Crane’s Offer Substantially Undervalues CIRCOR
and Its Future Prospects; Execution of Strategic Plan to Deliver
Significantly Greater Value in Near Term
Board Urges Shareholders Not to Tender Shares
into Crane’s Offer
CIRCOR International, Inc. (NYSE: CIR)
(“CIRCOR”) today announced that its Board of Directors (the
“Board”), after careful consideration with its independent
financial and legal advisors, unanimously rejected the unsolicited
tender offer (the “offer”) from Crane Co. (NYSE: CR) (“Crane”). The
Board unanimously recommends that shareholders not tender their
shares into the offer.
The Board noted that the offer price is unchanged from the
unsolicited proposal received from Crane on April 30, 2019, and
publicized on May 21, 2019. In reaching its recommendation that
shareholders reject the offer, the Board, in consultation with its
financial advisors, determined that the offer substantially
undervalues the company and is low-value, highly conditional and
opportunistic and not in the best interests of CIRCOR
shareholders.
The basis for the Board’s recommendation with respect to the
offer is set forth in CIRCOR’s Solicitation/Recommendation
Statement on Schedule 14D-9 filed today with the Securities and
Exchange Commission (“SEC”). The Board considered numerous factors,
including, but not limited to, the following:
- The offer is inadequate and substantially undervalues
CIRCOR. The Board believes that execution of the company’s
strategic plan will deliver significantly greater value in the
near-term and the long-term for the company’s shareholders.
- The company is executing a detailed plan to deliver substantial
earnings growth while deleveraging the company over the next 18
months.
- Delivering 2020 adjusted EBITDA of $165 million, up 37% over
pro forma 2018;
- Expanding adjusted EBITDA margin to 14.9% in 2020 from 10.8% in
pro forma 2018; and
- Reducing our net leverage ratio from 5.5x in pro forma 2018 to
approximately 3.5x in 2020.
- CIRCOR has strengthened and streamlined the business,
positioning itself for increased revenue and profitability
growth.
-
Between 2014 and 2018, the company has increased (as a
proportion of its total revenue) revenue from less cyclical,
diversified end markets from 44% to 83%, increased revenue from
differentiated products from 46% to 75%, and increased
higher-margin aftermarket revenue from 6% to 26%.
-
Since 2014, excluding acquisitions, the company decreased its
manufacturing footprint by 40%, reduced the number of suppliers by
55%, shrunk the number of business units by 45% and streamlined the
number of ERP systems by 45%.
- CIRCOR has taken significant actions to de-risk and
transform the business into a diversified global flow control
technology company.
-
The company has reduced its exposure to upstream oil & gas
(“O&G”) during an unprecedented downturn and taken aggressive
actions to reposition its Energy group through non-core
divestitures, exiting unprofitable businesses and additional
consolidation, simplification and restructuring.
-
The company has successfully turned around the Aerospace &
Defense (“A&D”) business by consolidating factories, exiting
negative margin businesses, integrating the Colfax Fluid Handling
Navy business, improving factory and supply chain performance,
expanding engineering and sales and increasing new product
launches.
-
The company has driven A&D adjusted EBITDA from $22 million
in 2014 to $40 million in 2018, an increase of eighty-two percent
(82%), and expanded adjusted EBITDA margin by over 630bps.
-
The company transformed its small industrial business into the
company’s largest group. It established the Industrial Group as
part of the Colfax Fluid Handling integration and in 2018 CIRCOR
increased the Industrial Group’s adjusted EBITDA by approximately
40%, and adjusted EBITDA margins by 350bps versus 2017 combined
results. The substantial increase in results was driven by
synergies, G&A reduction, value pricing and the implementation
of our CIRCOR Operating System.
- CIRCOR’s recent investments are expected to drive additional
future growth.
-
The company has transformed its portfolio by deploying capital
on accretive acquisitions. The recent acquisitions of Critical Flow
Solutions (a high technology business serving the downstream
O&G market) and Colfax Fluid Handling (a severe-service pump
technology business with diversified end markets and significant
aftermarket exposure) greatly improved the quality of the company’s
revenues and profitability. Both acquisitions are performing well,
exceeding initial synergy targets and delivering a strong ROIC.
-
The company has invested in organic growth by expanding sales
and engineering across the company while establishing a Product
Management function that did not exist five years ago. In 2019, the
company anticipates launching 35 new products. New products
launched are expected to generate approximately $70 million of
revenue in 20191.
- The offer is opportunistically timed.
-
The Board believes that the offer represents an opportunistic
attempt by Crane to acquire CIRCOR at a low share price, as the
company is poised to deliver substantial value associated with its
transformation, and, as a result, deprive any company shareholders
who tender their Shares of the potential opportunity to realize the
long-term value of their investment in the company.
-
Crane is attempting to justify its undervalued offer by making
inaccurate statements and focusing on the company’s past product
portfolio and the impact of headwinds in upstream O&G—failing
to recognize the recent transformation and opportunities for
near-term value creation.
- The Board has received an inadequacy opinion from each of
its financial advisors.
-
On June 20, 2019, each of J.P. Morgan and Evercore rendered an
oral opinion to the Board, which was subsequently confirmed in
writing, that, as of the date of such opinion, and based upon and
subject to the factors, assumptions, limitations and qualifications
set forth in its written opinion, the consideration proposed to be
paid to shareholders of CIRCOR (other than Crane and any of its
affiliates) pursuant to the offer was inadequate from a financial
point of view to such holders. The full text of the written
opinions of J.P. Morgan and Evercore, each dated June 20, 2019,
which set forth assumptions made, procedures followed, matters
considered and limitations on the review undertaken in connection
with the opinions, is attached to CIRCOR’s 14D-9 filing as Annexes
B and C, respectively. J.P. Morgan and Evercore each provided its
opinion to the Board (in its capacity as such) in connection with
and for purposes of its evaluation of the offer. The opinions of
J.P. Morgan and Evercore do not constitute a recommendation to the
Board or to any shareholder of CIRCOR in respect of the
transactions, including as to whether any person should tender
shares of CIRCOR in the offer or take any other action in respect
of the transactions.
- The conditions to the offer create significant uncertainty
and risk.
CIRCOR issued a separate press release today containing an open
letter to shareholders and has also provided an investor
presentation highlighting its path to significant value creation.
The shareholder letter, investor presentation and Schedule 14D-9
are available on the company’s website at
https://investors.circor.com.
Evercore and J.P. Morgan Securities LLC are serving as financial
advisors to CIRCOR. Ropes & Gray LLP is serving as legal
advisor to CIRCOR.
About CIRCOR
CIRCOR International, Inc. is a leading global flow control
technology company that designs, manufactures and markets
differentiated technology products and sub-systems for markets
including aerospace & defense, industrials and oil & gas.
CIRCOR has a diversified flow and motion control product portfolio
with recognized, market-leading brands that fulfill its customers’
mission critical needs. CIRCOR’s strategy is to grow organically
and through complementary acquisitions; simplify CIRCOR’s
operations; achieve world class operational excellence; and attract
and retain top talent.
CIRCOR routinely posts information that may be important to
investors in the “Investor Relations” section of its website at
www.circor.com. The Company encourages investors and potential
investors to consult the CIRCOR website regularly for important
information.
Use of Non-GAAP Financial Information
In this press release, the Company uses non-GAAP financial
measures, including Adjusted EBITDA, Adjusted EBITDA margin and net
debt. These non-GAAP financial measures are used by management in
our financial and operating decision making because we believe they
reflect our ongoing business and facilitate period-to-period
comparisons. We believe these non-GAAP financial measures provide
useful information to investors and others in understanding and
evaluating the Company’s current operating performance and future
prospects in the same manner as management does, if they so choose.
These non-GAAP financial measures also allow investors and others
to compare the Company’s current financial results with the
Company’s past financial results in a consistent manner.
CIRCOR’s management uses these non-GAAP measures, in addition to
GAAP financial measures, as the basis for measuring the Company’s
operating performance and comparing such performance to that of
prior periods and to the performance of our competitors. We use
such measures when publicly providing our business outlook,
assessing future earnings potential, evaluating potential
acquisitions and dispositions and in our financial and operating
decision-making process, including for compensation purposes.
Investors should recognize that these non-GAAP measures might
not be comparable to similarly titled measures of other companies.
These measures should be considered in addition and not as a
substitute for or superior to, any measure of performance, cash
flow or liquidity prepared in accordance with accounting principles
generally accepted in the United States. A reconciliation of the
non-GAAP financial measures to the most directly comparable GAAP
measures is included in this press release and available at
https://investors.circor.com.
We are not able to provide a reconciliation of CIRCOR’s non-GAAP
financial guidance to the corresponding GAAP measures without
unreasonable effort because of the inherent difficulty in
forecasting and quantifying certain amounts necessary for such a
reconciliation such as the costs associated with selling or exiting
non-core businesses as well as the tax impact of these
expenses.
We completed the acquisition of Colfax Corporation’s Fluid
Handling business in the fourth quarter of 2017. We present
adjusted combined information for the year ended December 31, 2017,
which presents the combined results of operations as if the
acquisitions had been completed on January 1, 2017. The unaudited
combined results do not reflect any cost saving synergies from
operating efficiencies or the effect of the incremental costs
incurred in integrating the two companies. Accordingly, these
unaudited combined results are presented for informational purposes
only and are not necessarily indicative of what the actual results
of operations of the combined company would have been if the
acquisition had occurred at the beginning of the period presented,
nor are they indicative of future results of operations.
During the first quarter of 2019, we completed the sale of the
Reliability Services business for net cash proceeds of $82 million.
We present adjusted pro forma income statement information for the
year ended December 31, 2018, which gives effect to the sale as if
it had occurred on January 1, 2018. We also present balance sheet
information (debtless cash) as if the divestiture was completed on
December 31, 2018. Such information is illustrative and not
intended to represent what our results of operations would have
been if the sale had been completed before the first quarter of
2019 or to project our results for any future period. Such
information may not be comparable to, or indicative of, future
performance.
Forward Looking Statements
This press release contains forward-looking statements. Reliance
should not be placed on forward-looking statements because they
involve risks, uncertainties and other factors, which are, in some
cases, beyond the control of CIRCOR. Any statements in this press
release that are not statements of historical fact are
forward-looking statements, including, but not limited to, those
relating to CIRCOR’s plan to deliver significant value over the
next 18 months, 2019 and 2020 financial guidance, divestitures
under consideration, plans to reduce leverage, our future
performance, including realization of cost reductions from
restructuring activities and expected synergies, and CIRCOR’s
strategic priorities. Actual events, performance or results could
differ materially from the anticipated events, performance or
results expressed or implied by such forward-looking statements.
Important factors that could cause actual results to vary from
expectations include, but are not limited to: our ability to
respond to competitive developments and to grow our business, both
domestically and internationally; changes in the cost, quality or
supply of raw materials; our ability to comply with our debt
obligations; our ability to successfully implement our acquisition,
divestiture or restructuring strategies, including our integration
of the Fluid Handling business; changes in industry standards,
trade policies or government regulations, both in the United States
and internationally; and our ability to operate our manufacturing
facilities at current or higher levels and respond to increases in
manufacturing costs. BEFORE MAKING ANY INVESTMENT DECISIONS
REGARDING CIRCOR, WE STRONGLY ADVISE YOU TO READ THE SECTION
ENTITLED “RISK FACTORS” IN OUR MOST RECENT ANNUAL REPORT ON FORM
10-K AND SUBSEQUENT REPORTS ON FORMS 10-Q, WHICH CAN BE ACCESSED
UNDER THE “INVESTORS” LINK OF OUR WEBSITE AT WWW.CIRCOR.COM. We
undertake no obligation to publicly update or revise any
forward-looking statement, whether as a result of new information,
future events or otherwise.
Important Information
CIRCOR has filed with the SEC a Solicitation/Recommendation
Statement on Schedule 14D-9. CIRCOR shareholders are advised to
read the company's Solicitation/Recommendation Statement on
Schedule 14D-9 because it contains important information.
Shareholders may obtain a free copy of the
Solicitation/Recommendation Statement on Schedule 14D-9, as well as
any other documents filed by CIRCOR in connection with the Offer,
free of charge at the SEC's website at www.sec.gov. In addition,
investors and security holders can obtain free copies of these
documents from CIRCOR by directing a request to CIRCOR
International, 30 Corporate Drive, Burlington, Massachusetts
01803-4238, Attention: investor relations, or by calling (781)
270-1200. Shareholders may also request copies of these documents
from MacKenzie Partners, Inc., which is assisting CIRCOR in this
matter, by calling 800-322-2885 Toll-Free or by email at
circor@mackenziepartners.com
1 New product revenue is revenue from products launched within
three years of current year
CIRCOR International
Supplemental Financial Information
$ millions
Reliability
Services
Revenue
2018
2018 PF (a)
Energy
451.3
65.6
385.7
Aerospace & Defense
237.1
-
237.1
Industrial
487.5
-
487.5
Total
1,175.8
65.6
1,110.2
Reconciliation of GAAP Operating Income to Adjusted Operating
Income and GAAP Operating Margin % to Adjusted Operating Margin
% % of Revenue
Reconciliation of GAAP Net Income to Adjusted EBITDA
% of Revenue GAAP Operating
Income
9.4
0.8%
GAAP Net Loss
(39.4)
-3.3%
Restructuring related inventory charges
2.4
0.2%
Provision for income taxes
3.3
0.3%
Amortization of inventory step-up
6.6
0.6%
Interest expense, net
52.9
4.5%
Restructuring charges, net
12.8
1.1%
Depreciation & Amortization
78.1
6.6%
Acquisition amortization
47.3
4.0%
Inventory restructuring charges
2.4
0.2%
Acquisition deprecation
7.0
0.6%
Amortization of inventory step-up
6.6
0.6%
Special charges
11.1
0.9%
Restructuring charges
12.8
1.1%
Adjusted Operating Income
96.6
8.2%
Special charges, net of recoveries
11.1
0.9%
Adjusted EBITDA
127.6
10.8%
Components of Adjusted Operating Income
Less Adj EBITDA of Reliability Services
Energy Segment Operating
Income
33.5
7.6
Aerospace & Defense Segment
Operating Income
36.0
Pro Forma Adjusted EBITDA
119.9
10.8%
Industrial Segment Operating Income
57.3
Corporate Expenses
(30.3)
Adjusted Operating Income
96.6
Reconciliation of Segment Operating Income
to Adjusted EBITDA Energy Aerospace & Defense
Industrial Corporate Total
Segment/Adjusted Operating Income
33.5
36.0
57.3
(30.3)
96.6
Remove:
Depreciation & Amortization expense included in Segment
Operating Income
8.5
4.5
9.6
1.2
23.7
Add: Other Income,
not included in Segment Operating Income
-
-
-
7.4
7.4
Adjusted EBITDA
42.0
40.5
66.9
(21.7)
127.8
Reliability Services segment operating income
6.6
-
-
-
6.6
Reliability Services
depreciation & amortization included in segment operating
income
1.0
-
-
-
1.0
Pro Forma Adjusted EBITDA
34.4
40.5
66.9
(21.7)
120.1
Reconciliation of Segment Operating Income % to Adjusted
EBITDA % of revenue Energy Aerospace &
Defense Industrial
Segment Operating Income %
7.4%
15.2%
11.8%
Depreciation & Amortization
1.9%
1.9%
2.0%
Adjusted
EBITDA %
9.3%
17.1%
13.7%
(a)
2018 Pro Forma amounts assume the sale of Reliability Services
occurred on January 1, 2018
CIRCOR International
Supplemental Financial
Information
$ millions
Reconciliation of
Gross Debt to Net Debt, Actual and Pro Forma
Year Ended
Net Proceeds Pro Forma Year Ended
Dec. 31,
2018 from Sale (a) Dec. 31, 2018
Debt Balances
Current
Portion
7.9
(7.9)
-
Long-term
799.2
(74.2)
725.1
Gross Debt
807.1
(82.0)
725.1
Less: Cash
(68.5)
-
(68.5)
Net Debt
738.6
(82.0)
656.6
Year Ended Dec. 31, 2018 EBITDA, divested
business (b) Pro Forma Year Ended Dec. 31, 2018
Adjusted EBITDA
127.8
(7.6)
120.1
Net Debt
Divided by Adjusted EBITDA
5.8
5.5
(a) Reduces debt by the amount of proceeds
from the sale of Reliability Services (b)
Removes the Adjusted EBITDA related to 2018 Reliability Services
CIRCOR
International
Supplemental Financial Information
$ millions
Fluid Handling 2017 Combined
Revenue
2017
Energy
339.6
64.7
404.3
Aerospace & Defense
183.0
45.9
228.9
Industrial
139.1
326.7
465.8
Total
661.7
437.3
1,099.0
Reconciliation of GAAP Operating Income to Adjusted Operating
Income and GAAP Operating Margin % to Adjusted Operating Margin
%
GAAP Operating Income
20.6
29.5
50.0
Amortization of inventory
step-up
4.3
-
4.3
Restructuring charges
(recoveries), net
6.1
-
6.1
Acquisition amortization
12.5
(13.0)
(0.5)
Acquisition deprecation
0.2
2.4
2.7
Special charges
8.0
8.0
Asbestos costs
-
8.9
8.9
Stay bonus
-
2.3
2.3
Adjusted Operating Income
51.7
30.0
70.6
Components of Adjusted Operating Income
Energy Segment
Operating Income
30.1
3.6
33.7
Aerospace & Defense Segment Operating
Income
23.4
7.0
30.4
Industrial Segment
Operating Income
19.9
19.5
39.4
Corporate Expenses
(21.7)
-
(21.7)
Adjusted Operating Income
51.7
30.0
81.7
Reconciliation of Industrial Segment Operating Income to
Adjusted EBITDA Industrial
Industrial segment operating income - reported
19.9
Industrial segment
operating income - Fluid Handling
19.5
Combined Segment Operating
Income
39.4
Depreciation & Amortization
8.3
Combined Adjusted EBITDA
47.7
CIRCOR International
Supplemental Financial Information
$ millions
Revenue
2014
Energy
534.5
Aerospace & Defense
206.7
Industrial
100.3
Total
841.4
Reconciliation of GAAP Operating Income to
Adjusted Operating Income and GAAP Operating Margin % to Adjusted
Operating Margin % % of Revenue
Reconciliation of GAAP Net Income to Adjusted
EBITDA % of Revenue GAAP
Operating Income
64.8
7.7%
GAAP Net Income
50.4
6.0%
Restructuring related inventory charges
8.0
0.9%
Provision for income taxes
12.9
1.5%
Restructuring charges, net
5.2
0.6%
Interest expense, net
2.7
0.3%
Impairment charges
0.7
0.1%
Depreciation & Amortization
19.6
2.3%
Special charges
7.5
0.9%
Inventory restructuring charges
8.0
0.9%
Adjusted Operating Income
86.2
10.2%
Impairment charges
0.7
0.1%
Special charges, net of recoveries
12.7
1.5%
Components of Adjusted Operating Income
Adjusted EBITDA
106.9
12.7%
Energy Segment Operating Income
76.6
Aerospace & Defense Segment
Operating Income
15.4
Industrial Segment Operating
Income
17.6
Corporate Expenses
(23.4)
Adjusted Operating Income
86.2
Reconciliation of Segment Operating Income
to Adjusted EBITDA Energy Aerospace & Defense
Industrial Corporate Total
Segment/Adjusted Operating Income
76.6
15.4
17.6
(23.4)
86.2
Remove:
Depreciation & Amortization expense included in Segment
Operating Income
8.5
6.9
3.0
1.1
19.5
Add: Other Income,
not included in Segment Operating Income
-
-
-
1.2
1.2
Adjusted EBITDA
85.1
22.3
20.7
(21.2)
106.9
Reconciliation of Segment Operating
Income % to Adjusted EBITDA % of revenue Energy
Aerospace & Defense Industrial
Segment Operating
Income %
14.3%
7.5%
17.6%
Depreciation & Amortization
1.6%
3.3%
3.0%
Adjusted
EBITDA %
15.9%
10.8%
20.6%
View source
version on businesswire.com: https://www.businesswire.com/news/home/20190624005306/en/
Investors David F. Mullen Senior Vice President Finance
CIRCOR International (781) 270-1200 MacKenzie Partners, Inc. Dan
Burch, (212)929-5784, dburch@mackenziepartners.com Paul Schulman,
(212) 929-5364, pschulman@mackenziepartners.com Larry Schimmel,
(212) 378-7068, lschimmel@mackenziepartners.com
Media Matthew Sherman / Andi Rose / Nick Lamplough Joele
Frank, Wilkinson Brimmer Katcher (212) 355-4449
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