Harsco To Sell Infrastructure Unit To Clayton, Dubilier & Rice To Form JV

(RTTNews) - Diversified industrial company Harsco Corp. (HSC) agreed Monday to sell its infrastructure division to private equity firm Clayton, Dubilier & Rice or CD&R, in a cash and stock deal valued at about $525 million. The deal, which is unanimously approved by the Harsco board of directors, is expected to close before the end of 2013.

CD&R will then combine the division with Brand Energy & Infrastructure Services, Inc., which it is acquiring from First Reserve, to create a new joint-venture company with an enterprise value of about $2.5 billion, including $1.7 billion in debt financing.

"This transaction is the first major step in the strategic transformation of Harsco. It follows a period of extensive consideration and offers a number of compelling benefits to our shareholders," Harsco President and CEO Patrick Decker said in a statement.

The joint venture will continue under the name Brand Energy & Infrastructure Services and will be a leading, single-source provider of specialized industrial services to the worldwide energy and infrastructure sectors. It will also continue to be headquartered at suburban Atlanta in Georgia.

Brand Energy Chairman and CEO Paul Wood will continue in the role in the combined company, with the board of directors including nominees from CD&R, Brand Energy and Harsco.

Harsco will receive a total consideration of at about $525 million, including $300 million in cash and 29 percent equity stake in the joint-venture enterprise. The deal will be funded by a financing commitment been provided by Morgan Stanley (MS), Citigroup Global Markets Inc., Goldman Sachs Bank USA and UBS Investment Bank.

For Harsco, the deal provides it with immediate strengthening of its financial profile while providing the financial flexibility to pursue higher return, higher growth opportunities. It also stands to gain from the additional value that will be created by the new joint venture as it maintains an equity position in the stronger and more profitable combined business.

On a pro forma basis, Harsco expects the deal to improve margins, be immediately accretive to earnings in the first year after close and improve its return on capital. Pro forma 2013 annual revenues for the combined company is estimated at nearly $3 billion, with about 67 percent of the revenues expected to be generated from the energy sector.

Further, the deal is in line with Harsco's stated objectives to generate more attractive returns and improve the underlying performance of its businesses, particularly its Metals & Minerals segment. Harsco also expects to reduce its overhead cost profile due to its reduced complexity and simplified structure.

"We are excited to help build a global leader in both specialized industrial services and infrastructure services. We believe that the combined company has a well-positioned global platform, very favorable growth prospects and a deep set of capabilities to serve customers across its diverse end market," said Nathan Sleeper, a CD&R Partner.

In Monday's regular trading session, HSC is currently trading at $2646, up $1.46 or 5.84% on a volume of 0.47 million shares.