A Fathers’ Day news release announces a definitive agreement for Rockwood Holdings, Inc. (NYSE:ROC) to sell CeramTec, its ceramics business (maker of hips and other medical devices, cutting tools and industrial products) for US$1.98bn to private equity firm, Cinven. The US$1.98bn in gross proceeds reflects an 11.3x multiple (0.8x higher than our estimate) of US$175m in 2012 EBITDA (20% of total). Management estimates that ~10% of the proceeds will cover taxes/other costs. the remainder will likely be used to retire US$911m in term debt and buy back US$600-800m of stock. The completion of the sale will likely occur in 3Q13, per management’s release.
The announced sale of CeramTec provides evidence that the firm is executing on its game plan to shed non-core assets (ceramics, TiO2 and additives) by 2014. While the bear case on Rockwood Holdings, Inc. (NYSE:ROC) mainly targets the inability of management to execute on its asset divestiture targets in a timely/value creating manner, today’s announcement could refute this view. Some analysts predict a high level of detail on a sale or spin of the TiO2/additives businesses in 3Q13, which could be the next major catalyst for ROC equity.
Rockwood Post CeramTec Sale
A look at Rockwood after CeramTec Sale and likely non-core business divestitures. Macquarie estimates that ROC could end 2013 with US$2.56-2.956bn in cash, following the sale of TiO2, Additives & Ceramics (they view a sale as more likely than a spin for Additives & TiO2), the pay-down of US$911m in term debt, and after finishing the ~US$311m remainder of its US$400m share repurchase plan. Management may then repurchase 40-to-50% of outstanding shares, while upholding a targeted 2x net debt/EBITDA ratio across a set of higher growth, higher avg. margin, and less cyclical businesses (Lithium & Surf. Treatment) with less ongoing capital needs. This is on top of keeping its avg. div. yield target of 3%, 2x the industry mean.
Rockwood Holdings, Inc. (NYSE:ROC) remains committed to exiting the TiO2 business while also creating value through potentially selling/separating from the Performance Additives segment. While mgmt would not comment on CeramTec the timing could be relatively soon. With regard to TiO2, having combined the asset with the Perf Additives segment mgmt appears to be using a dual track approach (with the possible exit being a sale or spin-off), which we believe makes sense with regard to targeting maximum shareholder value.