Filed by Robbins & Myers, Inc. (File No.: 1-13651)
Pursuant to Rule 425 of the Securities Act of 1933, as amended, and
deemed filed pursuant to Rule 14a-12 of the Securities Exchange Act of 1934, as amended
Subject Company: T-3 Energy Services, Inc. (File No: 0-19580
)
Additional Information
In connection with the proposed merger, Robbins & Myers, Inc. (“R&M”) and T-3 Energy Services, Inc.
(“T-3”) intend to file documents relating to the merger with the SEC, including a registration
statement of R&M, which will include a joint proxy statement of R&M and T-3. INVESTORS AND SECURITY
HOLDERS ARE URGED TO CAREFULLY READ THE REGISTRATION STATEMENT AND THE RELATED JOINT PROXY
STATEMENT/PROSPECTUS AND ANY OTHER MATERIALS REGARDING THE PROPOSED MERGER WHEN THEY BECOME
AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION ABOUT R&M, T-3 AND THE PROPOSED MERGER.
Investors and security holders may obtain a free copy of the registration statement and the joint
proxy statement/prospectus (when they are available) and other documents containing information
about R&M and T-3, without charge, at the SEC’s web site at
www.sec.gov
. Copies of R&M’s
SEC filings also may be obtained for free by directing a request to Robbins & Myers, Inc., 51 Plum
Street, Suite 260, Dayton, Ohio 45440, +1-(937) 458-6600. Copies of T-3’s SEC filings also may be
obtained for free by directing a request to T-3 Energy Services, Inc., 7135 Ardmore, Houston, Texas
77054, +1-(713) 996-4110.
Participants in the Solicitation
R&M and T-3 and their respective directors and executive officers may be deemed to be participants
in the solicitation of proxies from their respective stockholders in respect of the proposed
merger. Information about these persons can be found in R&M’s Annual Report on Form 10-K for its
fiscal year ended August 31, 2009, as filed with the SEC on October 26, 2009, R&M’s proxy statement
relating to its 2010 Annual Meeting of Shareholders, as filed with the SEC on December 4, 2009,
T-3’s proxy statement relating to its 2010 Annual Meeting of Stockholders, as filed with the SEC on
April 30, 2010, and T-3’s Current Report on Form 8-K filed with the SEC on June 16, 2010. These
documents can be obtained free of charge from the sources indicated above. Additional information
about the special interests of these persons in the proposed merger will be included in the
registration statement and the joint proxy statement/prospectus to be filed with the SEC in
connection with the proposed merger.
Forward-Looking Statements
Statements set forth in this communication that are not historical facts, including statements
regarding future financial performance, future competitive positioning and business synergies,
future acquisition cost savings, future accretion to earnings per share, future market demand,
future benefits to shareholders, future economic and industry conditions, the proposed merger
(including its benefits, results, effects and timing), the attributes of T-3 as a subsidiary of R&M
and whether and when the transactions contemplated by the merger agreement will be consummated, are
forward-looking statements within the meaning of the federal securities laws. These forward-looking
statements are subject to numerous risks and uncertainties, many of which are beyond the companies’
control, which could cause actual benefits, results, effects and timing to differ materially from
the results predicted or implied by the statements. These risks and uncertainties include, but are
not limited to: the failure of the shareholders of R&M or the stockholders of T-3 to approve the merger; satisfaction of the conditions to the closing of the
merger (including the receipt of regulatory approvals; potential uncertainties regarding market
acceptance of the combined company; uncertainties as to the timing of the merger; competitive
responses to the proposed merger; costs and difficulties related to integration of T-3’s businesses
and operations; delays, costs and difficulties relating to the proposed merger; the inability to or
delay in obtaining cost savings and synergies from the merger; inability to retain key personnel;
changes in the demand for or price of oil and/or natural gas, which has been significantly impacted
by the worldwide recession and the worldwide financial and credit crisis; a significant decline in
capital expenditures; the ability to realize the benefits of restructuring programs; increases in
competition; changes in the availability and cost of raw materials; foreign exchange rate
fluctuations as well as economic or political instability in international markets and performance
in hyperinflationary environments, such as Venezuela; work stoppages related to union negotiations;
customer order cancellations; the possibility of product liability lawsuits that could harm our
businesses; events or circumstances which result in an impairment of, or valuation against, assets;
the potential impact of U.S. and foreign legislation, government regulations, and other
governmental action, including those relating to export and import of products and materials, and
changes in the interpretation and application of such laws and regulations; the outcome of audit,
compliance, administrative or investigatory reviews; proposed changes in U.S. tax law which could
impact our future tax expense and cash flow; decline in the market value of our pension plan
investment portfolios; and other important risk factors discussed more fully in R&M’s and T-3’s
reports on Form 10-K for the years ended August 31, 2009 and December 31, 2009, respectively; their
respective recent Quarterly Reports on Form 10-Q and Current Reports on Form 8-K; their joint proxy
statement/prospectus to be filed with the Securities and Exchange Commission (SEC); and other
reports filed by them from time to time with the SEC. Neither R&M nor T-3 undertakes any obligation
to revise or update publicly any forward-looking statements for any reason.
On October 6, 2010,
R&M hosted an analyst and investor
call. A recording of the call is available on the R&M
website. A transcript of the call is set forth below:
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
Thank you and good afternoon and welcome to the fiscal 2010 fourth quarter and year-end
financial update. I’m Peter Wallace, President and CEO of Robbins & Myers. Chris Hix, Chief
Financial Officer for the Company, is joining me on the call this afternoon. Also joining us on the
call today are Steve Krablin, Chairman and CEO of T-3 Energy Services, and Saeid Rahimian,
President of the Robbins & Myers Fluid Management Group. The presentation today will cover fiscal
2010 performance ending August 31, highlighting performance in the recently concluded fourth
quarter. We will provide commentary on the three platform business units and the primary end
markets and describe some of the key initiatives for the enterprise as we begin our fiscal 2011.
Following our recap of the fourth quarter and fiscal 2010 performance, we want to share some
details around the acquisition announced earlier today. This is an exciting time for all of us, so
let’s move into a business recap so we can allow time to discuss the key elements of the proposed
transaction and then take your questions. Again, your lines will be on mute until we conclude some
of our initial comments and then we’ll open the lines to take your individual questions.
As has become common practice I have to bring your attention to slide one. Slide one is our
cautionary statement that highlights some of the potential risks when investing in our Company. You
should understand this presentation will contain forward-looking statements. Actual events and
results may differ from those described in this presentation due to significant changes in capital
expenditures in our primary markets, which include chemical processing and pharmaceutical, major
changes in the price of oil and gas, changes in foreign currency exchange rates, and risks
associated with the proposed acquisition of T-3 and the transactions contemplated by the merger
agreement, and more.
We also refer to various non-GAAP measures such as EBIT as we feel they are helpful to investors in
assessing our ongoing performance. Please refer to this slide for additional information concerning
forward-looking statements and investment risk.
Because of the transaction I’ll just put out a few other caveats. So in addition, Robbins & Myers
and T-3 intend to file documents relating to the proposed merger with the SEC including a
registration statement of Robbins & Myers which include a joint proxy statement of Robbins & Myers
and T-3. Investors and security holders are urged to carefully read the registration statement and
the related joint proxy statement, prospectus and any other materials regarding the proposed merger
when they become available because they will contain important information about Robbins & Myers
and T-3 and the proposed merger. Investors and security holders may obtain a free copy of these
filings when they are available, and other documents containing information about Robbins & Myers
and T-3 without charge at the SEC’s website at www.SEC.gov, or from Robbins & Myers or T-3, as
indicated in slide one. Further, Robbins & Myers and T-3 and their respective directors and
executive officers may be deemed to be participants in the solicitation of proxies from their
respective stockholders in respect of the merger. Information about these persons can be found as
indicated on slide one. Additional information about the special interests of these persons and the
merger will also be included in the registration statement and the joint proxy statement prospectus
to be filed with the SEC in conjunction with the proposed merger.
Well, that’s a mouthful. Now that we have that behind us let’s go to slide two. We’re going to have
two parts to this presentation. The first section will describe our performance in the fourth
quarter, along with a summary of the full year performance and then we will transition to a
discussion around the acquisition.
Slide three highlights some of the key takeaways for our recently completed fiscal year. As we
predicted last year at this time, our performance ramped up from low beginning levels and steadily
improved as each quarter passed. With our planning and understanding of the markets last year, we
knew that we would need to manage costs and overall investment in working capital to compensate for
the slow start with orders and sales. As a result, we were able to contain the operating profit
flow through to 42%, in spite of a 9% reduction in sales. And as many of you know, that is
something that is not easy to do as a manufacturer with fixed overhead costs. Chris Hix and the
finance team work closely with the business managers to reduce working capital, contributing $38
million to our near record operating cash flow of $88 million.
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And while we were driving cost reductions and managing working capital, we continued to make
strategic investments in the core businesses. Our businesses recovered as the year unfolded, with
our product lines serving the energy sector coming back faster than those serving the other
markets. We experienced a sales increase across the business units as the year developed but we
feel a full recovery in the chemical and some of the industrial markets will be some time in the
future. We finished the year on a high note. All businesses had an increase in orders in the fourth
quarter, both sequentially and on a year-over-year basis. This allows us to start fiscal 2011
stronger than the past year. And we are really excited to talk to you about the T-3 acquisition. As
you will hear in a few minutes, this acquisition fully supports our stated strategic direction of
increasing sales of critical and differentiated products and services with strong, recurring
revenue through aftermarket sales and service. So we finished 2010 better than expected and we are
well positioned for growth in 2011.
Turning now to slide four. You will find summary charts for sales, EBIT margin percent, earnings
per share excluding special items, and cash from operating activities. We’ve just gone through one
of the worst recessions in history and as a later cycle company, we felt the impact well into our
fiscal 2009 and into part of 2010, especially for our businesses outside of the energy space. The
good news is that we have been able to maintain respectable profitability in spite of a decrease in
revenue, generating 9.2% in adjusted EBIT margin percent which is higher than in 2006 when we had
substantially higher sales levels. The other key part of the story is that we’ve continued to
generate strong cash from operating activities throughout the business cycle. $88 million in this
most recent year.
Now if you turn over to slide five, it’s a pretty good story here. We show the order progression
and backlog for the consolidated Company, the Fluid Management group, Process Solutions group, and
Romaco over the last two years. This page is a good picture that supports our earlier comments
about a later cycle recovery. The Fluid Management group orders rebounded first towards the end of
fiscal 2009 followed by Process Solutions group and then Romaco. You should note improving orders
for the consolidated Company for the last six quarters, leaving each of our platform business units
with higher backlog levels as we begin this new year.
Now turning on to slide six, you will see charts that we’ve used in the past that show oil and gas
commodity prices along with detail on directional, horizontal, and vertical rig count. Overall rig
count has moved up substantially, beginning around June 2009. As mentioned just a minute ago, we
began to experience an increase in orders during our fiscal fourth quarter in 2009 which ties to
the same time frame. As we have mentioned on earlier calls, we supply a critical component used on
many of the horizontal rigs and this is the rig segment that has really taken off, up well over
100% in the past year due to increased drilling in the shale fields for both oil and gas. So we
benefit with a higher total rig count, but more so than some other companies because of the
exposure to the horizontal drilling.
Slide seven now tells a story around our Process Solutions group business and to a lesser extent
some of the industrial product lines within the Fluid Management group. US chemical utilization,
which is generally a good barometer for investment, has moved up in the year but still remains at
levels that do not support major investments. This is what we’ve experienced in our business as
well, some smaller projects coming to life, but less assurance that we are into a full recovery for
this end market. Our feeling is that the European chemical industry is in similar shape so most of
the growth prospects continue to come from Asia and other developing markets.
Moving on to slide eight, we highlight some of the key takeaways for the fourth quarter. We had a
nice balance across all the businesses with quarterly orders increasing year-over-year and
sequentially for each business. Backlog of $175 million is the strongest we have seen in a long
time and supports our expectation for improving sales in fiscal 2011. Sales have lagged the order
increase but the fourth quarter sales are continuing to move upwards and were the highest recorded
in the last two years. During the quarter we were able to finalize labor negotiations with both
Chemineer and Dayton and the Process Solutions group operation in Rochester, New York. We were able
to tackle the sensitive issue of freezing the pensions and putting in place a 401(k) plan for
future benefits. Through the process, we were able to minimize disruption to our customers and
secure a better cost structure for the coming years. Those of you that have listened to earlier
updates realize we have been working to reduce our cost in European Process Solutions group
locations. We’ve been able to negotiate a plan with the Works Council to begin reducing headcount
this month, and you will note that we recorded a $2.8 million restructuring charge in the fourth
quarter for some of these changes. And we had another year-end push to reduce working capital,
ending the year with $149 million in cash and virtually no debt.
Turning on to slide nine, you can see the ramp up in sales, operating profit, earnings, and cash as
the year progressed. So you can see the quarterly improvement on a sequential basis and we also
point out the year-over-year improvement, a really nice finish to the year and with higher backlog
levels we are in good shape to begin this new year.
Slide 10 highlights some of the business segment performance and does a nice job showing how and
when the three different groups began the recovery. As mentioned earlier, the energy markets in
Fluid Management came back first for us, driven by acceleration in the horizontal rig count and a
general market recovery. Demand for our industrial markets, including wastewater, improved during
the year but to a lesser extent. Large chemical projects have not rebounded in many of our markets
but we did land a substantial order for mixing systems in Q4 for the Chinese market. Because of
very high inflation in Venezuela and currency exchange uncertainty we booked a $1 million charge in
the Fluid Management
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business in the fourth quarter, on top of the $1 million charge we took in the second quarter. We
now believe this issue is behind us and we are closely managing our investment levels to manage our
total exposure in this country. We’ve also increased our attention to product management in the
group and have made some management changes to build our capabilities in this critical area. All
in, Fluid Management continues to perform well with operating margins over 26.5% in the quarter.
The Process Solutions group has seen healthy end market demand in Asia yet the western markets have
yet to show any real strength. We are picking up more orders that have translated into higher sales
yet the average project sizes are smaller than in recent years. The labor contracts and
negotiations with the Works Council in Europe will help to improve our cost position and address
the difficult pricing environment in Europe. In addition, we have made further progress with our
standardization program that should translate into lower cost and greater flexibility in utilizing
our global capacity. The Process Solutions group ended the year with higher sales in the fourth
quarter and just above breakeven on an adjusted EBIT basis. The adjustment being the restructuring
charge in the quarter.
Romaco had a similar year to the prior few years, one that had sales start slow and consistently
ramp up to finish with much higher sales in the fourth quarter. Sales of approximately $38.5
million contributed to EBIT of $3 million or about 7.8% of sales.
Turning on to slide 11, trying to show here the global standardization program within Process
Solutions. We show a typical cutaway of a glass line reactor. In 2009, we launched a more
aggressive campaign to standardize our offering in the European markets and in the Americas. As
you’ll see, the reactor generally includes a drive system, a mixing or agitation system along with
flanges, inlets and other components. In the past our regional businesses designed their own
products, similar to each other but often different. The globalization program allows us to
streamline our engineering effort, promote our best features to customers around the world,
consolidate purchases and better utilize manufacturing capacity across the group. Our primary goal
for Process Solutions is to create a unified global business, and we have made progress over the
years, but there remains much more to be done. The project we have implemented in 2010 for the
Rochester facility is a good example of the group coming together. Original equipment product is
now sourced from sister plants that make the product to a more unified specification suitable to
the US customer base with the original equipment production now coming from both Brazil and the UK.
Moving on to slide 12, we identify the key areas of focus for Robbins & Myers. You will hear
details about the T-3 acquisition in a few minutes, but our primary objective is the successful
integration of this Company. We have laid a solid foundation with Lean Thinking throughout most of
the organization and now want to take this to the next level to capture savings and improve our
responsiveness to improve our competitive advantage. You heard me mention that we have introduced a
new product marketing program into the food management business, and we expect to use this to
develop sales and marketing programs, pricing analysis and strategies, after market programs, and
more. We have worked with strategy deployment tools for a couple years and will continue to refine
the program to assure we are addressing the most important issues or areas of opportunity to drive
our performance. In the past year we have developed some interesting new products, including higher
temperature down hole pumps for the energy sector, sterile liquid processing lines at Romaco, and
new gear drive assemblies for our mixture line. We now want to assure that we commercialize these
in a way to maximize the return from our investment. And as you have seen, the PSG is facing a
difficult competitive environment with initiatives underway that will address some of the cost
issues and we will continue to focus our efforts to find more permanent solutions to improve the
longer term profitability. You’ll see that we are doing a lot of things to drive profitable growth.
Slide 13 lays out some of our assumptions for this current fiscal year, along with our view as to
the earnings in fiscal 2011. Our assumption is that energy markets will remain strong and that
industrial markets will continue with a slower recovery. We expect chemical markets to show some
rather modest improvement, with most of the expansion plans taking place in Asia. Volume growth
will be the primary reason behind revenue growth with modest expectations for realized price
increases throughout the year. We will ramp up throughout the year as we convert orders into
shipments and we will capture savings from the recent restructuring programs. Capital spending will
increase to $15 million or so to support capacity expansion in certain areas including product
lines serving the energy sector. And our tax rate is expected to be in the mid 30s. With these
assumptions, we are providing our first view as to guidance for fiscal 2011, with an expectation of
$1.45 to $1.65 in diluted earnings per share excluding any special items. And along these lines
$0.25 to $0.35 in the first quarter. Note that this guidance does not incorporate any of the T-3
results.
Moving on to slide 14, we’ve got a slide that summarizes some of the key takeaways. Our business
improved as the year developed. We improved our operating capabilities as we responded to lower
sales in the beginning of the year. And we continue to progress the growth agenda by adding
resources and capabilities in the area of product management. And we enter fiscal 2011 with a
higher level of backlog and positive momentum from the fourth quarter.
That’s a quick recap for fiscal 2010 and what we’re going to do now is shift our attention to the
T-3 acquisition. So if we move over to slide 16, you’ll see the acquisition of T-3 adds to our
energy systems portfolio in the Fluid Management group, a business within Robbins & Myers that has
performed well throughout business cycles. You’ve heard us talk of the ideal transaction, one that
would allow us to expand our offering with
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differentiated products and services and one that will allow us to increase our after market sales
and service. T-3 fits the bill, and we will describe the strategic fit more in the next few slides.
This deal is attractive for both Robbins & Myers and T-3 shareholders, and with the deal structure
both sets of shareholders will continue to enjoy the upside potential with this business
combination. We expect this to be accretive to shareholders in the first year of ownership. And T-3
shareholders benefit with a 17% premium to the closing price of their stock yesterday and over a
24% premium to the 10 day average. We expect to achieve synergy savings and the combined business
will continue to have an unleveraged balance sheet. This is really an exciting time for
shareholders of both of our companies.
Moving on to slide 17, we’ve got some of the details on the transaction that I think you picked up
from the earlier press release. But basically, we’ve got a value coming to T-3 shareholders valued
as of yesterday at $31.80 to be comprised of both cash as well as portions of shares of Robbins &
Myers weighting to a 25/75 split cash versus equity. Following the transaction, T-3 shareholders
will own 27% of the combined company, Robbins & Myers will have 73%. The transaction value is
approximately $422 million. Again, we expect this to be accretive for Robbins & Myers estimating
approximately $0.10 per share in the first full year of ownership. Basically that’s translating the
synergy savings of $9 million that we expect to see in the first full year of ownership which would
be our fiscal year 2012. We expect to see the synergy savings coming from corporate overhead and
lower cost savings and it should be noted that these savings exclude some of the opportunities that
may become available from a different base of business as we go forward into the markets. We expect
this to close late in calendar 2010 but probably more realistically in the first part of 2011. This
is all predicated upon SEC and other government agencies providing their approval, along with
shareholder votes that are required of both Robbins and Myers and T-3 Energy Services. The existing
Robbins & Myers management and board members will continue to lead the combined Company.
So now moving into slide 18. I’d like to turn the call now over to T-3 Energy Services CEO Steve
Krablin to talk us through a little bit about his Company. Steve, over to you.
Steve Krablin
— T-3 Energy Services — CEO
Thanks, Pete. First, let me echo Pete’s comments concerning the combination. I agree this is a
good fit and strengthens each Company. T-3 developed from a regional service Company into an
internationally successful OEM supplier by providing superior design, service and delivery. Each of
our employees deserves credit and appreciation for what they’ve accomplished so far and we believe
there’s still opportunity to grow further. Our separate strategy recognized the need to increase
our international presence and to add other products and services in order to succeed. This
combination helps us achieve those needs under the umbrella of a strong Company. We anticipate this
combination, which combines strong brand names as well as excellent products and services, will
provide better value to shareholders, employees and customers.
As to T-3, we operate with three business units — Pressure Control, representing about 75% of our
revenues, Wellhead with about 20% of our revenues, and Pipeline Valve business accounting for the
rest. The Pressure Control business is mainly the manufacture and repair of blowout preventers and
related chokes, manifolds and other equipment. We believe we are the fourth largest provider of
this type of equipment and make generally the same sizes and pressure ratings as the three larger
providers. These products are sold primarily to drilling contractors and are purchased for both
land and offshore applications. We serve a global market with sales generally between 60/40 one way
or the other between sales to the US and to non-US locations.
Our Wellhead business is virtually all land based and historically has been only in the US. In the
last few quarters we’ve been expanding our international marketing efforts and see this as a growth
opportunity for our products. Our wellhead and valve products are generally sold to exploration and
production companies and we’ve been making good strides, high grading our business away from being
just a local repair and refurbishment Company to one supplying equipment and services to the larger
independent E&P companies. We’ve had particular success in Canada and in the North American shale
plays such as the Haynesville and the Marcellus. A new product within our wellhead group has good
potential for even further success. This product is our frac manifold which is particularly
applicable to pad drilling of horizontal wells in shale plays. These systems can sell for $5
million to $10 million depending on size. While we’ve only sold one of these systems so far, the
interest from other customers has been good due to the rapid payback that’s been demonstrated in
this application.
Our Pipeline Valve business sells and repairs valves used in any pipeline application, gathering
lines, transmission lines, even refinery applications. While our products are similar to those sold
by others, we distinguish ourselves with field service and our repair and refurbishment
capabilities. Our applications are generally land based in this business and also mostly in the
United States. Each of our businesses focuses on service and delivery as opposed to just product
sales. This is how we believe we differentiate ourselves from the competition.
Now looking at slide 19, this depicts many of the things that I’ve just described. The bottom graph
here depicting our growing installed base of new BOPs talks to our success transitioning from a
repair only business to a major provider of new blowout preventer equipment. We
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manufactured our first T-3 BOP in 2003 after many years of being only a repair shop. As the world
has seen over the last six months from news about the Gulf incident, BOPs are a critical safety
component in the drilling process. Customer acceptance of a new provider of this type of equipment
speaks volumes to our reputation as a service provider. We entered the market at a time when there
was plenty of capacity and we didn’t really compete on price. Rather we offered service, better
delivery and a willingness to solve customer problems, not just sell a product. By year-end 2010,
we will have delivered over 1,000 BOPs in our relatively short history.
On slide 20, you can see that during the period 2006 through 2008 we, like most in our industry,
saw a significant ramp up in business as the price of oil and gas increased dramatically. The
industry and the world economies then suffered in 2009 and into 2010. For us, this meant we had to
reduce our workforce and adjust our costs. In other words we had to run our businesses. The good
news is we held gross margins at good levels in spite of pricing pressures and now we’re seeing an
increase in our business orders, backlog, and revenues. These indicate stronger quarters throughout
2010 and what appears to be a strengthening business carrying into 2011. Certainly, new regulations
emanating from the Gulf incident that require BOP certifications, repairs, and likely additional
and different types of BOP equipment bode well for our business in this group as well.
With that let me turn it back to you, Pete.
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
Very good. Thanks, Steve. I’ll move on to slide 21 now. As you heard from Steve, this business
is very complementary to what we are doing in the energy sector. Slide 21 highlights some key
points for this transaction. We have very little overlap in our product lines. We have strong brand
names and are known for quality products and a responsible organization. And we create a more
global organization with opportunities to leverage our increased scale to grow even faster. We
share a common interest in customers, getting close to identifying new opportunities and emerging
trends, and we are both very active in the after market and support areas of the business. The
gross margins of both our energy segments in the mid 30s is a clear indicator of our
differentiation and this allows for strong operating profit. As we’ve come to know more about the
T-3 business model, we feel that our strategic direction is very much aligned.
As you can see now on slide 22, the T-3 product lines complement the Robbins & Myers Fluid
Management energy products. The Pressure Control products with blowout preventers, manifolds and
control systems complement our power section product line for drilling applications. We have down
hole pumps, tubing ware solutions and other API general oil field products that are now
complemented with the T-3 wellhead products to offer a more complete offering for the production
side of the energy segment. And our Yale and SENTRY pipeline closures are now complemented with T-3
pipeline valves in the energy transmission portion of the sector.
Slide 23, you can see another way to see how the product lines come together. In the drilling and
exploration segment, we will really broaden our involvement for both oil and gas drilling and will
continue to take advantage of the growth in niche segments such as the horizontal activity for
shale regions. Our current Robbins & Myers Fluid Management offering for drilling applications is
limited to hydraulic power sections and are concentrated in the land based drilling. T-3 brings a
new level of involvement in the drilling segment with BOPs, and all the controls that are
associated with this critical product line. T-3 has more exposure to the offshore market and will
add some balance to our current overweight position in the oil side of the market. The Wellhead
Products group is a nice complement to what we now do in the completion and production side of the
business. Newer T-3 products, such as the frac manifold Steve mentioned just a minute ago, deliver
profitable solutions to customers as they service multiple wells from a single pad with a lower
total cost. And as mentioned earlier, the pipeline valves add to our pipeline closure product line
to offer a broader offering for customers in the pipeline and transmission segment.
As you’ll see now on slide 24, there’s a lot of location for both companies. There’s a need to be
close to customers to support the business model and there are opportunities to leverage our
respective infrastructures in various regional markets. We see this as an opportunity to increase
sales and lower costs as we find ways to share and expand our international locations.
Now, on slide 25, you will see the current Robbins & Myers end market exposure, along with the
current original equipment and after market sales split. The addition of T-3 increases our exposure
in the oil and gas markets but this is a market we understand fairly well. One that we want to grow
as we become an even stronger niche player in a defined part of the market. T-3 began as a service
company and this is something we plan to leverage. We have stated that one of the goals across
Robbins & Myers is doing our share in after market and services and T-3 will be able to teach us a
few things in this area. We feel that our product mix will benefit from this transaction.
Going on to slide 26, it brings together some of the key points of the deal. We combined to
increase our size and our portfolio, allowing us to better serve one of our targeted end markets.
As the deal is structured we begin with no debt after closing the transaction. Synergies of $9
million
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have been identified in the near term comprised of a reduction in overhead costs, lower cost
sourcing of components, and other efficiencies. There should be opportunities to grow more rapidly
as we take advantage of an expanded footprint across the globe. With the transaction bringing
together complementary product lines, we expect the integration to be fairly straightforward. The
combined organization will have no debt and plenty of fire power to continue to execute the growth
plans for the future.
So, now on to slide 27, that brings everything together. Everything that we’ve been saying in a
very concise way. We’re bringing together two strong niche players that will be stronger as one
Company. Each has been rewarded with high margins in large part reflecting the high value and
solution capability we bring to our customers. The product lines fit. This is not a stretch and the
product lines truly complement one another. We want to increase our after market sales to offer
more stability to our business. We get that and more with this transaction as we can leverage our
respective experience in the support of products through their entire life cycle. We expect the
deal to be accretive in the near term and we will expect both sets of shareholders to benefit as
the businesses come together.
So, that wraps up the presentation. We’re now ready to field some of the questions from the
audience, Operator.
QUESTION AND ANSWER
Thank you. (Operator Instructions). Your first question comes from the line of Marshall Atkins
with Raymond James. You may proceed.
Marshall Atkins
— Raymond James — Analyst
Good morning, gentlemen. I apologize. I cover T-3 so a few of these introductory questions I
probably ought to know if I’d covered you all. What percent of your business are you getting from
competitors of T-3 like Cameron, NOV, et cetera?
Saeid Rahimian
— Robbins & Myers, Inc. — President of Fluid Management Group
Marshall, good afternoon. This is Saeid Rahimian. In terms of percentage of business we’re
getting from Cameron, it’s very very small, very small amount of business from Cameron. But
certainly, we continue to do business with NOV and the likes of NOV in the market from our drilling
system business. So in terms of the business currently with the wellhead again, a lot of that
business, Robbins & Myers wellhead business, is on the low pressure which is sold through the
distribution network, and certainly NOV is one of our larger distribution network in the US and
Canada.
Marshall Atkins
— Raymond James — Analyst
So, if we had to say a rough percentage, are we talking 5% or 20%?
Chris Hix
— Robbins & Myers, Inc. — CFO
This is Chris Hix. We don’t have any customer across Robbins & Myers that accounts for 5% or
more of the Company’s revenue.
Marshall Atkins
— Raymond James — Analyst
So, fairly small then?
Steve Krablin
— T-3 Energy Services — CEO
That would be correct, yes.
Marshall Atkins
— Raymond James — Analyst
6
Okay. Was there a breakup fee in this on either side?
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
There is a breakup fee. It goes two different ways. $12 million and $24 million depending on
which party takes the initiative there, so $24 million for Robbins & Myers to initiate a breakup
and $12 million for T-3.
Marshall Atkins
— Raymond James — Analyst
Okay, Steve, a couple quick ones for you and I’ll turn it over. Essentially you’re making a
bet here, Steve, and the shareholders of T-3 on Robbins & Myers. Walk me through your logic on why
you thought T-3 ought to go this way. And did any of this have to do with the OEM push we’re seeing
or likely to see from the offshore side?
Steve Krablin
— T-3 Energy Services — CEO
Marshall, I guess from T-3’s standpoint, we’ve said over the last couple of years that it’s
very difficult to be a small public company. And T-3 even though you’re a $300 million plus market
cap that’s still pretty small in today’s times. We knew we needed to grow the company or to do
something else with it. There have been a number of possibilities considered over the last few
years with T-3. We have had several discussions with Robbins & Myers and determined that that was a
great strategic fit. The combination of cash and stock, the stock piece allowing our stockholders
to continue with a well managed company that we believe has great products that fit with ours. So
all of that went into the determination that this was a excellent fit, that had a lot of value for
our stockholders, more than we could do on our own.
Marshall Atkins
— Raymond James — Analyst
And were you concerned at all about the OEM push that may or may not come going forward?
Steve Krablin
— T-3 Energy Services — CEO
No. I still think that we are a net winner based on everything that is coming out of that.
Marshall Atkins
— Raymond James — Analyst
Great. Thank you all.
Your next question comes from the line of Jeff Hammond with KeyBanc Capital. You may proceed.
Jeff Hammond
— Keybanc Capital Markets — Analyst
Hi, good afternoon guys. A few questions on the deal, just can you walk through the rationale
for the stock cash mix? Just given how strong your balance sheet is and all of the cash, why not
more? And given just debt is so cheap why not more of a cash component?
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
It was certainly considered by both parties and I’d say the end result is really the desire on
the T-3 shareholders and Board of Directors to go ahead and continue to benefit from some of the
upside as we go forward, hence the good portion of the equity piece. The other consideration that
7
went into the decision process was to make sure we had enough fire power to provide ample
opportunity to continue to grow beyond this acquisition.
Jeff Hammond
— Keybanc Capital Markets — Analyst
Okay. And then just on the synergies, it sounds like really all you’re counting on is taking
out public company costs and some redundant corporate and purchasing synergies. Where might you be
able to extract additional synergies as you dig a little bit deeper or where do you think the
bigger opportunities are on the sales synergy side?
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
A lot of those things people would intuitively think that when you see all of the dots on the
map that there may be opportunities to leverage up some of our respective areas that we operate
across the globe, and that might be one of the bigger areas of opportunity. Another one will
ideally be on the revenue side where we take a look at bringing groups together and leveraging some
of our capabilities in international markets and being able to take a broader basket of goods into
our customer base. Those would be probably the most logical ones. I’d say it’s early days with all
of this. As we all know with acquisitions, you get in and you’ll learn a lot more as you get in,
you understand the companies a little bit better. But everything that we’ve seen it seems to have a
pretty good model and something that matches up well with what we’re strategically trying to
accomplish here.
Jeff Hammond
— Keybanc Capital Markets — Analyst
And then just with the oil spill and BOP is going to be front and center, maybe Steve or you
guys can give your view on how that impacts that business on a short-term basis, how you think
about the opportunities longer term.
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
It’s certainly a key issue, and we gave it a lot of thought and went through a fair amount of
questioning ourselves as we went through the due diligence process. We come away convinced that
BOPs are a critical element. Some of the newer regulations or more recent regulations coming out
would support continued use of BOPs, more use of BOPs, more redundancies in place to provide more
safety to customers as we go forward. But with that as a preamble let me turn it over to Steve that
will have some more specifics here.
Steve Krablin
— T-3 Energy Services — CEO
Certainly, the Gulf incident caused a lot of paralysis in the industry for 60, 90 days. The
customers, the vendors, us being a vendor to them, didn’t really know how to respond to regulations
that weren’t formulated. And from that standpoint they are still just being formulated. While the
recent publications have made rules, have suggested rules be real rules, I don’t think we’re
through with that part either yet. I think there will be additional requirements for additional
cavities on subsea BOPs as well as on circuit BOPs, anything that’s offshore for sure, whether that
will extend onto land we’ll still determine. Certainly, the repair and the certification side of
the BOP business will increase and that’s a real opportunity for a company like T-3 because we have
engineering design packages for not only our own BOPs but for many of the competitors’ BOPs as well
because that’s how we started, was as a repair business. So all of this, it was a serious tragedy
that occurred but from our standpoint, it’s likely to result in net revenue gains, certainly as we
get into 2011 and beyond.
Jeff Hammond
— Keybanc Capital Markets — Analyst
Okay, thanks guys. I’ll get back in queue.
Your next question comes from the line of Brian Ulmer with Global Hunter. Please proceed.
8
Brian Ulmer
— Global Hunter — Analyst
Good afternoon. I had a couple of questions. Number one, I’m just trying to understand what
kind of manufacturing synergies you’re looking at and what happens with the T-3 manufacturing
facilities in Houston, as well as the engineering offices. And secondarily to that is how those
manufacturing shops that are below your margin levels, if you think you can enhance those so they
start to achieve the RVN margin levels.
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
Let me just first start by saying that the T-3 businesses have got a very solid brand name and
things of that sort. We continue to operate with T-3 brands and many of the facilities carrying on
as they are. Our intent is to go ahead and fold this in within our Fluid Management group and
combine some of the activities with our energy businesses. In doing so we would expect to be able
to leverage some of the engineering strengths and things of that sort as we go forward. As to
particular manufacturing changes, we’re not anticipating anything out of the gates. I’d say the
biggest opportunity will be really coming in and putting in some of the practices that we’ve
adapted over the last few years. A lot of these things would be along the lines of lean enterprise
management, putting in some other types of tools there to streamline the operations, and eliminate
some of the redundancies and some of the extra costs that might be currently in some of those
facilities. Sites, taking a look at some of the initial look at some of the operations. We’ve taken
a look at some of the footprint. Again it’s early days as we get into our whole thought process
here, but I’ll turn it over to Saeid just for some additional follow-up comments.
Saeid Rahimian
— Robbins & Myers, Inc. — President of Fluid Management Group
That’s correct, Pete. We’ve had an opportunity to visit a few of the other key sites at T-3
and from the manufacturing process it’s very different and what we do with the core business of
Fluid Management group. So as again Pete mentioned, most of the opportunities is going to come from
best practices and sharing what we do and what we think in terms of lean practices and some
continuous improvement. But other than that I think T-3 has got some very solid facilities and they
are very good in what they do.
Brian Ulmer
— Global Hunter — Analyst
Okay. And on a follow-up on that, do you still have the option at T-3 to purchase that land on
the south side? Whatever happened with that? That could be a way to pay for most of the synergies
with the improvement of your land value in South Houston.
Steve Krablin
— T-3 Energy Services — CEO
Brian, nothing has changed there from the last. We have won all of the processes. We are in
litigation on that, but we have won everything so far, but it hasn’t gone through all final appeals
yet but we’re still confident of our position there.
Brian Ulmer
— Global Hunter — Analyst
Okay, good deal. Thanks, Steve. Great 18 months with you.
Saeid Rahimian
— Robbins & Myers, Inc. — President of Fluid Management Group
Your next question comes from the line of Wendy Caplan with SunTrust. Please proceed.
Wendy Caplan
— Suntrust Robinson Humphrey — Analyst
Thank you. Good afternoon. Can you talk about your combined competitive position? I think I
heard you say that T-3 was number four in the market in terms of position. Obviously, this gives
you some scale. Can you talk about that, what this acquisition does for you in that regard?
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
9
As far as the individual product lines, Wendy, it really doesn’t do much as far as changing
our collective market share. The reality is that we have very little product overlap. The products
that we have would be more complementary in nature. Steve had mentioned some of these things with
the new frac manifolds that would be in some of the production side of the business. We’ve got
other products that are in the production side but generally we would be involved in more of the
oil side, lower pressure pump in Fluid Management control products versus the higher pressure
products that are provided by the T-3 group. So I really don’t see much of a change coming out
where you’re going to take a product line and go from number four to number two or anything like
that. I think the real opportunity will be as we get in and we start to ramp up and leverage some
of the engineering, purchasing and other management skills across the group to go ahead and just
bring best practices in and slowly inch our way up and become a much better, more viable competitor
as we go forward. I’d say one of the real key strengths, and I don’t know if it came through in
some of the prepared comments earlier, but what we found with T-3 is they really do get close to
the customers.
So, they may not be the biggest but they are really close, up front and intimate with their
customer base. And I think over time, many of the people that followed us found that’s really the
key to our success in our energy portion of the business. So, we can do quite well amongst a number
of other competitors that are much larger than us, just because of being a little bit more fleet, a
little quicker, a little bit more responsive and attentive to their changing needs. So, I think
that’s where the big opportunity will come on a growth side.
Wendy Caplan
— Suntrust Robinson Humphrey — Analyst
Okay. And strategically, Robbins & Myers will now be more than half energy related. I know
historically, before your time, Pete, there have been concerns about balancing the energy and the
industrial sides of the business. Can you talk about that from a strategic perspective whether
going forward you’re looking to balance the other way again or what this means for the Company
overall.
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
It’s a good question. In fact we just finished up a board meeting the last two days and we
generally get into strategy and what’s the overall portfolio and where we want to take the
business. You’re right. Over time the Company has made a decision that we did not want to be
over-weighted in any one end market segment. I’d say some of that has shifted over time. As you’ve
seen with the performance we’ve had through our Fluid Management business driven in large part by
the energy sector, we’ve had great performance year in, year out, even through the business cycle.
And no doubt you have cycles in these end markets like energy, but we’ve become more comfortable
with that. We understand the space that we operate. We think that we know it pretty well and we’ve
got good management and we think we are more comfortable taking a larger position in that.
Having said that we don’t think this is the end all for Robbins & Myers. We do have some additional
fire power. We would like to do some things. From my perspective I’d like to continue to grow out
the energy sector. I’d like to create that into $1 billion niche segment, if you will, still a
small player amongst giants in the industry. But at the same time I’d like to find ways to grow out
some of the other industrial sectors and find those key areas that are serving key infrastructure
needs and continue to ramp up some of our opportunities. So at our size we’ve been a little bit
opportunistic. This opportunity came across, it’s a great fit for us. It fits so many of the things
we’re looking for in our acquisitions that we felt it was imperative to make the move here and
we’ll start to rollout the rest of our strategic initiatives later on.
Wendy Caplan
— Suntrust Robinson Humphrey — Analyst
Okay, thank you. And one last question, if I might be so mundane and ask a question about the
quarter. Chris, could you talk about the working capital progress and what we should expect in a
stronger environment going forward in 2011?
Chris Hix
— Robbins & Myers, Inc. — CFO
Sure, Wendy. About a year ago, we had developed an initiative within the business to really
focus on improving the quality of our accounts receivable, reaching in and pulling in a lot of the
older receivables, getting those collected and getting those fish in the boat, so to speak. And we
had a really big push this year and I want to compliment the people in the field doing a tremendous
job working side by side with customer facing folks and internal finance folks and really making
tremendous progress there, getting our DSO down below 60 days and just fabulous performance. Some
of the best we’ve seen in years. Having said that, there’s still opportunities in working capital
as we roll forward. But to your point, we expect the business to be growing next year so even with
consistent working capital velocity performance, you’d expect to see working
10
capital not contribute to cash flow in the same magnitude that we had in 2010. So it was great
performance in ‘10 and we’ll keep our eye on the ball for ‘11, as well.
Wendy Caplan
— Suntrust Robinson Humphrey — Analyst
Thanks a lot.
Your next question comes from the line of Michael Worley with Janney Montgomery Scott. Please
proceed.
Michael Worley
— Janney Montgomery Scott — Analyst
Good afternoon guys. I just had a question about keeping the dry powder on the balance sheet
for future growth. Is this future growth more on the internal organic side or is it more on the M&A
that you’d like to keep that on the balance sheet?
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
For the most part, M&A. I think with our ongoing cash flow generation we can fund a lot of our
internal growth needs.
Michael Worley
— Janney Montgomery Scott — Analyst
And how would you explain how much management capacity you have to take on more M&A, not
necessarily in the next three to six months but in the next one to two years? How do you see that
playing out?
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
I think we’re developing our capacity. Over the last few years we’ve brought in some very good
talent, talent quite honestly that I think is capable of running a company much larger than we are
today as Robbins & Myers. And as we continue to bring the talent in we have to give them
opportunities and I think the growth will present good opportunities to continue to attract good
talent and let us continue on with the growth phase. So I think it all fits with the long term
strategy that we have.
Michael Worley
— Janney Montgomery Scott — Analyst
And then last of all, just wondering, because there isn’t a whole lot of overlap between the
two companies, how much management are you keeping on from T-3?
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
I’d say you bring up a good point. There should be very little overlap and therefore very few
redundancies. Obviously you’ll have some back office or some corporate public company cost
reductions that will be the majority of the synergy that’s been identified, but beyond that, we
really don’t see ourselves coming in and doing a lot of consolidation and things of that sort. The
plants are different. We have service shops versus many of our manufacturing facilities. We might
be close in proximity but it doesn’t mean that we necessarily want to close facilities. What we
want to do is be a little bit smarter with some of our IT and some of our controlled processes
throughout the organization. But for the most part we see these as really separate businesses that
are more complementary in the way that we take our products to market.
Michael Worley
— Janney Montgomery Scott — Analyst
Thanks a lot guys.
11
Your next question comes from the line of Charlie Brady with BMO Capital Markets. Please
proceed.
Charlie Brady
— BMO Capital Markets — Analyst
Thanks. Afternoon. Pete and Chris, can you just tell me how to understand the mathematics of
your $0.10 accretion number in the slide deck, to the extent that you can get into that
granularity? It seems to me on the surface that to get something like that, you’ve got to make a
substantial hair cut to an assumed operating margin on T-3 and they’re doing almost 10.5% operating
margin in their last quarter. Am I missing something in here?
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
There’s a lot of moving parts, as you can suspect, in going through these analysis, and
there’s obviously the synergies piece that we’ve had some discussion around. There’s the growth
that’s emerging in the T-3 business. You’ve got these amortization of intangible costs that layer
on top of that, and on and on.
Charlie Brady
— BMO Capital Markets — Analyst
That $0.10 does not include any of the costs from restructuring, from the Company, from the
deal, right? It’s exclusive of any kind of accounting and deal costs?
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
It certainly does include the ongoing amortization costs that you’d expect to see in this. It
would exclude all of the deal related costs and sometimes you get a one-time adjustment for
inventory, so that would be something else you’d take a look at. But for that ongoing amortization
cost, it is baked in.
Charlie Brady
— BMO Capital Markets — Analyst
Okay. Can you tell us what that assumption is?
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
I think we want to be careful. Like I said, there’s a lot of moving parts there. In general, I
think we would say we’ve got T-3’s growth in there. They’ve got good incremental margins on that.
We’ve got the purchase accounting stuff baked in there, and the synergies. We feel very confident
with the first full year of ownership we can get $0.10 of accretion or so.
Charlie Brady
— BMO Capital Markets — Analyst
Okay. And then just a question for the T-3 folks. On the regulations, the recent regulations
that have come out, and pardon my ignorance on the sector, but you guys have talked about the
amount of time required to overhaul a BOP in places like Canada and Saudi being about three years
and no such regulations in the US. Do these new regulations that have come out address that so that
you might get those figures closer to where they are outside the US?
Steve Krablin
— T-3 Energy Services — CEO
12
To this point, there’s been recommendations in the offshore regulations that would say that a
BOP should be broken down completely and totally refurbished to bring it back basically to new
standards every five years. That has been made as not a recommendation but a requirement. I’m not
sure that that’s the end of that though. There’s still part of that announcement that came out at
the end of September was the statements that there’s going to be additional regulations, there’s
going to be some public hearings on additional regulations. But I think it’s clear at this point
that it is at least as often as five years and that has not been applied to land yet, such as in
Canada where it’s every three years. So the five years in my mind now is a worst case scenario as
opposed to best case, and that still may change.
Charlie Brady
— BMO Capital Markets — Analyst
Great. Thanks. I’ll hop back in the queue.
Your next question comes from the line of Judy Delgado with Alpine Associates. Please proceed.
Judy Delgado
— Alpine Associates — Analyst
Yes, good afternoon gentlemen. Can you discuss or touch a little bit on how the deal came
about, maybe the process that led you to the valuation that we see today?
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
I’d say the process is basically we’ve been talking to T-3 for a number of years. Initial
contacts went back over five years or so, back when First Reserve held the assets. So we’ve known
the company and we’ve followed and tracked them and we’ve kept in contact. Steve Krablin and I came
in contact late last year and took up the conversations a little bit more seriously and continued
to push forward to come up and end up where we are. We obviously took a good hard look at the
valuations to make sure we’re doing something smart for our shareholders. It’s always difficult
when you’ve got a couple of moving parts with two different sets of shareholders and trying to make
something come together that’s right for everybody, but basically it happened and this is how it
came about.
Judy Delgado
— Alpine Associates — Analyst
Okay. And just to touch base on something you mentioned earlier in the call about the
termination fees. It appears there are two separate termination fees. Could you touch on that a
little bit?
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
I’m going to have to pull out and see what we’ve got in here.
Judy Delgado
— Alpine Associates — Analyst
I believe for one side, it’s $12 million.
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
Yes, what we have there is just basically factoring and rationing some things. We’ve tried to
consider and factor in the different sides of the market caps of the companies coming together. Not
an exact science but that’s how we came up with two different numbers.
Judy Delgado
— Alpine Associates — Analyst
13
And under what circumstances would Robbins & Myers have to use that termination fee?
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
You’ll find a lot of the details. We’re actually going to post the merger agreement soon after
this call and I think rather than getting into all of the details anybody on the call can go ahead
and dig into that. It will be filed with the SEC on an 8-K and I think that will be the easiest way
to address that.
Judy Delgado
— Alpine Associates — Analyst
Okay, thank you. Most of our questions have been answered and we’ll hop back in the queue.
Ladies and gentlemen, that’s all the time we have for questions today. I would like to turn
the call over to Mr. Peter Wallace for any closing remarks.
Peter Wallace
— Robbins & Myers, Inc. — President and CEO
Thank you, and we appreciate everybody on the call and we appreciate all your interest for the
questions. And we look forward to updating you as to the progress as we work through the various
government regulations and approvals. So thanks much. Goodbye.
Thank you for joining today’s conference. That concludes the presentation. You may now
disconnect and have a great day.
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