W. R. Grace announced today that it will split into two publicly traded, independent companies to simplify operating structures. One company, for now dubbed New Grace, will be comprised of catalysts technologies and materials technologies, excluding the Darex packaging business. New Grace is expected to have sales of $1.8 billion annually. The other company, called New GCP, will be made up of Grace’s construction products business and the Darex business. It is expected to have sales of $1.5 billion. Grace shares jumped 9%, to $99/share, in early morning trading on 5 February on news of the split.
The transaction is intended to be a tax-free spin-off to Grace shareholders, and is expected to be completed in approximately 12 months.
“Our board and management team continuously evaluate strategic options to create value and, after a comprehensive review, determined that this separation is in the best interest of the company and our shareholders,” says Fred Festa, Grace chairman and CEO. “The time is right to create two strong, independent companies that will benefit from improved strategic focus, simplified operating structures, and more efficient capital allocation.”
Upon completion of the transaction, New Grace will continue to be led by Festa, and Hudson La Force, senior v.p. and CFO.
Greg Poling, currently president and COO of Grace, will lead New GCP as president and CEO.
“Two strong, focused operating companies with industry-leading market and technology positions, strong free cash flow and high returns on invested capital will be created through this transaction,” Grace says. “Each company will be positioned to capture its distinct growth opportunities, focused on its unique customers, with more efficient capital allocation and the scale and cash flow needed for growth and value creation.”
Each company presents compelling growth and margin profiles, and simplified operating structures will improve management focus and allow improved cost productivity and optimized functional support, Grace says. Optimized capital structures will provide financial flexibility to pursue organic growth and M&A opportunities, it adds.
Grace, which in 2014 emerged from bankruptcy protection after 13 years, says New Grace will be a global leader in process catalysts and specialty silicas. “New Grace will be a high margin, technologically advanced business focused on growth, margin expansion and strong cash flow,” Grace says. “With its materials science expertise and complex manufacturing capabilities, New Grace will continue to deliver high-value, differentiated technologies to maintain its global leadership positions and drive additional growth and margin expansion. The business will remain differentiated by best in class manufacturing, technical sales and service and R&D.”
Grace also believes that New Grace will seek to make strategic bolt-on acquisitions in its core segments as well as acquisitions to expand its high margin, high-performance specialty chemicals and performance materials portfolio. The Company expects New Grace’s net leverage at the time of the spin-off to be between 2.0 times and 2.5 times Adjusted Ebitda.
Grace expects New GCP to continue to be a leader in cement and concrete chemicals, specialty building materials and can sealants and coatings with strong brands and positions. New GCP will aim to leverage its independent company platform and strong free cash flow to accelerate growth in its global construction products segments and to maintain its segment leadership positions in can sealants and coatings, Grace says. New GCP will have the financial flexibility to grow both organically and through acquisitions in its construction products business. Grace expects New GCP’s net leverage at the time of the spin-off to be between 3.0 times and 3.5 times adjusted Ebitda. Goldman Sachs is serving as financial advisor to Grace, and Wachtell, Lipton, Rosen & Katz is serving as legal counsel.
By Rebecca Coons