EANS-News: RHI AG / RHI and Magnesita to combine to create a leading refractory company

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Corporate news transmitted by euro adhoc. The issuer/originator is solely
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Mergers - Acquisitions - Takeovers

§ RHI and the controlling shareholders of Magnesita, GP and Rhône
("Magnesita's Controlling Shareholders"), have reached an agreement
to combine the operations of RHI and Magnesita to create a leading
refractory company. The combined company, to be named RHI Magnesita,
will be established in the Netherlands and listed in London

§ Accordingly, 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 entire share capital in
Magnesita, pending RHI's Supervisory Board approval

§ The consideration for the 46% stake will consist of cash amounting
to EUR 118 million and 4.6 million new shares to be issued by RHI
Magnesita

§ A subsequent mandatory tender offer will be launched as a result
of which a maximum number of 5.4 million RHI Magnesita shares will be
issued, bringing the total number of newly issued RHI Magnesita
shares to up to 10.0 million. The Offer will also include a cash-only
alternative amounting to EUR 8.19 per Magnesita share

§ As a result of the Transaction, GP, Magnesita's largest
shareholder, will become a relevant shareholder of RHI Magnesita and
will be represented on its board of directors

§ Following registration of the corporate restructurings, RHI's
shares will cease to be listed on the Vienna Stock Exchange. RHI's
migration from Austria and listing in London are subject to approval
by RHI's shareholders' meeting. The Transaction is also subject to
approvals by relevant competition authorities. The place of effective
management will be Austria

§ The Transaction is expected to complete in 2017. Both companies
will remain completely separate and independent until then

§ RHI Magnesita will be a leading refractory company with an
enhanced growth profile due to improved regional presence and
complementary asset portfolios. RHI, based in Austria, is a global
supplier of high-grade refractory products, with 2015 revenues of EUR
1,753 million Brazil-based Magnesita is a global provider of
integrated refractory solutions, services and industrial minerals,
with revenues of US$ 1,013 million (EUR 914 million) in 2015

Transaction Overview RHI AG ("RHI") and the controlling shareholders
of Magnesita Refratários S.A. ("Magnesita"), investment vehicles
affiliated with GP Investments ("GP") and Rhône Capital ("Rhône", and
together with GP, "Magnesita's Controlling Shareholders"), announce
that they have reached an agreement to combine the operations of RHI
and Magnesita to create a leading refractory company to be named RHI
Magnesita.

Accordingly, RHI's Management Board has agreed to sign a share
purchase agreement ("SPA") 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 (the "Transaction"), pending RHI's Supervisory Board
approval. The purchase price for the 46% stake will be paid in cash
amounting to EUR 118 million and 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 ("VWAP") of EUR 19.52, the implied
value of the 46% stake amounts to EUR 208 million.

As a result of the Transaction, GP 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. All RHI Magnesita shares
issued as a result of the Transaction and subsequent mandatory tender
offer will be subject to a minimum 12-month lock-up period.

The resulting combination will be a leading refractory company.
Refractories are materials that retain their strength at high
temperatures and are used in various industrial processes in the
steel, cement, nonferrous metals, glass and chemicals industries. 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 EUR 1,753 million and adjusted EBITDA of EUR 198
million. Brazil-based Magnesita is a global provider of integrated
refractory solutions, services and industrial minerals, with revenues
of US$ 1,013 million (EUR 914 million) and adjusted EBITDA of US$ 145
million (EUR 131 million) in 2015. (1)

The completion of the Transaction is amongst others subject to (i)
approvals by the relevant competition authorities, (ii) the migration
of RHI to the Netherlands, (iii) the listing of RHI Magnesita's
shares in the premium segment of the Official List on the Main Market
of the London Stock Exchange and (iv) RHI's shareholders not having
exceeded statutory withdrawal rights in an amount of more than EUR 70
million in connection with organizational changes preceding RHI's
migration from Austria. The migration and the preceding
organizational changes in Austria require qualified approval by RHI's
shareholders' meeting. If the Transaction is terminated for reasons
not under the control of Magnesita's Controlling Shareholders, an
aggregate break fee of up to EUR 20 million is payable by RHI to
Magnesita's Controlling Shareholders.

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 and 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 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. Therefore
customers, suppliers, employees and other stakeholders should expect
no change in management teams, commercial relationships, supply
chains and product offerings during this period.

Mandatory Tender Offer Following completion of the Transaction, a
mandatory tender offer will be launched by RHI Magnesita or one of
its affiliates ("Offer") for the remaining shares in Magnesita. As
part of the Offer, a maximum number of 5.4 million RHI Magnesita
shares will be issued, resulting in an aggregate number of no more
than 10.0 million newly issued shares to finance the acquisition. The
Offer will include the option to sell shares on the same payment
terms as the Transaction as well as a cash-only alternative amounting
to EUR 8.19 per Magnesita share (subject to certain adjustments
according to the SPA). If some or all of Magnesita's other
shareholders elect not to receive RHI Magnesita shares in the Offer,
Magnesita's Controlling Shareholders have committed to purchase
additionally at least 1.9 million and at most 3.4 million of the
remaining new RHI Magnesita shares, thereby increasing their total
number of RHI Magnesita shares to a maximum of 8.0 million. RHI may
decide to combine the Offer with a delisting offer and/or a voluntary
offer to exit Magnesita from the "Novo Mercado" listing segment. The
Offer will follow applicable Brazilian laws and regulations. Any RHI
Magnesita shares that are not taken up in the Offer by Magnesita's
shareholders may be either placed into the market or with
institutional investors.

Financial Terms of the Transaction Based on RHI's six-month VWAP of
EUR 19.52, the implied value for the entire share capital of
Magnesita will be EUR 451 million, 45% above Magnesita's market
capitalization as of October 4, 2016. (2) The Transaction will be
financed by additional debt and the issuance of 4.6 million RHI
Magnesita shares to Magnesita's Controlling Shareholders. The
Transaction will increase RHI's current financial leverage, measured
as net debt to EBITDA, to 4.0x at closing of the Transaction when
assuming an acquisition of Magnesita's entire share capital. RHI
expects, however, that leverage will decline to below 2.0x by 2020 as
a result of the strong cash generation profile of the newly combined
company. Magnesita will continue to finance itself on a standalone
basis without credit support from RHI Group. Before or at completion
of the Transaction, Magnesita is expected to adopt RHI's accounting
practices, which, according to RHI, could lead to significant,
however substantially non-cash adjustments in Magnesita's book equity
value.

Enhanced Growth Profile and Global Footprint The combination of RHI
and Magnesita represents a unique opportunity to accelerate growth in
certain regions, resulting from the high complementary of the
businesses both in terms of geographic footprint and products.

Magnesita's presence in South America and the United States fits well
with RHI's presence in Europe and Asia. It results in strengthened
geographic clusters of the combined company by adding production
facilities in several markets in which RHI and Magnesita are lacking
capacity on their own. This combination will also strengthen the
competitive position against the Chinese refractory industry, which
is expected to consolidate in the coming years as announced by the
Chinese government. Moreover, Magnesita's position in dolomite-based
products is highly complementary to RHI's asset portfolio, which
traditionally has a strong focus and an excellent market reputation
for high-quality magnesite products.

The combination of RHI and Magnesita will enable the combined company
to offer its customers an even broader product and service portfolio
thereby delivering enhanced value-add. Additional potential for value
creation will be realized through synergies and the implementation of
common proven standards of operational and commercial excellence.

Significant Value Creation and Synergy Potential The Transaction will
result in meaningful synergies in the following key areas, amongst
others:

(i) a highly complementary offering of value-added products and services as a
result of the combination of both product portfolios;

(ii) a more efficient cost structure, benefitting from economies of scale in
important operational areas such as raw materials supply, freight,
marketing and administration, as well as an optimized operational set-up
leading to enhanced flexibility in production and an improved cost basis;

(iii) an optimized working capital structure, especially given Magnesita's
presence in the Americas, by means of improved inventory management and
related costs, resulting from the complementary regional footprint of RHI
and Magnesita's operations and customer base; and

(iv) a relevant reduction in capital expenditure requirements and maintenance
costs.

As a result of the Transaction, RHI expects minimum net run-rate synergies on

EBIT level of approx. EUR 36 million by 2020. However, RHI is
optimistic that as a result of the Offer, RHI Magnesita's stake in
Magnesita will significantly exceed 46%. In this case, RHI expects
substantially higher synergies of approx. EUR 72 million, especially
in the areas of enhanced production efficiency and cost benefits in
research and development, marketing and administrative functions. In
addition, capital expenditure synergies are expected to amount to
between EUR 2 million and EUR 7 million annually, while aggregate
working capital savings of EUR 40 million are expected in the coming
years.

Cash integration costs as a result of the Transaction are expected by
RHI to be of the magnitude of EUR 50 million to EUR 90 million, while
non-cash integration costs, effectively write-offs, should vary
between EUR 20 million and EUR 35 million, depending on the amount of
Magnesita shares acquired pursuant to the Transaction and subsequent
Offer. Both cash and non-cash integration costs will mainly
crystallize in 2017 and 2018.

Increased Financial Targets 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 EUR 2.6 billion to EUR 2.8 billion (previously EUR 2.0 to EUR 2.2
billion) with an operating EBIT margin of more than 12% (previously
more than 10%) by 2020. It projects a cumulative operating cash flow
of approx. EUR 1.1 billion for the period from 2017 to 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.

About RHI RHI is a globally operating supplier of high-grade
refractory products, systems and services, which are indispensable
for industrial high-temperature processes exceeding 1,200 °C. With
approx. 7,900 employees, over 30 production facilities and more than
70 sales offices, RHI serves more than 10,000 customers in the steel,
cement, nonferrous metals, glass, energy and chemical industries in
nearly all countries around the world. RHI produces more than 1.5
million tons of refractory products p.a. and supplies customized
product and system solutions. The Company's shares are listed on the
Vienna Stock Exchange under the symbol RHI, with RHI being a member
of the ATX index.

About Magnesita Magnesita is a Brazilian publicly traded company,
dedicated to mining, producing and marketing an extensive line of
refractory and industrial mineral materials. Its products are mainly
used by the cement, glass, and steel industries. Industrial
activities began in 1940, soon after the discovery of magnesite
deposits in Brumado, in the Brazilian state of Bahia. Today, it
operates 26 industrial and mining units, sixteen in Brazil, three in
Germany, one in China, one in the United States, two in France, one
in Belgium, one in Taiwan and one in Argentina, with a refractory
production capacity of more than 1.3 million tons per year. The
company is a leader in refractories in the Americas and in
dolomite-based refractories worldwide, and its products were sold to
more than 100 countries in 2015. Its shares trade on the Novo Mercado
of BM&FBOVESPA in Brazil and through level 1 ADRs in the United
States.

About GP Investments GP Investments is a leader in alternative
investments in Latin America. Since its inception, the company has
raised approx. US$5.0 billion from international investors and has
acquired 54 companies in 15 sectors. In May 2006, GP Investments
concluded its initial public offering (IPO), becoming the first
listed private equity firm in Brazil.

About Rhône With 20 years of investing experience, Rhône, together
with its affiliates, is a global alternative asset management firm
with a focus on investments in market leading businesses with a
pan-European or transatlantic presence and expansion prospects.
Currently investing capital from its fifth private equity fund, Rhône
has offices in London and New York and prior investment experience in
the business services, chemicals, consumer products, food, packaging,
security services, specialty materials and transportation sectors.

(1) Magnesita net revenues and adjusted EBITDA converted at 2015
average EUR/US$ exchange rate of 1.11. Magnesita EBITDA adjusted for
other operating income and expenses. RHI EBITDA adjusted for negative
effects on earnings of approx. EUR 58 million related to a necessary
change in the measurement of long-term energy supply contract.

(2) Assuming that 10 million RHI Magnesita shares will be issued

For further information please contact

RHI

Investor Relations / Simon Kuchelbacher
Phone +43 (0)50213-6676
E-mail: simon.kuchelbacher@rhi-ag.com

Media Relations / Randolf Fochler
Phone +43 (0)50213-6120
E-mail: randolf.fochler@rhi-ag.com

Magnesita
CFO and Investor Relations Officer / Eduardo Gotilla
Phone +55 (11) 3152-3203
E-mail: ri@magnesita.com

GP Investments CFO and Investor Relations Officer / Alvaro Lopes
Phone +55 (11) 3556-5505 E-mail: ir@gp-investments.com
_ Disclaimer: This document is for information purposes and shall not
be treated as giving any investment advice, financial analysis and/or
recommendation whatsoever; it does not constitute an offer or
marketing of securities of RHI, nor a prospectus. This press release
contains forward-looking statements based on the management's current
views and certain presumptions and is subject to risks and
uncertainties; if those materialize, actual results may vary
materially. Many factors could cause our results of operations,
financial condition, liquidity, and the development of the industries
in which we compete, to differ materially from those expressed or
implied by the forward-looking statements contained herein. Subject
to applicable securities law requirements, RHI does not intend or
assume any obligation to update or revise these forward-looking
statements. This document is addressed exclusively to persons legally
entitled to receive it and is in particular not addressed to U.S.
persons or persons residing in, Australia, Canada, Japan, Ireland or
the United Kingdom; it may not be distributed to the USA.

Further inquiry note:
RHI AG
Investor Relations
Mag. Simon Kuchelbacher
Tel: +43-1-50213-6676
Email: simon.kuchelbacher@rhi-ag.com

end of announcement euro adhoc
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company: RHI AG
Wienerbergstrasse 9
A-1100 Wien
phone: +43 (0)50213-6676
FAX: +43 (0)50213-6130
mail: rhi@rhi-ag.com
WWW: http://www.rhi-ag.com
sector: Refractories
ISIN: AT0000676903
indexes: ATX Prime, ATX
stockmarkets: official market: Wien
language: English

Original-Content von: RHI AG, übermittelt durch news aktuell