Olin
Corporation - Acquisition of Pioneer Cos Inc by Olin Corp Co
Call
05/21/2007
10:00 AM (ET)
Operator:
Good day
everyone and welcome to the Olin Corporation Conference Call. Today's call
is
being recorded. At this time for opening remarks and introductions, I would
like
to turn the call over to the Chairman, President, and Chief Executive Officer,
Mr. Joseph Rupp. Please go ahead, sir.
Joseph
D. Rupp, Chairman, President and Chief Executive
Officer
Good
morning and thank you for joining us today. With me are John McIntosh,
Vice
President and President of our Chlor Alkali business; John Fischer, Vice
President and Chief Financial Officer; and Larry Kromidas, our Assistant
Treasurer and Director of Investor Relations.
Throughout
our presentation this morning, we will be referring to the investor slides
that
were posted on our website earlier this morning. Today is an important
and a
very happy day for Olin. We announced this morning that we have reached
an
agreement to acquire Pioneer Companies for $35 a share in cash.
This
transaction is
consistent with our strategy which we have illustrated on slide 3 of our
presentation. First and foremost, this is a positive move toward improving
shareholder return. The acquisition should be immediately accretive to
both our
earnings per share and our return on capital employed. And Pioneer will
substantially enhance our leadership position in the merchant chlor alkali
market. It affords us opportunities to enhance both the efficiency and
profitability of Chlor Alkali and it greatly expands our bleach business
which
is a strategic thrust that we have discussed consistently with you in the
past
18 months.
Finally,
this
acquisition is consistent with our objective of allocating resources to
the
businesses that can create the most value. Our Chlor Alkali business has
been
the highest performing business in our portfolio over the past several
years.
Moving
to slide 4,
as I have said we believe this acquisition is consistent with our strategy
and
the fact that it is a bolt-on for Alkali business provides us with significant
near term cost synergy opportunities. In addition to expanding our position
Chlor Alkali, it diversifies our geographic position and makes us the number
one
industrial bleach manufacture in the United States in part by allowing
us to
expand into a section of the country that we do not currently serve the
Western
United States.
I
will review the
geographic diversity that this acquisition achieves for Olin in detail
in just a
minute. But first I would like to mention two things, first Pioneer, St.
Gabriel
facility is an outstanding asset which provides us with pipelining access
to the
largest non-integrated chlorine consuming complex in North America. And
second,
the Pioneer bleach business is focused in the Western portion of the United
States which compliments Olin's Bleach business, that's focused in the
Eastern
and Southeastern United States.
I
mentioned a
moment ago, that we see significant cost synergy opportunities from this
transaction. Based on our preliminary analysis, we are highly confident
that
within the next two years we should achieve $35 million of annual synergies.
These will be achieved through the optimization of logistics, purchasing,
manufacturing and overhead. In particular, with a greater geographic diversity
of the manufacturing facilities, we see a large opportunity to significantly
reduce the number of miles that chlorine and caustic soda are shipped.
These
factors all make this a compelling transaction financially for Olin. We
fully
expect this to be immediately accretive to earnings and should strengthen
our
financial position through the cycle.
To
provide a
perspective, looking backward to 2005 on a pro forma basis, the earnings
per
share of Olin with Pioneer would have been approximately a $1 per share
higher
than standalone Olin reported. After the completion of this transaction
Olin
should continue to have a strong balance sheet and this drove our decision
to
finance the acquisition with all debt using our forecast for Olin and Pioneer
operating results for the balance of 2007 and assuming a year end 2007
closing
of pro forma debt-to-EBITDA ratio including Pioneer 2007 EBITDA should
be less
than two times.
On
slide five, we
outline the structure of the transaction and there are just a few points
I would
like to make. The purchase price is $35 per share and we are assuming $120
million of Pioneer convertible debt which will be converted to cash
simultaneously with the closing. We do expect assuming a second half 2007
closing, that Pioneer's balance sheet will be in a net cash position at
closing.
The transaction has been approved by the Board of Directors of both companies
and is now subject to Pioneer's shareholder and regulatory
approvals.
Moving
on to slide
six, the major attraction is that it is a focused Chlor Alkali business
with
significant down stream bleach and hydrochloric acid operations. Pioneer
operates four major Chlor Alkali facilities. I've already mentioned their
plant
St. Gabriel, Louisiana which is a pipeline chlorine supplier physically
located
in the largest non integrated chlorine consuming complex in the United
States.
John McIntosh should provide a review of the St. Gabriel expansion project
in a
minute. But after completion of the project the location will provide us
with
additional low cost expansion opportunities.
The
Becancour
facility which is located on the St. Lawrence Seaway is Pioneer's largest
plant
and is a low cost facility that operates with hydroelectric power. Becancour
has
significant bleach and hydrochloric acid production capabilities. The Henderson,
Nevada facility also contains significant bleach and hydrochloric acid
production capabilities. In addition to the bleach manufacturing capabilities
of
Henderson and Becancour, Pioneer has three bleach plants in the western
part of
the United States. And as you know, over the past year, Olin has announced
several bleach and hydrochloric acid expansion projects.
After
completion of
these projects and the Pioneer acquisition, between 15 and 20% of the company's
total fluorine capacity will be dedicated to the production of value-added
bleach and hydrochloric acid. The other Pioneer manufacturing facilities
located
in Dalhousie, New Brunswick, Canada. It is a smaller plant that manufactures
both chlor alkali and sodium chloride. Sodium chloride is a new product
and a
new opportunity for Olin.
Combination
of
Pioneer Chlor Alkali and Downstream businesses have, and are continuing
to
generate excellent margins which should be improved further by cost reductions
that will occur once the St. Gabriel expansion project is completed. At
the
bottom of slide 6, we have highlighted Pioneer's 2005 peak earnings. These
earnings, the synergies available from the combination with Olin and cost
improvements associated with the St. Gabriel project, caused Olin's management
and its Board of Directors to conclude that the acquisition of Pioneer
represents an excellent value creation opportunity.
The
next few slides
in the presentation, slide 7, 8 and 9 are fairly self-explanatory. We provided
the last 12 months financial results for both Olin and Pioneer which depicts
a
$3.7 billion company with $300 million of EBITDA. Slide 8 illustrates the
size
of the combined entity with the North American market, and slide 9 simply
provides a geographic illustration of the combined Olin and Pioneer
manufacturing capabilities.
A
point I would
like to emphasize again is how well the geography of the Pioneer bleach
business
which is concentrated in the Western United States complements Olin bleach
business concentrated in Eastern and South Eastern United States. At this
time I
would like to turn the call over to John McIntosh, who will discuss both
the St.
Gabriel project and synergies of the transaction. John?
John
McIntosh President, Chlor Alkali Products Division
Thank
you, Joe. As
most of you probably know, over the past month Pioneer has made several
announcements concerning the expansion of our St. Gabriel facility. As
Joe
mentioned previously the St. Gabriel plant is a pipeline supplier to Geismar,
the largest non-integrated fluorine consuming complex in North America
and will
be a key asset to Olin. Project which is expected to be completed on the
fourth
quarter of 2008 will increase the plants capacity from 197,000 to 246,000
ECUs
per year while installing the most modern membrane cell technology available.
The project will also provide a platform from which additional low cost
expansions could be made, the combination of the modern membrane cell technology
and installation of the capability to utilize liquid [indiscernible] is
expected
to improve the plant's operating margins by approximately $30 million.
I would
also like to highlight one additional advantage of this facility. The St.
Gabriel plant because i t delivers its chlorine by pipeline has hired ECU
netbacks and is only partially exposed to ever-increasing railroad shipping
costs. Combination of this cost position, an access to Pioneer's St. Gabriel
pipeline customers will be a positive for Olin. I would like to talk for
just a
moment about the synergies before John Fischer refused the financing and
we open
the call to questions.
Slide
11 talks
about synergies. As Joe stated we are highly confident that within two
years
that we should achieve $35 million in operating synergies. We are also
highly
confident that within the first year we should realize synergies equivalent
to
an annual rate of $20 million. Major areas of synergies will be logistics,
purchasing, operations and SG&A expenses. Joe talked a little about the
logistics and freight cost opportunities but what makes it an even larger
opportunity is the trend line on the escalation of its costs. Specifically
within Olin system freight cost per ECU sold have increased substantially
since
2004 so, an action that reduces freight will benefit costs.
The
other metric
that becomes very important is the combined volume of shipments. The combined
Olin-Pioneer Chlor Alkali business will ship approximately 1.3 million
tons of
chlorine and 1.8 million tons of caustic soda annually. The reduction of
ton
miles shipped represents a large opportunity in both freight and fleet
costs,
and one I am highly confident will pay positive dividends for the combined
company.
Now,
I will let
John Fischer to discuss the financing plans before we take questions. Thank
you.
John
E. Fischer, Vice President and Chief Financial Officer
As
a follow-up to
our first quarter earnings conference call Olin did make the $100 million
voluntary contribution to its pension plan that we discussed. That contribution
was made during early May. For your reference, we have included an outline
of
our financing plan on slide 12 of the presentation. It is our intention
to
finance this acquisition with debt. We believe our current balance sheet
can
support an all debt transaction and in addition, the accretion associated
with
an all-debt transaction is approximately 20% greater than a transaction
that
would include 40 to 50% equity. We expect that the two companies together
will
have excess cash available at the closing of approximately $250 million
which
allows us to maintain a cash cushion of approximately $100 million to fund
ongoing working capital needs. And Citigroup as provided a bridge loan
commitment that would provide adequate financing to close the transaction.
Over
the next 6 to 10 we eks, we will put in accounts receivable securitization
program in place and will increase the size of our revolving credit agreement.
We anticipate the receivable securitization program will provide between
250 to
$300 million of financing and the increase revolving credit agreement will
provide an additional 90 million of financing on top of $125 million that
is
currently available.
Finally,
it is our
intention to put 150 to 200 million of long-term financing in place once
the
transaction closes. All of our assumptions assume that the convertible
debt
issued by Pioneer earlier this year will be repaid.
On
slide 13, we
again summarize why we are excited about the transaction, for Olin this
is a
synergistic bolt-on acquisition that strengthens our existing business
while
offering compelling financial returns.
Before
we conclude,
let me remind you that throughout this presentation, we have made statements
regarding our estimates of future performance, clearly these are forward-looking
statements and results could differ materially from those projected. Some
of the
factors that could actual results to differ are described in our most recent
Form 10-K and in our first quarter earnings release. A copy of our prepared
remarks today will be available on our website in the Investor section
under
Recent Press Releases and Speeches.
Operator,
we are
now ready to take questions.
Operator:
Thank
you. [Operator Instructions].
We
will go to Don
Carson of Merrill Lynch.
Q
– Donald Carson
Thank
you. John, a
question on the quality of the assets that you are buying. How would you
compare
the cost structure of the Pioneer assets to your own, what industry quartile
are
they in? And when you think of replacement cost of these assets, what's
kind of
the benchmark rule of thumb that you use? And then finally, maybe this
is more
for Joe, just why you are so interested in the bleach business?
A
– Joseph Rupp
The
–
we
would
consider all of their plants to have unique and specific advantages that
make
them very positive additions to the Olin system. When you look at them
individually, or course Becancour is a very modern plant, a good cost position,
access to hydroelectric power and has capabilities to upgrade a significant
amount of its chlorine into bleach and HCl. And we think that provides
higher
margin and improved stability over the cycle. We have obviously talked
about St.
Gabriel and how well situated it is geographically to points of consumption
for
chlorine, and how the project will improve significantly the margins at
the
plant, lowering its cost position and making it a very competitive part
of our
portfolio.
Henderson
is
another extremely well located facility that has -- it's really the only
major
plant with proximity to the West Coast and because of that and it's capabilities
to convert chlorine into bleach and HCL, we think that it has a very attractive
position as well.
Dalhousie
is a
small plant, but it is a state-of-the-art sodium chloride facility that
is well
positioned near a large pulp and paper customer, so we think it's in a
very
protected position and the chloride marketing calendar right now is very
good.
So we feel good about the plants, their respective abilities to contribute
and
where they will fit within the larger portfolio of sites with Olin.
Q
– Donald Carson
And
can you comment
on replacement costs, because I know that St. Gabriel expansion looks to
be $290
per ECU ton what would be seems quite low relative to replacement
cost?
A
We
-- for a
greenfield replacement cost based on what construction costs are doing
and how
fast those have increased recently, we are looking in that 800 to $1000
per
annual ECU for a greenfield plant and probably more towards to the upper
end of
that number, obviously for a brownfield plant or an expansion of its existing
site that number is a little bit lower. And you asked question about
bleach.
Q
– Donald Carson
Yes
I mean you
talked a lot about bleach and why that is an important part of this transaction,
I know you have been expanding your own bleach operations, but what kind
of
incremental returns you get upgrading into bleach as suppose to just selling
that chlorine into the merchant market?
A
We
-- we have
historically said that one of the -- one of the attractive features of
being in
the bleach business is that it is more stable, it doesn't have the same
volatility as selling chlorine and caustic and it does carry a premium
for
selling chlorine and caustic in to the other market segments that we use.
We
haven't typically stated what that premium is but it is a premium that
is
significant enough in our minds that justifies our interest and investment
in
this important segment of our business.
Q
– Donald Carson
Okay.
A
And
part of it,
Don, is that it's a growing piece of the business. There is a lot of people
industrial-wise who are looking more toward bleach from chlorine.
Q
– Donald Carson
Okay.
And then just
a quick question for John Fischer, what Olin interest rate should we assume
that
this financing is costing you?
A
– John Fischer
I
think for
estimate purposes if you use 7.5% you will be fine.
Q
– Donald Carson
Okay,
thank
you.
A
Thanks
Don.
Operator:
We will
go next to Frank Mitsch of BB&T Capital Markets.
Q
– Frank Mitsch
Congratulations
on
the deal guys.
A
Thanks
Frank.
Q
– Frank Mitsch
Can
you, following
up on the quality assets, can you talk a little bit about the whatever
environmental issues Pioneer has relative to sort of the issues that a
typical
chlor-alkali producer would have, do you envision your environmental spending
moving up significantly with this purchase, and if you could just provide
a
little bit of clarity and what you see there that would be very
helpful?
A
John,
why don't you
answer the spending question.
A
– John Fishcer
The
spending
question we do not see our environmental spending moving up
significantly.
A
John,
you want to
talk about?
A
– John McIntosh
No,
our diligence
and assessment of their sites give us no reason to be concerned that there
is
any level of environmental issues at the sites that are not typical for
operating chemicals facilities.
A
And
with the St.
Gabriel conversion that's ongoing and I guess its scheduled to be completed
by
the end of '08. What sort of operating rates is that facility running at
for the
next 18 months or so, and also there was a discussion by Pioneer that about
150,000 tons of chlorine would be going from its competitors go through
the
Pioneer pipeline, is that any of your material that that will be displaced
by
this or is it other competitors that are going to be displaced once St.
Gabriel
is up and running.
A
There
are, probably
the majority of the people who are selling chlorine in the merchant market
actually place chlorine into that facility and use the pipeline to service
customers within the Geismar complex, and that includes Olin. In terms
of
Geismar's operating rate, it's our understanding from information they
have
provided us that their operating rates have been at or better than industry
averages in recent history.
A
Yeah,
we would say
that they are fairly high.
A
Yes.
Q
– Frank Mitsch
All
right. And then
I would imagine with the Dell shutdown at the Becancour operates as pretty
high
as well.
A
That's
our
information as well Frank.
Q
– Frank Mitsch
And
then lastly,
what's the size of the breakup fee that's affiliated with this
transaction?
A
The
breakup fee, if
we don't close, because they get a topping offer, 3.5%.
Q
– Frank Mitsch
Great,
terrific.
Thank you.
A
Thanks.
Operator:
We will
go to Harry Matioff [ph], Lehman Brothers.
Q
Hi
guys. Question
for you from the fixed income side of things. How do you run this transaction
by
the rating agencies ahead of announcing, and secondly, would you be comfortable
dropping down a one rating notch at out of the rating agencies?
A
We
have talked
primarily with the rating agencies. We have a more formal presentation
with them
later today. And I think the answer to your question is yes.
Q
Okay,
thanks very
much.
A
Thank
you.
Operator:
We will
go to Kevin McCarthy of Banc of America.
Q
– Kevin McCarthy
Yes,
good morning.
Quite an endorsement of the Chlor Alkali cycle here, I wonder if you could
talk
in broad terms about the shape of the cycle as you see it in coming years
and
also address the subject of international trade with regard to European
product
coming into the East Coast and essential for Asian product coming into
the West
Coast, how do you see those international arbitrage window is right
now?
A
– John McIntosh
Kevin,
this is John
McIntosh. What we see and what we have used as the basis for our projections
is
that prices, ECU prices will continue to do move down not dramatically
and
nowhere near as volatile as we have seen in past – past periods of time as we
look out over the next couple of years. And we have reflected that in our
own
forecast and in our assessment of this transaction.
In
terms of
imports, imports from Europe tend to be not consistent. There have been
periods
of time when we have seen European imports into the East Coast, but right
now we
are seeing very little import activity as Europe tends, in a lot of times
of the
year to be pretty well balanced from a supply demand standpoint.
Energy
does have an
impact on the cost of importing products into the West Coast from China
and
other parts of the Far East. And that energy will continue in our opinion
to
limit imports from that part of the world predominantly into the West Coast
of
the US, which has really been the market situation for some period of time
now.
And we don't see that changing significantly. We do see this transaction
as a
way for us to participate in the bleach market in the West Coast and we
think
that is a hedge against any change in cyclicality in the import volumes
of
caustic.
Q
– Kevin McCarthy
Okay
great and then
with regard to your synergy target of 35 million, how much of that would
relate
to logistics?
A
We
haven't broken
that number down but we did mention logistics is really the first of the
four
broad areas of synergy that we are looking at and so we consider logistics
to be
probably the biggest opportunity we have in synergies between the two systems
and its really driven as we said in our remarks on the geographic diversity
of
the manufacturing facilities and the fact that we will be able to better
optimize the locations that we ship product to meet the customers that
we will
serve.
Q
– Kevin McCarthy
Finally
remind us
of your price realization on the proposed caustic increase for 2Q and would
you
have any preliminary comment on prospects for additional increases in
3Q?
A
We
don't have any
additional comments. What we said in our last earnings call was that we
expect
that the $40 caustic increase that was announced in November and then the
next
caustic increase that was announced in February, we expected to see those
realizations move into our pricing numbers in the second and third quarter.
The
chlorine price increase which was announced in February appears to have
been
accepted in the marketplace and so we would expect to see a positive impact
from
that as well in the second and third quarter.
Q
– Kevin McCarthy
Thank
you very
much.
A
Thank
you.
Operator:
We will
go to Keith Wiley of Goldman Sachs.
Q
– Keith Wiley
Yeah
I was just
wondering if, is there anything in this acquisition that I know you mentioned
that we increase your earnings at the top of the cycles and will it also
make
your earnings more stable throughout the cycle or is there significant
down
stream operations here, anything that would add some stability?
A
We
believe that it
will help our earnings in the trough. We would get the significant benefits
from
both the synergies and the benefits associated with having more value added
down
stream products coming instead of selling just chlorine and caustic. So,
we
think it will help us at both ends of the cycle.
Q
– Keith Wiley
Great.
Can you sort
of discount, what percentage of the acquired if Pioneer is downstream versus
upstream, or at least from the EBITDA perspective? I mean is it like 20%
or.........
A
Something
in the
neighborhood of 20% of their chlorine and caustic goes to downstream products
today.
Q
– Keith Wiley
Great
thank
you.
A
Thank
you.
Operator:
We will
go to Justin Boisseau of Gates Capital Management.
Q
– Justin Boisseau
Hi
thanks. I was
wondering if you can talk for a second about the process, did you all approach
Pioneer today a purchase part of an auction process and second could talk
little
bit about the plans for Pioneer senior management please?
A
The
process is that
we entered into discussions; we approached Pioneer over the last 10 months
and
have been in discussion with them. And we have obviously from the senior
management there is, it differs by the management and obviously we will
disclose
that at appropriate time. But each of the individuals has their own agreements
with us going forward.
Q
– Justin Boisseau
Okay,
thanks.
A
Okay.
Operator:
We'll go
next to Angi Salam [ph] of Deutsche Bank.
Q
Hi,
I was just
wondering just on the ratings targets again, is there any sort of target
you
have in mind or is it just if you are willing to go into the junk
category?
A
I
think when you
look at where we are and what Joe said in his remarks we think after we
close on
a pro forma basis, we are still going to have debt-to-EBIDTA ratio that
will be
below 2. So, we think from a real estate credit perspective, it's still
going to
be a very strong credit.
Q
Okay,
so no
specific rating target though?
A
No.
Operator:
And we
will go next to Bob Goldberg of Scopus Asset Management.
Q
– Robert Goldberg
Good
morning
guys.
A
Hi
Bob.
A
Good
morning
Bob.
Q
– Robert Goldberg
A
strategic
question for you, and you are really the only one of the top four players
in
Chlor-Alkali that currently views Chlor-Alkali as a real core strategic
business. I am wondering what do you think of that and what that means
for your
portfolio, whether the Metals business and Winchester is still fit as well,
have
about somewhere between 70 to 80% of your earnings coming from Chlor-Alkali,
so
I am just wondering about the bigger picture for Olin as we look at the
next
two, three, four, five years, what do you think the company will look like
and
the role of those other businesses in the grander scheme of things?
Q
– Joseph Rupp
Bob,
for us
Chlor-Alkali is the core business and it's delivering, we believe, returns
to
our shareholders. We believe that this acquisition with Pioneer enhances
that
and makes us a bigger and broader company and it gives us the opportunity
to
continue look at the other parts of the portfolio and do what we need to
do to
continue to create value for the shareholders.
Q
– Robert Goldberg
And
then Joe, what
about the creating value for the other businesses, any thoughts on Metals
and
Winchester businesses? And how they fit in, whether you see additional
value
creation opportunities there?
A
– Joseph Rupp
I
think the best
way to respond to that Bob would be to say that we are continued to work
on
those businesses and look at them from a strategic basis within the portfolio
and to do what's necessary to create value for the shareholders and that's
there
can be a variety of things as we know.
Q
– Robert Goldberg
Okay,
but you don't
feel limited, it doesn't sound like you feel limited given this transaction
and
taking further steps to optimize the portfolio?
A
We
do not feel
limited at all.
Q
– Robert Goldberg
Okay,
great thank
you.
A
Thanks.
Operator:
We will
go to Aaron Whiteman [ph] of Appaloosa Management.
Q
Hi,
guys. Congrats
first off for going after a good accretive acquisition. I was wondering
how did
you guys arrive at a $35 target price or 19% of the cash trading day, when
that
seems a very small premium?
A
I
guess we looked
at it two ways. We looked at it against precedent transactions regarding
the
purchase of Chlor Alkali businesses. And we think that this is, the price
we
paid for ECU is consistent. And we also looked at it from the standpoint
of
what's the price relative to the last 12 months, and what's the price relative
to their peak earnings, and we find best priced, attractive along both
of those
bases.
Q
Okay.
Operator:
We go to
Greg Ransom of Banc of America.
Q
– Gregory Ransom
Hi,
thanks guys.
John, just to go back on the rating agency and the debt rating question
real
quick, you did say that you guys obviously wouldn't want it, but you would
be
willing to deliver lower rating that's been the way this transaction is
structured?
A
– John Fischer
Obviously,
we think
we have financial metrics that suggest we are an investment grade
credit.
Q
– Gregory Ransom
Right.
A
– John Fischer
I
think we
anticipate that the rating agencies because we are doing this with all-debt
are
going to put us on credit watch.
Q
– Gregory Ransom
Okay.
A
– John Fischer
We
accept that
fact.
Q
– Gregory Ransom
Got
it. Thank
you.
A
Thanks.
Operator:
We will
go next to Scott Mittleman of Jefferies Asset Management.
Q
– Scott Mittleman
Hi,
good morning
and congratulations.
A
Thank
you.
Q
– Scott Mittleman
I
was hoping you
could just elaborate first on the bleach market, you just name two of the
other
players in it that's you are going to be form the number one when you look
at
the market landscape?
A
I
can't do that.
The bleach market is really highly fragmented and that there are a lot
of small
companies but if you look at the bigger companies that -- that participate
besides, Pioneer and Olin, Kuehne Chemical, which is a Northeast US Company,
Allied Universal which operates in the Southeast US, Jones Chemical, Odyssey,
really round out besides Olin and Pioneer the top six or seven
companies.
Q
– Scott Mittleman
So
as you are
number one positioned, do you have an approximate market share that would
encompass?
A
We
have industry
information within the K, in the 20% range market share.
Q
– Scott Mittleman
That
would be
combined?
A
Combined
yes.
Q
– Scott Mittleman
And
just regarding
divestitures if any chlorine plant that you guys will be willing to --
in the --
may be the Southeast of United States or another area if necessary or is
that
out of the question?
A
No
we -- as we look
at, we have talked in our remarks about the geographic diversity that --
that
this transaction bring to us and each of the plants we believe has a continuing
place in the combined company and will be able to make a contribution.
And the
-- your earlier question about bleach, let me further put some detail to
that, I
was -- I was looking at market shares and speaking the market shares really
for
the Industrial Bleach sector, there is another bleach sector that is really
consumer oriented bleach and that's not one that we have participated in
any
significant way. So, industrial bleach companies are the companies that
I
mentioned earlier.
Q
– Scott Mittleman
And
just my final
question, you mentioned earlier that you are in talks for 10 months [ph]
for the
– I didn't hear that there was an auction process?
A
There
was not an
auction process, we are in discussions on and off over the last 10
months.
Q
– Scott Mittleman
Thanks
very
much.
A
Thank
you.
Operator:
We will
go to John Roberts of Buckingham Research.
Q
– John Roberts
Good
morning
guys.
A
– Joseph Rupp
Good
morning,
John.
Q
– John Roberts
There
are some
other non-strategic chlor-alkali businesses out there, PPG got asked about
business with their meeting on Friday. And almost 10 years ago, I guess,
and
less than 10 years you had discussions with Occidental. Is this deal probably
precludes you from any other big deals that will now put you on antitrust
issue
from any further consolidation with a major chlor alkali producer?
A
– Joseph Rupp
John,
I think it
would make it more difficult for another deal.
Q
– John Roberts
So,
this may be the
maximum size of your domestic chlor alkali business?
A
– Joseph Rupp
I
would say may be.
I think there are some other options.
Operator:
We will
go next to Mike Judd of Greenwich Consultants.
Q
– Michael Judd
Yeah,
just a
follow-up question to John Robert's question. If you look at the exhibit
on page
8, Dow is by far the largest and even Occi is pretty big. So, if you would
combine together PPG and Olin and Pioneer, you wouldn't as large as, either
largest. So, I'm just curious as to your previous comments, what's really
driving that?
A
– Joseph Rupp
Your
question is
why we couldn't combine with like PPG.
Q
– Michael Judd
Why?
A
– Joseph Rupp
Because
it make us,
I think that's why we answered, might be the answer is it would be difficult,
I
am not saying that we will totally preclude us from it, we are just saying
that
it may be difficult, and that what you get into is the geographic overlaps
etcetera. But I would say it's not impossible, it just, it may be
difficult.
Q
– Michael Judd
Okay,
great. And
congratulations on the deal, just one last thing, did you have a breakout
of,
you gave us four different areas, logistics, SG&A, freight, purchasing,
etcetera. Did you have a breakdown, percentage basis or whatever basis
you
wanted to give us how much of the 20 or the 35 million in synergies, which
categories?
A
Mike,
we didn't
have, I don't think we gave a breakout, other than stating that the number
one
synergy was logistic synergies.
A
Yes.
Q
– Michael Judd
Okay,
when you say
the biggest opportunity is a greater than 50%?
A
We
haven't
commented on that.
Q
– Michael Judd
Okay,
thanks for
the help.
A
Thanks
Mike.
Operator:
We will
go to Don Carson of Merrill Lynch.
Q
– Donald Carson
Yes,
a question on
natural gas. I noticed that obviously you have purchased your own Power
historically, you haven't generated your own power, but St. Gabriel and
Henderson use nat-gas cogen, how big are those purchase requirements, and
what
would be your approach to managing that new exposure?
A
Well,
obviously,
those two facilities will be more natural gas based than our existing facilities
are, through the utilities that we buy energy from. The natural gas industry
and
the utilities that are purchased, that Pioneer buys from both of those
locations
are highly regulated and it's my understanding there aren't a lot of competitive
options. However, part of the beauty of the St. Gabriel conversion is that
we
are putting best available membrane cell technology which will reduce overall
energy consumption at the site. So that's just part of the equation and
the
trade-off for the location you get being close to the end markets that
you want
to serve and reducing your freight and logistics exposure, that's part
of the
trade-off, may be having a natural gas sales as a feedstock for energy
that you
are more reliant on.
Q
– Donald Carson
And
what will your
annual natural gas purchases be, just trying to get a sense of your operating
leverage there?
A
I
don't have that
information. We will have to get that information.
Q
– Donald Carson
Okay,
I will
follow-up on that, thanks.
Operator:
[Operator
Instructions]. We go to John Nelson of the State of Wisconsin Investment
Board.
Q
– John Nelson
Hi,
it sounds like
a good acquisition. My only major concern is, I mean you mentioned the
150 to
200 million permanent financing?
A
Yes,
we
did.
Q
– John Nelson
The
hedge funds are
given away a lot of what looks like free money in the form of converts,
but then
you kind of give up a lot of funny stuff happening in the trading your
stock, do
you have any intention of doing a convert to do this permanent
financing?
A
We
do not
know.
Q
– John Nelson
Okay,
great. Thank
you.
A
Thank
you.
Operator:
We will
go to Tom Kay [ph] of Camden.
Q
Hi,
sorry I
apologize if you did already commented on this, you are expecting -- what's
the
earliest closing day you are expecting?
A
We
are seeing in
the second half.
Q
Second
half, so but
-- that could be is really like two weeks, so I am just curious like within
the
second half what would you -- what would be the kind of earliest you would
expect?
A
We
don't -- we are
thinking its going to occur in the second half of the year.
Q
Okay.
Thank
you.
A
Yeah,
thanks.
Operator:
[Operator
Instructions]. We will go to William Matthews of Canyon Capital.
Q
– William Matthews
Hey
guys, I jumped
on late, I am not sure if you answered this already, but have you decided
what
you are going to do with the existing outstanding convert?
A
The
existing
convert has a put that will be put at closing, so as we said in our remarks,
it
will be simultaneously converted to cash, on cash payment at
closing.
Q
– William Matthews
Then
what's the put
price?
A
There
is a breakage
fee associated with it.
Q
– William Matthews
And
do you know
that?
A
It's
approximately
$25 million.
Q
– William Matthews
And
when you say
there is a put, do you mean at what price is it put to the company?
A
It's
put to the
company in the form of shares, it's shares.
Q
– William Matthews
Okay,
so it's
convertible; this is a convertible event convertible, and then put to you
in
shares.
A
That's
correct.
A
Correct.
Q
– William Matthews
Okay.
A
But
it will happen
simultaneously at closing because that's, the convertible event is the
sale.
Q
– William Matthews
Got
it. Okay great,
thank you.
Operator:
And at
this time, I will turn the conference back to Mr. Rupp for any closing
remarks.
Joseph
D. Rupp,
Chairman, President and Chief Executive Officer
We
want to thank
you for joining us today. We think we've taken an excellent step to creating
value for our shareholders and we will look forward to speaking with you
when we
make our report at the end of the second quarter in July with our results.
So,
thank you very much for joining us today.
Operator:
And that
concludes today's conference call. We thank you for your participation.
You may
disconnect at this time.