RHI AG and the controlling shareholders of Magnesita Refratários S.A. recently announced that they have reached an agreement to combine the operations of RHI and Magnesita to create a leading refractories company, RHI Magnesita. RHI’s management board has agreed to sign a share purchase agreement with Magnesita’s controlling shareholders regarding the acquisition of a controlling stake of at least 46%, but no more than 50%, plus one share of the total share capital in Magnesita, pending RHI’s supervisory board approval. The purchase price for the 46% stake will be paid in cash amounting to €118 million (~ $129.6 million), as well as 4.6 million new shares to be issued by RHI Magnesita, a new RHI entity to be established in the Netherlands and listed in London. Based on RHI’s six-month volume-weighted average price of €19.52 (~ $21.45), the implied value of the 46% stake amounts to €208 million (~ $228.5 million).

As a result of the transaction, GP Investments will become a relevant shareholder of RHI Magnesita. The combined company’s corporate governance will be constituted on a one-tier board structure while GP will be represented on the board of directors. The combination will bring under one roof two complementary businesses, both in terms of products and geographical footprint. RHI, based in Austria, is a global supplier of high-grade refractory products, with 2015 revenues of €1.7 billion (~ $1.9 billion). Brazil-based Magnesita is a global provider of integrated refractory solutions, services and industrial minerals, with revenues of $1 billion in 2015.

The migration of RHI to the Netherlands and the subsequent listing on the London Stock Exchange have the objective of reinforcing and underlining the truly international scope of the enlarged combined company, enhancing its capital markets presence and maximizing value potential for the company’s shareholders. The migration of RHI will be effected by RHI Magnesita becoming the ultimate holding company of RHI Group; the shareholders of RHI will cease to hold shares in RHI and instead hold RHI Magnesita shares. Following registration of the corporate restructurings, RHI’s shares will cease to be listed on the Vienna Stock Exchange. The place of effective management of RHI Magnesita will be Austria.

The transaction is expected to complete in 2017. Until then, the two companies will remain completely separate and independent. Customers, suppliers, employees and other stakeholders should expect no change in management teams, commercial relationships, supply chains and product offerings during this period.

As a result of the transaction, RHI’s mid-term financial targets will surpass RHI’s current targets. RHI expects the combined company to generate fully consolidated revenues of €2.6-2.8 billion (~ $2.9-3 billion) with an operating earnings before interest and taxes (EBIT) margin of more than 12% by 2020. It projects a cumulative operating cash flow of approximately €1.1 billion (~ $1.2 billion) for 2017-2020 for the combined business, assuming an acquisition of Magnesita’s entire share capital.

RHI expects RHI Magnesita to pay stable dividends in 2017 and 2018, in line with RHI’s previous years’ payment levels. In the mid- to long-term, however, RHI Magnesita aims to increase its dividend payments, as a result of stronger cash flow generation resulting from synergies, organic growth and de-leveraging of the company’s capital structure.

For more information, visit www.rhi-ag.com or www.magnesita.com.