Ferro Corporation (NYSE: FOE, “Company”) announced today that it has signed a definitive agreement with the shareholders of Egypt-based tile coatings manufacturer Al Salomi for Frit and Glazes (“Al Salomi”) to acquire 100% of the equity of Al Salomi on a cash-free and debt-free basis, for approximately $39 million in cash, subject to working capital and other customary adjustments. The transaction will be funded with excess cash and a draw on the Company’s revolving credit facility. The transaction is expected to close within the next 60 days, subject to customary closing conditions.
Al Salomi is one of the leading manufacturers of frits and glazes in the Middle East and North Africa (“MENA”). Al Salomi’s 5,600-square meter plant, located in Suez, Egypt, is state-of-the-art, including continuous furnaces and computerized production lines and is expected to be one of Ferro’s lowest cost frit production sites. Current production capacity is 55,000 metric tons per year. An additional two lines, or 12,000 metric tons per year, of new tile coatings capacity is under construction and due to be operational by the end of 2015. The plant, which will be Ferro’s second frit production facility in Egypt, includes additional land and certain infrastructure assets to support expected growth.
Based on 2014 EBITDA, excluding expected synergies, the acquisition purchase price represents a transaction multiple of approximately 8.5. Including synergies and the commercial benefits associated with the two additional frit production lines now under construction, the transaction multiple would be approximately 5.7. The transaction is not expected to significantly impact Ferro’s 2015 earnings but is expected to be accretive to adjusted diluted earnings per share by $0.03 to $0.06 in 2016. Ferro expects the investment will achieve a return on invested capital of greater than 10% initially, and believes the return on invested capital will reach 15% once the capacity being added is fully utilized.