Ruukki has announced that it intends to complete consolidation of its entire European business by acquiring the EWW chrome processing facilities in Germany and by terminating the profit and loss sharing arrangement with the RCS trading business in Malta. The total transaction value of a minimum EUR 25.3 million, payable to major RKKI shareholder, Kermas Limited, will consume a fair proportion of RKKI’s cash (EUR 66 million as end of 2011), but will provide it with complete ownership and control of the European businesses.
This transaction between RKKI and Kermas ends the remaining arrangements entered into in October 2008, when RKKI acquired the European business from Kermas.
The key features of the transaction are as follows:
EWW cash: RKKI is to acquire 100% of EWW for EUR 17.3 million cash (potentially adjustable up to EUR 20 million). EWW toll treats the chromite concentrate generated from RKKI’s Turkish mining operations and produces specialty alloys used in the automotive, aerospace and power generation industries.
RCS cash: The profit and loss sharing arrangement between RKKI and the RCS trading business, in relation to the marketing of these specialty alloy products and the Turkish chrome ore not sold to EWW, is to be terminated for EUR 8 million in cash. This equates to the amount estimated to be payable in future profits from 2011 to 2013.
Other: The 70.2 million options granted to Kermas, relating to the PL sharing arrangement, are to be cancelled, as are various lock up arrangements and management arrangements.
In effect, Kermas is to receive EUR 25.3 million cash, while relinquishing profit sharing arrangements and options. Given that Kermas is a 28.5% shareholder in RKKI, this constitutes a related party transaction and will therefore require shareholder approval the Annual General Meeting on the May 10th 2012.
The RKKI board values the 100% control that this transaction will provide and regards the transaction as the optimal use of available funds, and consistent with RKKI’s stated vision of being a major player in the chrome industry within five years. In the absence of further detail, we have to assume that the transaction is attractively accretive. More details on the transaction are to be distributed in a circular.
EWW is consolidated within RKKI’s accounts, but RKKI reports that in FY11A it generated a profit after tax of EUR 0.35 million, while the carrying value of its assets was EUR 22.6 million. RKKI is paying a minimum EUR 17.3 million for EWW.
Outlook: RKKI remains well positioned to benefit from a turnaround in the FeCr market, which is in turn aligned with global stainless steel production growth. In the meantime, we believe that it has the balance sheet to withstand a prolonged downturn and potentially even to acquire additional assets, expanding its mineral resource base in particular.
Source – Ruukki Group Plc