NEW YORK (News release) -- Mercer International Inc. (Nasdaq: MERC) ("Mercer", the "Company", "we", "our") announced that it has entered into an agreement to acquire all of the outstanding shares of the parent company of HIT for consideration of €270 million, inclusive of forecasted net working capital of approximately €43 million (the "Transaction").
HIT owns, among other things, 100% of a timber processing and value-add pallet production facility in Torgau, Germany (the "HIT Facility") and a wood processing facility in Dahlen, Germany that produces garden products.
The Transaction is subject to customary closing conditions, including receipt of requisite regulatory anti-trust approvals. The Transaction is expected to close in the third or early fourth quarter of 2022.
Sangra Moller LLP acted as legal advisor for Mercer.
Facility Highlights
The HIT Facility:
- is a modern, high performance, fully integrated wood processing facility and its production capabilities include wood pallets, lumber, biofuels (briquettes and pellets), garden products and bio-electricity;
- is the world's largest producer of EPAL pallets and Europe's largest single site pallet producer with an annual capacity of up to 17 million pallets;
- has the ability to process up to 410 MMfbm of lumber today, with various potential high return investment opportunities to expand capacity;
- includes five biomass-fueled power plants, with the ability to generate up to 15 MW of electricity;
- generates zero waste through utilizing 100% of raw materials consumed; and
- has an experienced workforce of approximately 700 full time employees.
Pallets
The European flat wooden pallet market traditionally focuses on block pallets. The largest share of the European wood pallet market are standard format block pallets, most of which are part of exchange and pooling systems. Within the German market, 80% of wood pallets are exchanged in open pooling systems, while 20% are exchanged in closed pooling systems.
The EPAL wood pallet open pool is a licensing system setting norms for pallets and standards for handling of the EPAL certified pallets. HIT is the largest EPAL open pool participant in the German and European region.
Operating Synergies
We believe the acquisition of HIT and the integration of its facilities with our existing operations can generate operating synergies of approximately $16 million per year, realizable within six to twelve months of ownership, primarily through procurement opportunities, optimization of logistics / fiber and other cost benefits. Further, we believe there is an opportunity to optimize the HIT Facility to align it with our existing Friesau sawmill and improve their combined ability to produce lumber for the U.S. and European lumber markets.
CEO Comments
Mr. Juan Carlos Bueno, Chief Executive Officer, stated: "This acquisition significantly increases our solid wood operations in Germany. It will allow us to capitalize on synergies with our German operations, including complementing our Friesau sawmill. Additionally, the acquisition will allow us to diversify our product mix with the introduction of pallets and biofuels."
Mr. Bueno continued: "This is a highly strategic transaction for us that leverages our core competencies and is in line with our long-term growth strategies. The Transaction creates a platform for immediate cash flow generation and earnings accretion. It is an important step in our long-term value-add strategy of growth in timber processing."
Mr. Bueno concluded: "The HIT Facility has solid operating platforms in place, which can be further enhanced through improved efficiencies and capital improvements. We are delighted to welcome the employees of HIT to the Mercer team and, consistent with all our operations, we look forward to integrating the HIT operations within our core values of health and safety, sustainability, integrity, innovation, performance excellence as well as diversity, equity and inclusion."
Purchase Price
The aggregate purchase price is €270 million (approx. $275.4 million), inclusive of forecasted net working capital of approximately €43 million (approx. $43.9 million). The Transaction is structured on a "cash free and debt free" basis.
We intend to satisfy payment of the purchase price using our existing cash on hand and/or our revolving credit facilities. In connection with the Transaction, we have a mandate with our current German bank agent for our existing €200 million Pan-German revolving credit facility to replace it with a new five-year facility with increased total availability of €300 million.
Mercer International Inc. is a global forest products company with operations in Germany, USA and Canada with a consolidated annual production capacity of 2.3 million tonnes of pulp, 550 million board feet of lumber, and 140 thousand cubic meters of cross-laminated timber. To obtain further information on the Company, please visit its website at www.mercerint.com.
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