REG - Essentra plc - Sale of Filters and Completion of Packaging Sale

EssentraAnnouncement

03/10/2022 07:00

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RNS Number : 4578B  Essentra plc  03 October 2022

THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION. FOR IMMEDIATE RELEASE

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, IN, INTO OR
FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE
RELEVANT LAWS OF SUCH JURISDICTION

ESSENTRA PLC

A leading global provider of essential components and solutions

SALE OF FILTERS BUSINESS TO CENTAURY MANAGEMENT LIMITED

AND COMPLETION OF THE SALE OF PACKAGING BUSINESS TO MAYR-MELNHOF GROUP

 

·   Sale of the Filters business to a wholly owned subsidiary of Centaury
Management Limited for an enterprise value of approximately £262.1m,
including 100% consolidation of certain joint ventures(1), implying a June
2022 LTM adjusted operating profit multiple of 8.2x(2,3)

·   Consideration is comprised of approximately £200m initial
consideration due on completion (on a cash-free, debt-free basis and subject
to customary adjustments) and up to £20m deferred earn-out consideration(4)

·    The transaction is expected to complete no later than 31 January 2023.
A Class 1 circular and notice of General Meeting will be published in due
course

·   The Board intends to use the net transaction proceeds to make a small
contribution to its defined benefit pension schemes and prepay a portion of US
private placement debt

·    The sale of the Packaging business to Mayr-Melnhof completed on 1
October 2022

·   The Board intends to return approximately £150m to shareholders via a
special dividend after the Filters disposal has completed

·   After completion of the sale of the Filters business, Essentra will be
established as a pure play components business, with a healthy balance sheet,
providing flexibility to pursue organic and inorganic growth opportunities

 

In line with the previously announced strategic review, Essentra plc
("Essentra" or the "Company") today announces the disposal of Essentra Filter
Holdings Limited ("Filters" or the "Target") to Frank Acquisition Four Limited
(the "Purchaser"). The top holding company of Frank Acquisition Four Limited
is Centaury Management Limited, which is owned and controlled by the
investment office of the Markus family. The consideration is comprised of
approximately £200m initial consideration due on completion (on a cash-free,
debt-free basis and subject to customary adjustments as set out below) and up
to £20m deferred earn-out consideration following completion(4). The
transaction values the Filters business at an enterprise value of
approximately £262.1m, including 100% consolidation of certain joint
ventures(1).

 

The transaction is subject to conditions which are set out further below
including approval by Essentra's shareholders. The Class 1 circular and notice
of General Meeting will be published in due course. The transaction is
expected to complete no later than 31 January 2023.

 

The Board intends to use the proceeds to reduce Essentra's debt position by
offering to prepay a portion of US private placement ("USPP") notes issued
under its 2021 note purchase agreement(5) and to make a small contribution to
Essentra's defined benefit pension schemes. After the disposal of the Filters
business has completed, the Board intends to return approximately £150m of
the residual net transaction proceeds from the disposals of Filters and
Packaging to shareholders via a special dividend.

 

The transaction will further strengthen the Group's balance sheet and, after
accounting for the repayment of USPP debt and special dividend, the Board's
intention is for the Group to have a net financial leverage of approximately
0x. This will provide Essentra Components with the flexibility to pursue value
creating organic and inorganic opportunities, including future bolt-on
acquisitions.

 

The Components business continues to perform well, benefitting from its broad
geographic reach (Americas 30%; Europe and Rest of World 55%; Asia 15%). A Q3
trading statement will be released on 26 October 2022.

 

Commenting on today's announcement, Paul Forman, Chief Executive said:

 

"The strategic review of Filters was launched in October 2021 and has built on
the significant progress the division has made since 2017 when announcing its
strategy for future growth. The business is delivering on all of the strategic
"game changers" and has attractive long-term growth prospects. I am confident
that Filters will continue to make excellent progress under its new ownership.

 

The sale of Filters marks the final step of our journey to become a pure play
components business. Essentra has a bright future as a leading global
manufacturer and distributor of components with a clear strategy and
significant opportunities to accelerate growth and expand market share. This
transaction strengthens Essentra's balance sheet and enables the Group to
return a meaningful portion of the proceeds to shareholders whilst maintaining
the flexibility to invest in organic and inorganic growth."

 

 

 

 

 

Principal details of the transaction

On 2 October 2022, Essentra International Limited (the "Seller"), Essentra and
the Purchaser entered into a Sale and Purchase Agreement, pursuant to which
the Seller agreed, on the terms and subject to the conditions of the Sale and
Purchase Agreement, to sell Filters to the Purchaser.

The consideration payable by the Purchaser comprises approximately £200m
initial consideration, subject to adjustments after completion by way of a
customary completion accounts mechanic in relation to cash, debt and working
capital, and up to £20m deferred earn-out consideration payable in two
tranches of up to £10m for each of 2022 and 2023, respectively, as agreed
with the Purchaser in the Sale and Purchase Agreement. The customary
adjustments, which are expected to reduce the initial cash consideration by
approximately £35m, will include certain pension and other liabilities,
including approximately £16m of IFRS 16 lease liabilities, which will
transfer out of the Group.

The Seller has given certain warranties and indemnities to the Purchaser that
are customary for a transaction of this nature and size.

The transaction is conditional upon various conditions, including the
satisfaction (or waiver, where applicable) of the following:

·     Approval of a resolution approving the transaction by shareholders
at a General Meeting of Essentra

·     The completion (in all material respects) of a group reorganisation
to achieve the separation of Filters from the remainder of the Essentra group

·    There not being in force any applicable law that prohibits or renders
illegal the sale or purchase of shares

The Board expects that, subject to the satisfaction and/or waiver (where
applicable) of the conditions to the transaction, completion will occur no
later than 31 January 2023.

Essentra has agreed to pay a fee of £5.0m, if, in order to comply with its
fiduciary duties, the Board exercises its right to withdraw, suspend, qualify
or adversely modify or amend its recommendation in relation to the disposal,
except to the extent that such change of recommendation is caused by certain
breaches of the Purchaser's obligations under the Sale and Purchase Agreement,
or the Seller is otherwise entitled to terminate the Sale and Purchase
Agreement pursuant to its terms.

For the year ended 31 December 2021 Filters delivered adjusted operating
profit of £28.2m(2). The gross assets at 30 June 2022 were £249.7m(6).

 

 

Class 1 transaction

 

The transaction constitutes a Class 1 transaction under the Listing Rules.
Completion is therefore conditional upon the approval of Essentra's
shareholders and a circular will be sent to the Company's shareholders in due
course. Completion is also subject to customary closing conditions as set out
above.

 

Peel Hunt LLP is acting as sole sponsor to Essentra in regard to the sale of
the Filters business. Goldman Sachs International is acting as exclusive
financial advisor to Essentra in regard to the sale of the Filters business.
Lazard & Co., Limited is acting as independent financial adviser to the
Board of Essentra.

 

 

Completion of the sale of Packaging to Mayr-Melnhof Group

 

Further to the announcement on 24 June 2022, Essentra is pleased to confirm,
following receipt of regulatory approvals and shareholder approval, the
successful completion of the disposal of ESNT Packaging & Securing
Solutions Limited and Essentra Packaging US Inc and their respective
subsidiary companies ("Packaging") to Mayr-Melnhof Group ("MM") for £312
million on a cash free, debt free basis and subject to customary adjustments.
The transaction completed on 1 October 2022.

As previously communicated, the transaction excludes Packaging's business in
India (which represents less than 1% of Group revenues). The Company is
pleased to announce that this business has been sold to BBM Bommidala who will
be well placed to integrate the Bangalore site into their current portfolio.

 

 

Market Abuse Regulation statement

 

This announcement contains inside information.

 

The person responsible for arranging the release of this announcement on
behalf of the Company is Jon Green, Company Secretary of Essentra.

 

 Investor enquiries:                                Media enquiries:

 Essentra plc                                       Tulchan Communications LLP

 Jack Clarke, Chief Financial Officer               Olivia Peters

 Claire Goodman, Group Investor Relations Manager   Lisa Jarrett-Kerr

 Tel: +44 (0)1908 359100                            Tel: +44 (0)20 7353 4200

Notes

1.   The enterprise value of up to £262.1m is based on 100% consolidation of
certain joint venture entities (China Tobacco Essentra (Xiamen) Filters Co.,
Ltd and ITC Essentra Limited) (the "JVs"), which are accounted for as
subsidiaries of Essentra in its consolidated financial statements due to a
control achieved via board membership. Of this £262.1m enterprise value,
£42.1m relates to the Filters' business non-controlling interests in the JVs

2.    The term adjusted excludes the impact of amortisation of acquired
intangible assets and adjusting items

3.    Multiple of 8.2x based on an enterprise value of £262.1m and June
2022 LTM adjusted operating profit of £31.8m. Based on 100% share of the JV
and includes earn-out consideration of up to £20m

4.    Up to £20m deferred earn-out consideration (up to £10m achievable
for each of 2022 and 2023, respectively)

5.    2021 USPP repayments are on a pro rata basis at par and without
make-whole premium

6.    The value of gross assets excludes intercompany receivables and cash
which will be settled as part of the transaction

 

 

Cautionary forward-looking statement

This announcement contains forward-looking statements based on current
expectations and assumptions. Various known and unknown risks, uncertainties
and other factors may cause actual results to differ from any future results
or developments expressed or implied by the forward-looking statement. Each
forward-looking statement speaks only as of the date of this announcement. The
Company accepts no obligation to revise or publicly update these
forward-looking statements or adjust them to future events or developments,
whether as a result of new information, future events or otherwise, except to
the extent legally required.

The release, publication or distribution of this announcement in jurisdictions
other than the United Kingdom may be restricted by law and, therefore, any
persons who are subject to the laws of any jurisdiction other than the United
Kingdom should inform themselves about, and observe, any applicable
requirements. Any failure to comply with these requirements or restrictions
may constitute a violation of the securities laws or regulations of any such
jurisdiction. This announcement has been prepared for the purposes of
complying with English law and the UK Listing Rules and the information
disclosed may not be the same as that which would have been disclosed if this
announcement had been prepared in accordance with the laws and regulations of
any jurisdiction outside of England.

 

No offer or solicitation

This announcement does not constitute or form part of any offer or invitation
to purchase, otherwise acquire, subscribe for, sell, otherwise dispose of or
issue, or any solicitation of any offer to sell, otherwise dispose of, issue,
purchase, otherwise acquire or subscribe for, any security.

 

No profit forecasts or estimates

No statement in this announcement is intended as a profit forecast or estimate
for any period.

 

Important information relating to financial advisers for the Filters
transaction

Peel Hunt LLP ("Peel Hunt"), which is authorised and regulated in the United
Kingdom by the Financial Conduct Authority, is acting exclusively for Essentra
plc as sponsor and for no one else in connection with the transaction and will
not be responsible to anyone other than Essentra plc for providing the
protections afforded to clients of Peel Hunt or for providing advice in
relation to in this announcement. Apart from the responsibilities and
liabilities, if any, which may be imposed upon Peel Hunt by FSMA or the
regulatory regime established thereunder, Peel Hunt and its subsidiaries,
branches and affiliates, and such entities' respective directors, officers,
employees and agents do not accept any duty, responsibility or liability
whatsoever or make any representation or warranty, express or implied,
concerning the contents of this announcement, including its accuracy,
completeness or verification, or concerning any other statement made or
purported to be made by it, or on its behalf, in connection with Essentra plc
or the transaction, and nothing in this announcement is, or shall be relied
upon as, a promise or representation in this respect, whether as to the past
or future. Peel Hunt accordingly disclaims, to the fullest extent permitted by
law, all and any responsibility and liability whether arising in tort,
contract or otherwise (save as referred to above) which it might otherwise
have in respect of this announcement, or any such statement.

Goldman Sachs International ("Goldman Sachs"), which is authorised by the
Prudential Regulation Authority and regulated by the Financial Conduct
Authority and the Prudential Regulation Authority in the United Kingdom, is
acting exclusively as financial adviser to the Board of Essentra plc and no
one else in connection with the transaction and will not be responsible to
anyone other than the Board of Essentra plc for providing the protections
afforded to clients of Goldman Sachs nor for providing advice in relation to
the transaction or any other matters referred to in this announcement. Neither
Goldman Sachs nor any of its affiliates owes or accepts any duty, liability or
responsibility whatsoever (whether direct or indirect, whether in contract, in
tort, under statute or otherwise) to any person who is not a client of Goldman
Sachs in connection with the transaction, this announcement, any statement
contained herein or otherwise.

Lazard & Co., Limited ("Lazard"), which is authorised and regulated in the
United Kingdom by the Financial Conduct Authority, is acting exclusively as
financial adviser to the Board of Essentra plc and no one else in connection
with the transaction and will not be responsible to anyone other than the
Board of Essentra plc for providing the protections afforded to clients of
Lazard, nor for providing advice to any other person in relation to the
transaction or any other matters referred to in this announcement. Neither
Lazard nor any of its affiliates owes or accepts any duty, liability or
responsibility whatsoever (whether direct or indirect, whether in contract, in
tort, under statute or otherwise) to any person who is not a client of Lazard
in connection with this announcement, any statement contained herein or
otherwise.

 

Notes to Editors

About Essentra plc

Essentra plc is a FTSE 250 company and a leading global provider of essential
components and solutions. As a result of the completion of the sale of
Packaging to MM, the Group is now organised into two global divisions.
Essentra focuses on the light manufacture and distribution of high volume,
enabling components which serve customers in a wide variety of end-markets and
geographies.

Headquartered in the United Kingdom, Essentra's global network extends to 32
countries and includes over 4,500 employees, 25 principal manufacturing
facilities, 28 sales & distribution operations and two research &
development centres. For further information, please visit
www.essentraplc.com.

Essentra Components

Essentra Components is a global market leading manufacturer and distributor of
plastic injection moulded, vinyl dip moulded and metal items. Operating in 25
countries worldwide, 13 manufacturing facilities and 23 sales &
distribution centres serve more than 79,000 customers with a rapid supply of
low cost but essential products for a variety of applications in industries
such as equipment manufacturing, automotive, fabrication, electronics and
construction. The division also includes the Reid Supply business, which
provides a wide range of branded hardware supplies to a broad base of
industrial customers, largely located in the US Mid-West.

Essentra Filters

Essentra Filters is the only global independent cigarette filter supplier.
Currently headquartered in Singapore, the division has 12 sites across nine
countries, including two innovation centres, providing a flexible
infrastructure strategically positioned to serve the tobacco sector. The
business supplies a wide range of value-adding high-quality innovative
filters, packaging solutions to the roll your own segment and analytical
laboratory services for ingredient measurement to the industry: Essentra's
offering also includes Heat Not Burn and e-cigarette solutions to the rapidly
evolving market for Next Generation Products. The division also includes the
Tear Tapes business, which is globally recognised as the leading manufacturer
and supplier of pressure-sensitive tear tapes, that are largely used in the
tobacco, e-commerce, food and beverage and specialist packaging sectors.

 

 

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