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Speyside Equity to acquire SKW Metallurgie in a debt-for-equity swap

August 25, 2017
Chemical Value Chain

Private equity firm Speyside Equity (New York) plans to acquire the beleaguered German metallurgical chemicals company, SKW Metallurgie in a debt-for-equity swap.

The SKW managing board on Thursday announced a deal to implement a cornerstone agreement signed by Speyside at the end of July with a consortium of SKW’s bank lenders, which will lead to a financial restructuring of the heavily indebted company. SKW shareholders will be asked to approve the deal at the SKW annual general meeting on 10 October 2017.

Under the proposed deal, Speyside will acquire, at a discount, all of SKW’s €74 million ($87.4 million) outstanding bank loans, which mature on 31 January 2018. The size of the discount has not been disclosed, but SKW says the banks “have made significant concessions in a double-digit million euro range.” The AGM will then be asked to approve the restructuring contribution in the form of a capital reduction. This would make way for Speyside to carry out a debt-for-equity swap, which will see it cancelling €45 million of the debt as an equity contribution, leading to Speyside owning 95% of SKW’s share capital. Existing SKW shareholders will be excluded from participating in the proposed capital-raising.

Speyside has further announced that it intends to squeeze out the remaining 5% SKW shareholders and delist the company from the stock market shortly after these operations have been completed. It will also refinance the remaining SKW debt at a later stage.

“The outcome of the negotiations proves that Speyside Equity believes in the prospects and the strategic positioning of our company, which operationally has recovered but still suffers from an over-geared balance sheet. We appreciate Speyside Equity’s willingness to materially invest into SKW’s future, setting the course for its further sustainable development,” says Kay Michel, CEO of SKW Stahl-Metallurgie Holding AG. “With [these operations], the equity basis would be sustainably strengthened, the risk of insolvency eliminated and thus the strategic development of the company ensured,” he says.

Urging shareholders to approve the deal, SKW’s supervisory and managing boards say that the value imputed to SKW, and therefore the adequacy of the contribution in kind, will be supported by “an expert report from a renowned consulting firm,” which will be provided to shareholders. “A rejection of this restructuring measure poses the threat of total loss for the shareholders, because the continuation prognosis under insolvency law would be void and the company’s existence would be at threat,” they say. “This is a hard request … which is nevertheless without alternative. Only by these means can the future of the company be secured,” says supervisory board chairman Volker Stegmann.

The SKW boards say that alternative offers to Speyside’s were less attractive and did not provide “strategic opportunities.” One interested party was generally ready to make an offer that would under certain conditions support a cash capital increase with subscription rights for the shareholders. Nevertheless, this interested party could not find an agreement with the lenders. Furthermore, the management board and the supervisory board regarded the presented conditions as neither credible nor legally and economically justifiable. The Speyside proposal also offers “strategic potentials, especially in the key North American market.” It would allow the company “to enlarge its competitive position in the world market and to actively participate in the consolidation of the industry,” they say.

SKW Metallurgie is a global market leader in chemical additives for hot-metal desulfurization and for cored wire and other products for secondary metallurgy. The company is also a leading supplier of Quab specialty chemicals, which are mainly used in the production of industrial starch for the paper industry. Speyside, although primarily invested in North America, is also interested in expanding in Europe, where it owns Oxynova, a German producer of liquid dimethyl terephthalate, and still retains an interest in the enlarged United Initiators, formerly Degussa Initiators, which it acquired from Evonik in 2008.

By Natasha Alperowicz

Source: Chemical Week

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