CIRCOR Board of Directors Unanimously Rejects Crane’s Unsolicited, Low-Value, Highly Conditional and Opportunistic Tender Offer
Crane’s Offer Substantially Undervalues CIRCOR and Its Future Prospects; Execution of Strategic Plan to Deliver Significantly Greater Value in Near Term
Board Urges Shareholders Not to Tender Shares into Crane’s Offer
The Board noted that the offer price is unchanged from the unsolicited proposal received from Crane on
The basis for the Board’s recommendation with respect to the offer is set forth in CIRCOR’s Solicitation/Recommendation Statement on Schedule 14D-9 filed today with the
- The offer is inadequate and substantially undervalues
CIRCOR . The Board believes that execution of the company’s strategic plan will deliver significantly greater value in the near-term and the long-term for the company’s shareholders.- The company is executing a detailed plan to deliver substantial earnings growth while deleveraging the company over the next 18 months.
- Delivering 2020 adjusted EBITDA of
$165 million , up 37% over pro forma 2018; - Expanding adjusted EBITDA margin to 14.9% in 2020 from 10.8% in pro forma 2018; and
- Reducing our net leverage ratio from 5.5x in pro forma 2018 to approximately 3.5x in 2020.
- Delivering 2020 adjusted EBITDA of
- The company is executing a detailed plan to deliver substantial earnings growth while deleveraging the company over the next 18 months.
CIRCOR has strengthened and streamlined the business, positioning itself for increased revenue and profitability growth.-
Between 2014 and 2018, the company has increased (as a proportion of its total revenue) revenue from less cyclical, diversified end markets from 44% to 83%, increased revenue from differentiated products from 46% to 75%, and increased higher-margin aftermarket revenue from 6% to 26%.
-
Since 2014, excluding acquisitions, the company decreased its manufacturing footprint by 40%, reduced the number of suppliers by 55%, shrunk the number of business units by 45% and streamlined the number of ERP systems by 45%.
-
CIRCOR has taken significant actions to de-risk and transform the business into a diversified global flow control technology company.-
The company has reduced its exposure to upstream oil & gas (“O&G”) during an unprecedented downturn and taken aggressive actions to reposition its Energy group through non-core divestitures, exiting unprofitable businesses and additional consolidation, simplification and restructuring.
-
The company has successfully turned around the Aerospace & Defense (“A&D”) business by consolidating factories, exiting negative margin businesses, integrating the Colfax Fluid Handling Navy business, improving factory and supply chain performance, expanding engineering and sales and increasing new product launches.
-
The company has driven A&D adjusted EBITDA from
$22 million in 2014 to$40 million in 2018, an increase of eighty-two percent (82%), and expanded adjusted EBITDA margin by over 630bps. -
The company transformed its small industrial business into the company’s largest group. It established the
Industrial Group as part of the Colfax Fluid Handling integration and in 2018CIRCOR increased the Industrial Group’s adjusted EBITDA by approximately 40%, and adjusted EBITDA margins by 350bps versus 2017 combined results. The substantial increase in results was driven by synergies, G&A reduction, value pricing and the implementation of our CIRCOR Operating System.
-
- CIRCOR’s recent investments are expected to drive additional future growth.
-
The company has transformed its portfolio by deploying capital on accretive acquisitions. The recent acquisitions of Critical Flow Solutions (a high technology business serving the downstream O&G market) and Colfax Fluid Handling (a severe-service pump technology business with diversified end markets and significant aftermarket exposure) greatly improved the quality of the company’s revenues and profitability. Both acquisitions are performing well, exceeding initial synergy targets and delivering a strong ROIC.
-
The company has invested in organic growth by expanding sales and engineering across the company while establishing a Product Management function that did not exist five years ago. In 2019, the company anticipates launching 35 new products. New products launched are expected to generate approximately
$70 million of revenue in 20191.
-
- The offer is opportunistically timed.
-
The Board believes that the offer represents an opportunistic attempt by Crane to acquire
CIRCOR at a low share price, as the company is poised to deliver substantial value associated with its transformation, and, as a result, deprive any company shareholders who tender their Shares of the potential opportunity to realize the long-term value of their investment in the company. -
Crane is attempting to justify its undervalued offer by making inaccurate statements and focusing on the company’s past product portfolio and the impact of headwinds in upstream O&G—failing to recognize the recent transformation and opportunities for near-term value creation.
-
- The Board has received an inadequacy opinion from each of its financial advisors.
-
On
June 20, 2019 , each of J.P. Morgan andEvercore rendered an oral opinion to the Board, which was subsequently confirmed in writing, that, as of the date of such opinion, and based upon and subject to the factors, assumptions, limitations and qualifications set forth in its written opinion, the consideration proposed to be paid to shareholders ofCIRCOR (other than Crane and any of its affiliates) pursuant to the offer was inadequate from a financial point of view to such holders. The full text of the written opinions of J.P. Morgan andEvercore , each datedJune 20, 2019 , which set forth assumptions made, procedures followed, matters considered and limitations on the review undertaken in connection with the opinions, is attached to CIRCOR’s 14D-9 filing as Annexes B and C, respectively. J.P. Morgan andEvercore each provided its opinion to the Board (in its capacity as such) in connection with and for purposes of its evaluation of the offer. The opinions of J.P. Morgan andEvercore do not constitute a recommendation to the Board or to any shareholder ofCIRCOR in respect of the transactions, including as to whether any person should tender shares ofCIRCOR in the offer or take any other action in respect of the transactions.
-
- The conditions to the offer create significant uncertainty and risk.
-
The offer contains numerous conditions, including certain conditions providing Crane broad discretion to decide not to purchase shares that are tendered.
-
About
Use of Non-GAAP Financial Information
In this press release, the Company uses non-GAAP financial measures, including Adjusted EBITDA, Adjusted EBITDA margin and net debt. These non-GAAP financial measures are used by management in our financial and operating decision making because we believe they reflect our ongoing business and facilitate period-to-period comparisons. We believe these non-GAAP financial measures provide useful information to investors and others in understanding and evaluating the Company’s current operating performance and future prospects in the same manner as management does, if they so choose. These non-GAAP financial measures also allow investors and others to compare the Company’s current financial results with the Company’s past financial results in a consistent manner.
CIRCOR’s management uses these non-GAAP measures, in addition to GAAP financial measures, as the basis for measuring the Company’s operating performance and comparing such performance to that of prior periods and to the performance of our competitors. We use such measures when publicly providing our business outlook, assessing future earnings potential, evaluating potential acquisitions and dispositions and in our financial and operating decision-making process, including for compensation purposes.
Investors should recognize that these non-GAAP measures might not be comparable to similarly titled measures of other companies. These measures should be considered in addition and not as a substitute for or superior to, any measure of performance, cash flow or liquidity prepared in accordance with accounting principles generally accepted in
We are not able to provide a reconciliation of CIRCOR’s non-GAAP financial guidance to the corresponding GAAP measures without unreasonable effort because of the inherent difficulty in forecasting and quantifying certain amounts necessary for such a reconciliation such as the costs associated with selling or exiting non-core businesses as well as the tax impact of these expenses.
We completed the acquisition of Colfax Corporation’s Fluid Handling business in the fourth quarter of 2017. We present adjusted combined information for the year ended
During the first quarter of 2019, we completed the sale of the Reliability Services business for net cash proceeds of
Forward Looking Statements
This press release contains forward-looking statements. Reliance should not be placed on forward-looking statements because they involve risks, uncertainties and other factors, which are, in some cases, beyond the control of
Important Information
1 New product revenue is revenue from products launched within three years of current year
CIRCOR International | ||||||||||||||||
Supplemental Financial Information | ||||||||||||||||
$ millions | ||||||||||||||||
Reliability Services | ||||||||||||||||
Revenue |
2018 |
2018 PF (a) | ||||||||||||||
Energy |
451.3 |
65.6 |
385.7 |
|||||||||||||
Aerospace & Defense |
237.1 |
- |
237.1 |
|||||||||||||
Industrial |
487.5 |
- |
487.5 |
|||||||||||||
Total |
1,175.8 |
65.6 |
1,110.2 |
|||||||||||||
Reconciliation of GAAP Operating Income to Adjusted Operating Income and GAAP Operating Margin % to Adjusted Operating Margin % | % of Revenue | Reconciliation of GAAP Net Income to Adjusted EBITDA | % of Revenue | |||||||||||||
GAAP Operating Income |
9.4 |
0.8% |
GAAP Net Loss |
(39.4) |
-3.3% |
|||||||||||
Restructuring related inventory charges |
2.4 |
0.2% |
Provision for income taxes |
3.3 |
0.3% |
|||||||||||
Amortization of inventory step-up |
6.6 |
0.6% |
Interest expense, net |
52.9 |
4.5% |
|||||||||||
Restructuring charges, net |
12.8 |
1.1% |
Depreciation & Amortization |
78.1 |
6.6% |
|||||||||||
Acquisition amortization |
47.3 |
4.0% |
Inventory restructuring charges |
2.4 |
0.2% |
|||||||||||
Acquisition deprecation |
7.0 |
0.6% |
Amortization of inventory step-up |
6.6 |
0.6% |
|||||||||||
Special charges |
11.1 |
0.9% |
Restructuring charges |
12.8 |
1.1% |
|||||||||||
Adjusted Operating Income |
96.6 |
8.2% |
Special charges, net of recoveries |
11.1 |
0.9% |
|||||||||||
Adjusted EBITDA |
127.8 |
10.9% |
||||||||||||||
Components of Adjusted Operating Income | Less Adj EBITDA of Reliability Services | |||||||||||||||
Energy Segment Operating Income |
33.5 |
7.6 |
||||||||||||||
Aerospace & Defense Segment Operating Income |
36.0 |
Pro Forma Adjusted EBITDA |
120.1 |
10.8% |
||||||||||||
Industrial Segment Operating Income |
57.3 |
|||||||||||||||
Corporate Expenses |
(30.3) |
|||||||||||||||
Adjusted Operating Income |
96.6 |
|||||||||||||||
Reconciliation of Segment Operating Income to Adjusted EBITDA | Energy | Aerospace & Defense | Industrial | Corporate | Total | |||||||||||
Segment/Adjusted Operating Income |
33.5 |
36.0 |
57.3 |
(30.3) |
96.6 |
|||||||||||
Remove: Depreciation & Amortization expense included in Segment Operating Income |
8.5 |
4.5 |
9.6 |
1.2 |
23.7 |
|||||||||||
Add: Other Income, not included in Segment Operating Income |
- |
- |
- |
7.4 |
7.4 |
|||||||||||
Adjusted EBITDA |
42.0 |
40.5 |
66.9 |
(21.7) |
127.8 |
|||||||||||
Reliability Services segment operating income |
6.6 |
- |
- |
- |
6.6 |
|||||||||||
Reliability Services depreciation & amortization included in segment operating income |
1.0 |
- |
- |
- |
1.0 |
|||||||||||
Pro Forma Adjusted EBITDA |
34.4 |
40.5 |
66.9 |
(21.7) |
120.1 |
|||||||||||
Reconciliation of Segment Operating Income % to Adjusted EBITDA % of revenue | Energy | Aerospace & Defense | Industrial | |||||||||||||
Segment Operating Income % |
7.4% |
15.2% |
11.8% |
|||||||||||||
Depreciation & Amortization |
1.9% |
1.9% |
2.0% |
|||||||||||||
Adjusted EBITDA % |
9.3% |
17.1% |
13.7% |
|||||||||||||
(a) 2018 Pro Forma amounts assume the sale of Reliability Services occurred on January 1, 2018 | ||||||||||||||||
|
CIRCOR International | ||||||||||
Supplemental Financial Information | ||||||||||
$ millions | ||||||||||
Reconciliation of Gross Debt to Net Debt, Actual and Pro Forma | ||||||||||
Year Ended | Net Proceeds | Pro Forma Year Ended | ||||||||
Dec. 31, 2018 | from Sale (a) | Dec. 31, 2018 | ||||||||
Debt Balances | ||||||||||
Current Portion |
7.9 |
(7.9) |
- |
|||||||
Long-term |
799.2 |
(74.2) |
725.1 |
|||||||
Gross Debt |
807.1 |
(82.0) |
725.1 |
|||||||
Less: Cash |
(68.5) |
- |
(68.5) |
|||||||
Net Debt |
738.6 |
(82.0) |
656.6 |
|||||||
Year Ended Dec. 31, 2018 | EBITDA, divested business (b) | Pro Forma Year Ended Dec. 31, 2018 | ||||||||
Adjusted EBITDA |
127.8 |
(7.6) |
120.1 |
|||||||
Net Debt Divided by Adjusted EBITDA |
5.8 |
5.5 |
||||||||
(a) Reduces debt by the amount of proceeds from the sale of Reliability Services | ||||||||||
(b) Removes the Adjusted EBITDA related to 2018 Reliability Services | ||||||||||
CIRCOR International | |||||||||||||
Supplemental Financial Information | |||||||||||||
$ millions | |||||||||||||
Fluid Handling | 2017 Combined | ||||||||||||
Revenue |
2017 |
|
|||||||||||
Energy |
339.6 |
64.7 |
404.3 |
||||||||||
Aerospace & Defense |
183.0 |
45.9 |
228.9 |
||||||||||
Industrial |
139.1 |
326.7 |
465.8 |
||||||||||
Total |
661.7 |
437.3 |
1,099.0 |
||||||||||
Reconciliation of GAAP Operating Income to Adjusted Operating Income and GAAP Operating Margin % to Adjusted Operating Margin % | |||||||||||||
GAAP Operating Income |
20.6 |
29.5 |
50.0 |
||||||||||
Amortization of inventory step-up |
4.3 |
- |
4.3 |
||||||||||
Restructuring charges (recoveries), net |
6.1 |
- |
6.1 |
||||||||||
Acquisition amortization |
12.5 |
(13.0) |
(0.5) |
||||||||||
Acquisition deprecation |
0.2 |
2.4 |
2.7 |
||||||||||
Special charges |
8.0 |
8.0 |
|||||||||||
Asbestos costs |
- |
8.9 |
8.9 |
||||||||||
Stay bonus |
- |
2.3 |
2.3 |
||||||||||
Adjusted Operating Income |
51.7 |
30.0 |
81.7 |
||||||||||
Components of Adjusted Operating Income | |||||||||||||
Energy Segment Operating Income |
30.1 |
3.6 |
33.7 |
||||||||||
Aerospace & Defense Segment Operating Income |
23.4 |
7.0 |
30.4 |
||||||||||
Industrial Segment Operating Income |
19.9 |
19.5 |
39.4 |
||||||||||
Corporate Expenses |
(21.7) |
- |
(21.7) |
||||||||||
Adjusted Operating Income |
51.7 |
30.0 |
81.7 |
||||||||||
Reconciliation of Industrial Segment Operating Income to Adjusted EBITDA | Industrial | ||||||||||||
Industrial segment operating income - reported |
19.9 |
||||||||||||
Industrial segment operating income - Fluid Handling |
19.5 |
||||||||||||
Combined Segment Operating Income |
39.4 |
||||||||||||
Depreciation & Amortization |
8.3 |
||||||||||||
Combined Adjusted EBITDA |
47.7 |
||||||||||||
CIRCOR International | ||||||||||||||||
Supplemental Financial Information | ||||||||||||||||
$ millions | ||||||||||||||||
Revenue |
2014 |
|||||||||||||||
Energy |
534.5 |
|||||||||||||||
Aerospace & Defense |
206.7 |
|||||||||||||||
Industrial |
100.3 |
|||||||||||||||
Total |
841.4 |
|||||||||||||||
Reconciliation of GAAP Operating Income to Adjusted Operating Income and GAAP Operating Margin % to Adjusted Operating Margin % | % of Revenue | Reconciliation of GAAP Net Income to Adjusted EBITDA | % of Revenue | |||||||||||||
GAAP Operating Income |
64.8 |
7.7% |
GAAP Net Income |
50.4 |
6.0% |
|||||||||||
Restructuring related inventory charges |
8.0 |
0.9% |
Provision for income taxes |
12.9 |
1.5% |
|||||||||||
Restructuring charges, net |
5.2 |
0.6% |
Interest expense, net |
2.7 |
0.3% |
|||||||||||
Impairment charges |
0.7 |
0.1% |
Depreciation & Amortization |
19.6 |
2.3% |
|||||||||||
Special charges |
7.5 |
0.9% |
Inventory restructuring charges |
8.0 |
0.9% |
|||||||||||
Adjusted Operating Income |
86.2 |
10.2% |
Impairment charges |
0.7 |
0.1% |
|||||||||||
Special charges, net of recoveries |
12.7 |
1.5% |
||||||||||||||
Components of Adjusted Operating Income | Adjusted EBITDA |
106.9 |
12.7% |
|||||||||||||
Energy Segment Operating Income |
76.6 |
|||||||||||||||
Aerospace & Defense Segment Operating Income |
15.4 |
|||||||||||||||
Industrial Segment Operating Income |
17.6 |
|||||||||||||||
Corporate Expenses |
(23.4) |
|||||||||||||||
Adjusted Operating Income |
86.2 |
|||||||||||||||
Reconciliation of Segment Operating Income to Adjusted EBITDA | Energy | Aerospace & Defense | Industrial | Corporate | Total | |||||||||||
Segment/Adjusted Operating Income |
76.6 |
15.4 |
17.6 |
(23.4) |
86.2 |
|||||||||||
Remove: Depreciation & Amortization expense included in Segment Operating Income |
8.5 |
6.9 |
3.0 |
1.1 |
19.5 |
|||||||||||
Add: Other Income, not included in Segment Operating Income |
- |
- |
- |
1.2 |
1.2 |
|||||||||||
Adjusted EBITDA |
85.1 |
22.3 |
20.7 |
(21.2) |
106.9 |
|||||||||||
Reconciliation of Segment Operating Income % to Adjusted EBITDA % of revenue | Energy | Aerospace & Defense | Industrial | |||||||||||||
Segment Operating Income % |
14.3% |
7.5% |
17.6% |
|||||||||||||
Depreciation & Amortization |
1.6% |
3.3% |
3.0% |
|||||||||||||
Adjusted EBITDA % |
15.9% |
10.8% |
20.6% |
|||||||||||||
Source:
Investors
David F. Mullen
Senior Vice President Finance
CIRCOR International
(781) 270-1200
MacKenzie Partners, Inc.
Dan Burch, (212)929-5784, dburch@mackenziepartners.com
Paul Schulman, (212) 929-5364, pschulman@mackenziepartners.com
Larry Schimmel, (212) 378-7068, lschimmel@mackenziepartners.com
Media
Matthew Sherman / Andi Rose / Nick Lamplough
Joele Frank, Wilkinson Brimmer Katcher
(212) 355-4449