provisions of the Securities Act (Ontario). The use of any of the words "anticipate", "continue", estimate", "expect", "expected", "intend", "may", "will", "project", "plan", "should", "believe" and similar expressions are intended to identify forward-looking statements. Forward-looking statements in this news release describe the expectations of Chemtrade as of the date of this news release. Our actual results could be materially different from our expectations if known or unknown risks affect our business, or if our estimates or assumptions turn out to be inaccurate. As a result, we cannot guarantee that any forward-looking statement will materialize. Forward-looking statements do not take into account the effect that transactions or non-recurring items announced or occurring after the statements are made may have on our business. We disclaim any intention or obligation to update any forward-looking statement even if new information becomes available, as a result of future events or for any other reason.

This news release contains forward-looking statements about the objectives, strategies, financial condition, results of operations and businesses of the Company, including, but not limited to: 

  • the ability of Chemtrade to finance the Transaction through the Credit Facilities and the Offering
  • the degree of similarity of the acquisition of Marsulex represents to Chemtrade's strategy and business model;
  • the ability to realize operating synergies, their quantum and by what means they are achieved;
  • the ability to benefit from growth in oil sands production;
  • whether the Marsulex board will unanimously recommend the Transaction to the Marsulex shareholders and the date of the Marsulex special meeting
  • the ability to close the Transaction and the Offering and the dates thereof;
  • the use to be made of the net proceeds of the Offering and of the Credit Facilities;
  • the ability to syndicate the Credit Facilities to other banks or financial institutions;
  • the ability to maintain Chemtrade's distribution rate and the amount thereof;
  • the ability of the distribution amount to qualify as a taxable Canadian dividend; and
  • the likelihood of this transaction giving rise to any taxes under SIFT.

Further information can be found in the disclosure documents filed by Chemtrade Logistics Income Fund with the securities regulatory authorities, available at www.sedar.com.

Conference Call and Webcast

Chemtrade will hold a conference call on Thursday, May 5, 2011 at 4:00 p.m. EST to review the acquisition. To access the conference call by telephone, dial (647) 427-7450 or 1-888- 231-8191. Please connect approximately 15 minutes prior to the beginning of the call to ensure participation. The conference call will be archived for replay until Thursday, May 12, 2011 at midnight. To access the archived conference call, dial 416-849-0833 or 1-800-642-1687 and enter the reservation number 65286651.

A live audio webcast of the conference call and slide presentation will be available at http://www.chemtradelogistics.com. Click on the link under Upcoming Events. The webcast will be archived for 30 days.

SOURCE Chemtrade Logistics Income Fund

For further information:

Mark Davis      Rohit Bhardwaj
President and CEO     Vice President Finance & CFO
Tel: (416) 496-4176     Tel: (416) 496-4177

 


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