- Complementary Businesses to Create Greater Scale and Broaden
Product Mix
- Russel Metals to Realize $138
Million of Cash Proceeds and Retain a 50% Equity
Interest
TORONTO, April 14, 2021 /PRNewswire/ - Russel Metals
Inc. (TSX: RUS) announces that it has entered into an agreement
with Marubeni-Itochu Tubulars America Inc. ("MITI"), whereby Russel
Metals and MITI will combine their respective Canadian OCTG/line
pipe businesses. In conjunction with the combination, Russel Metals
will receive a substantial portion of its contributed net asset
value in cash proceeds, in addition to retaining a 50% equity
interest in the combined venture.
Currently, Russel Metals operates its Canadian OCTG/line pipe
business through its wholly owned subsidiary Triumph Tubular &
Supply Ltd. ("Triumph"), and MITI operates its Canadian OCTG/line
pipe business through its wholly owned subsidiary Hallmark Tubulars
Ltd. ("Hallmark"). The combined business of Triumph and Hallmark
will operate under a newly incorporated company, named TriMark
Tubulars Ltd. ("TriMark").
Over the past several years, the macro business conditions for
the OCTG/line pipe industry have changed substantially as a result
of a challenging energy market as well as the disintermediation of
distributors by certain direct-to-market manufacturers. As a
result, this combination will create a business that has the
necessary economies of scale, including a diverse product offering
and business platform to efficiently and effectively serve its
customers.
John Reid, President and CEO of
Russel Metals commented, "Over the past nine months, we have been
strategically focused on both rationalizing the operations and
reducing the capital deployed in our OCTG/line pipe businesses.
This transaction provides an opportunity to substantially
repatriate capital for deployment in other value enhancing
opportunities, but also retain an ongoing interest and participate
in the future success of the combined business. We would like to
thank the Triumph team for their tremendous efforts in
repositioning the business over the past year, and we look forward
to working with MITI on a shared vision for TriMark."
Transaction Overview
Russel Metals will
contribute net assets with a book value of approximately
$111 million, subject to adjustments,
primarily comprised of Triumph's inventories less its accounts
payables. As consideration, Russel Metals shall receive: (i) cash
of approximately $79 million, subject
to closing working capital adjustments; (ii) preferred shares with
a face value of $32 million and an
annual dividend rate of 7%; and (iii) a 50% equity interest in
TriMark. In addition, Russel Metals will retain Triumph's accounts
receivables which totaled $59 million
at March 31, 2021, which when
combined with the closing cash consideration of $79 million will result in a near term cash
realization of approximately $138
million. For the year ended December
31, 2020, Triumph generated revenues of $165 million and an operating loss of
$3 million. For the three years ended
December 31, 2020, Triumph generated
average annual revenues of $267
million and an average annual operating profit of
$10 million.
A $175 million committed bank
facility for TriMark has been obtained from a syndicate of banks,
jointly led by the Royal Bank of Canada and Bank of Montreal. The facility is a 3-year asset based
loan with typical borrowing base parameters and financial
covenants. The bank facility is non-recourse to Russel Metals and
MITI.
The transaction is subject to customary regulatory and closing
conditions and is expected to close in the second or third quarter
of 2021.
About Russel Metals
Russel Metals is one of the
largest metals distribution companies in North America. It carries on business in
three segments: metals service centers, energy products and steel
distributors. Its network of metals service centers carries an
extensive line of metal products in a wide range of sizes, shapes
and specifications, including carbon hot rolled and cold finished
steel, pipe and tubular products, stainless steel, aluminum and
other non-ferrous specialty metals. Its energy products operations
carry a specialized product line focused on the needs of energy
industry customers. Its steel distributors operations act as master
distributors selling steel in large volumes to other steel service
centers and large equipment manufacturers mainly on an "as is"
basis.
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calling our Investor Relations Line: 905-816-5178.
Cautionary Statement on Forward-Looking
Information
Certain statements contained in this press
release constitute forward-looking statements or information within
the meaning of applicable securities laws relating to, among other
things, the anticipated benefits of the transaction, the timing and
anticipated receipt of necessary approvals and satisfaction of
conditions to close the transaction and there can be no assurance
that the proposed transaction will occur, or that it will occur on
the exact terms contemplated in this press release
Forward-looking statements are often, but not always, identified by
the use of words such as "expect", "may", "will", "could", "might",
"should", "believe" and similar expressions. Forward-looking
statements are necessarily based on estimates and assumptions that,
while considered reasonable by us, inherently involve known and
unknown risks, uncertainties and other factors that may cause
actual results or events to differ materially from those
anticipated in such forward-looking statements.
While we believe that the expectations reflected in our
forward-looking statements are reasonable, no assurance can be
given that these expectations will prove to be correct, and our
forward-looking statements included in this press release should
not be unduly relied upon. These statements speak only as of the
date of this press release and, except as required by law, we do
not assume any obligation to update our forward-looking
statements.
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SOURCE Russel Metals Inc.