CRDN Makes Accretive Acq of ESK, wow are these guys good.
Ceradyne, Inc. to Acquire ESK Ceramics in Major Move to Diversify, Sustain Growth
Thursday July 1, 7:30 am ET
COSTA MESA, Calif.--(BUSINESS WIRE)--July 1, 2004--Ceradyne, Inc. (Nasdaq:CRDN - News) announced today that it has signed a definitive agreement to acquire ESK Ceramics (ESK), a German-based industrial technical ceramic manufacturer, for approximately 111.4 million Euros, or approximately $136 million, in cash payable at closing. The purchase price will be financed using existing cash and debt from a new credit facility of $160 million to be provided by a syndicate of banks led by Wachovia Capital Markets, LLC. The acquisition is subject to certain closing conditions, is expected to be completed in the third quarter of 2004 and is projected to be immediately accretive to Ceradyne. The purchase price Ceradyne is paying represents approximately 7.9 x ESK's 2003 EBITDA (earnings before interest, taxes, depreciation and amortization). Note: All dollar to Euro conversions assume an exchange rate of $1.22 U.S. = 1 Euro.
ESK, which had 2003 sales of approximately $90 million, is being sold to Ceradyne by its parent, Wacker-Chemie, a German silicon and chemical manufacturer with 2003 group sales of approximately $3 billion. ESK was founded in 1922 to produce non-oxide powders and technical ceramics. The company, then known as Electroschmelzwerk Kempten AG (ESK), was acquired by Wacker-Chemie GmbH in 1933 and has been operating under the name Wacker Ceramics since 2001. Ceradyne intends to revert back to the original ESK name and the well-recognized "ESK" logo. The company's major product lines include its worldwide position as a prime supplier of boron carbide powder, which is the starting material for much of Ceradyne's lightweight ceramic armor that accounts for over 60% of Ceradyne's sales. ESK is considered a world leader in several industrial categories of advanced technical ceramics accounting for over 90% of its sales.
Joel Moskowitz, Ceradyne CEO, Chairman of the Board and a company founder commented, "We are very excited about acquiring a world-class leader in non-oxide advanced technical ceramics for industrial applications. Ceradyne has been working with Wacker Ceramics (then known as ESK) for over 33 years. In 1971, we began producing our first boron carbide ceramic armor using ESK's boron carbide powders.
"From a strategic perspective," said Moskowitz, "the compelling rationale for this acquisition follows:
a. Diversification: Of Ceradyne's 2003 sales of $101.5 million,
over 65% were defense related, with this year's projected
increased sales composed of over 67% defense related business.
In contrast, only about $2.3 million, or 2.6%, of ESK's 2003
sales of approximately $90 million came directly from defense
production. The acquisition of ESK will reduce our reliance on
military products from Ceradyne's projected 67% on a
stand-alone basis, to approximately 40% for the combined
companies. The combined companies will derive significant
revenues from the automotive industry, industrial abrasive
finishing, food packaging using ESK's ceramic evaporation
boats to produce metallic coated materials, aluminum and steel
melting ceramic components, and a large complement of ceramic
mechanical seals and bearings as well as Ceradyne's
traditional defense, orthodontic, diesel engine components and
industrial products.
b. Control of Key Raw Material Source for Armor: We believe that
Ceradyne's boron carbide lightweight ceramic armor is the
lightest, most ballistically effective armor system. Until
this acquisition, we were dependent on ESK as a supplier for
the raw material. Post-acquisition, Ceradyne will be assured
of a large, growing, reliable source of starting powders.
c. Global Presence: Ceradyne ships approximately 5% of its
products outside the U.S.A., while ESK ships approximately 20%
of its products to the U.S.A. The Ceradyne-ESK combined
company will result in a global company with marketing
opportunities for Ceradyne in Europe and the former ESK in the
U.S.A.; and for both companies, a more active presence in
Asia.
d. Technology & Manufacturing Synergy: We believe this
acquisition offers significant opportunities for technology
sharing and other production-related efficiencies that can
benefit Ceradyne from several perspectives. Both Ceradyne and
ESK produce non-oxide advanced technical ceramics primarily
for structural applications, and both have extensive hot
pressing and diamond machining capabilities. We believe that
important R&D and technology sharing synergies along with
certain production efficiencies may be realized following
completion of this acquisition, as we coordinate these
operations in the U.S.A. and Europe.
On the other hand, ESK produces hundreds of tons of powders
annually, while Ceradyne manufactures silicon nitride using
its proprietary sintered reaction bonded silicon nitride
(SRBSN) process.
While both companies are in similar markets for advanced
ceramics -- industrial, defense, automotive, commercial --
there is very little overlap of actual products. As a result,
this acquisition offers an opportunity to broaden our product
offerings in each major region and thereby realize not only
additional sales growth potential but also related production
efficiencies.
Mr. Moskowitz added, "It's been 37 years since the founding of Ceradyne (1967) and 82 years since the founding of Wacker Ceramics (1922). In pursuing generally different paths in advanced technical ceramics during those years, both companies have achieved success and are well positioned in their respective technological, product, and market niches. As a result, we view this acquisition as the largest, most significant growth opportunity Ceradyne has undertaken to date. I believe the resulting post-acquisition company will be a world-class competitor with a stronger, more balanced presence in our core markets -- industrial, defense, automotive/diesel, commercial -- with greater technological and product development expertise to meet the growing demands of a large, diversified, global customer base.
"We recognize and appreciate the challenges that an acquisition of this magnitude entails. In addition to the task of business, technology, management and marketing integration, there will be issues of culture, geography and language, which we recognize and will manage forthrightly.
"I will shortly announce anticipated changes in the Ceradyne management team reflecting the new organizational structure post-acquisition.
"The Ceradyne team that headed Ceradyne's negotiation was capably led by our Chief Financial Officer, Jerrold J. Pellizzon, who employed the services of our attorneys, Stradling Yocca Carlson & Rauth (USA), Hogan & Hartson Raue L.L.P. (Germany), accountants PricewaterhouseCoopers (USA, Germany), and Ceradyne financial advisor, Needham & Company, Inc."
Ceradyne develops, manufactures and markets advanced technical ceramic products and components for defense, industrial, automotive/diesel and commercial applications. Additional information about the Company can be found at www.ceradyne.com.
Conference Call and Webcast
The Company has scheduled a teleconference, accompanied by a Webcast PowerPoint presentation, today at 8:00 a.m. PDT (11:00 a.m. EDT) to discuss this announcement.
To participate in the call, please call 800-299-9630, or for international callers 617-786-2904, approximately 10 minutes prior to the start time and provide the call password, "Ceradyne." The slide presentation, as well as the teleconference audio, will be available at www.ceradyne.com under the Investor Relations link. You may also join the conference via the Internet at www.FullDisclosure.com. These web sites will host an archive of the call.
A replay of the audio portion of the call will be available beginning at 10:00 a.m. PDT |
