Rentech, Inc. (NASDAQ: RTK) today announced that it has acquired
New England Wood Pellet (NEWP), the largest producer of wood
pellets for the U.S. heating market. A slide presentation regarding
today's announcement appears on Rentech’s website,
www.rentechinc.com. The Company’s management will discuss the
acquisition on its first quarter earnings conference call, which is
scheduled for May 13, 2014.
NEWP, established in 1992, operates three wood pellet facilities
with a combined annual production capacity of 240,000 tons. The
facilities are strategically located in the U.S. Northeast, which
is the largest domestic market for consumption of wood pellets for
heating. NEWP generated EBITDA of approximately $7.4 million in
2013. Further explanation of EBITDA, a non-GAAP financial measure,
and a reconciliation of NEWP’s EBITDA to operating income have been
included below in this press release.
“NEWP is the leader in the growing U.S. market for wood pellets
used in heating applications. The acquisition brings additional
cash flows and profitability to our wood fibre business. In
addition, NEWP’s business broadens our product offerings, customer
base and geographic markets,” said D. Hunt Ramsbottom, president
and chief executive officer of Rentech.
Acquisition Highlights
NEWP is the leader in a well-established and growing
market
Known for its high quality products, NEWP commands an
approximate 15% share of the market for heating pellets in the U.S.
Northeast. The company is one of the largest suppliers of wood
pellets to major retailers including Home Depot, Lowe’s, Tractor
Supply and Wal-Mart.
Wood pellets burned in modern heating appliances are a clean and
convenient source of economical heating. Prices for wood pellets
are competitive with delivered retail prices for natural gas, and
lower than prices for heating oil, propane, or electricity. Wood
pellet prices have historically been more stable than prices of
heating oil or natural gas. Low population density in NEWP’s
markets makes the distribution of natural gas inefficient and
expensive.
Approximately 1.5 million tons of wood pellets are consumed
annually in the U.S. Northeast. According to independent forecasts,
wood pellet consumption in the region is expected to increase at an
annual growth rate of 7% through 2018. Customer demand for wood
pellets in this market exceeds available regional production.
NEWP diversifies Rentech’s wood pellet business
By providing access to the domestic heating market, the
acquisition broadens Rentech’s wood pellet product offerings,
expands its customer base, and opens up new geographic markets.
NEWP has a strong financial profile
The acquisition is immediately accretive to Rentech’s wood fibre
processing business. Consistent with its 2013 performance, NEWP’s
business is forecasted to have revenues of approximately
$44.8 million, operating income of approximately
$4.6 million and EBITDA of approximately $7.6 million for
the twelve months ending December 31, 2014. A
reconciliation of forecasted EBITDA to operating income for NEWP is
included below.
Financial Highlights of the
Acquisition
Rentech acquired all of the equity interests of NEWP for $34.5
million in cash, funded from proceeds of Blackstone/GSO’s recent
$150 million investment in Rentech. Rentech will assume NEWP’s cash
of $2.4 million and debt of approximately $13 million, for a total
initial purchase price of $45.1 million. The initial acquisition
price equals 6.1 times NEWP’s 2013 EBITDA. Rentech expects an
after-tax return on the acquisition in the mid-teens.
The purchase agreement provides for up to $5 million of
potential earn-out consideration, to be paid in cash to the
sellers. The earn-out consideration would be earned ratably if
NEWP’s 2014 EBITDA, as defined in the purchase agreement, is
between $7.3 million and $8.0 million. The earn-out
consideration would not increase if NEWP’s 2014 EBITDA were to
exceed $8 million.
Disclosure Regarding Non-GAAP Financial
Measures
EBITDA is defined as operating income plus depreciation expense.
EBITDA is used as a supplemental financial measure by management
and by external users of Rentech’s financial statements, such as
investors and commercial banks, to assess:
- The financial performance of Rentech’s
assets without regard to financing methods, capital structure or
historical cost basis; and
- Rentech’s operating performance and
return on invested capital compared to those of other companies,
without regard to financing methods and capital structure.
EBITDA should not be considered an alternative to net income,
operating income, net cash provided by operating activities or any
other measure of financial performance or liquidity presented in
accordance with GAAP. EBITDA may have material limitations as a
performance measure because it excludes items that are necessary
elements of Rentech’s costs and operations. In addition, EBITDA
presented by other companies may not be comparable to Rentech’s
presentation, since each company may define these terms
differently.
The table below reconciles NEWP’s 2013 EBITDA to operating
income for the twelve months ended December 31, 2013. The table
also reconciles NEWP’s forecasted EBITDA to operating income for
the twelve months ending December 31, 2014.
(in millions of dollars)
Twelve
MonthsEndedDecember 31, 2013
Twelve
MonthsEndingDecember 31,
20141
Operating Income $ 4.4 $ 4.6
Plus: Depreciation &
Amortization $ 3.0 $ 3.0
EBITDA $ 7.4
$ 7.6
1In 2014, Rentech will recognize EBITDA from the date of the
acquisition through December 31, 2014.
About Rentech, Inc.
Rentech, Inc. (NASDAQ: RTK) owns and operates wood fibre
processing, wood pellet production and nitrogen fertilizer
manufacturing businesses. Rentech offers a full range of integrated
wood fibre services for commercial and industrial customers around
the world, including wood chipping services, operations, marketing,
trading and vessel loading, through its subsidiary, Fulghum Fibres.
The Company’s New England Wood Pellet subsidiary is a leading
producer of bagged wood pellets for the U.S. heating market.
Rentech is developing wood pellet facilities in East Canada to
supply pellets to utilities. Rentech manufactures and sells
nitrogen fertilizer through its publicly traded subsidiary, Rentech
Nitrogen Partners, L.P. (NYSE: RNF). Please visit
www.rentechinc.com and www.rentechnitrogen.com for more
information.
Forward Looking Statements
This news release contains forward-looking statements as defined
in the Private Securities Litigation Reform Act of 1995 about
matters such as: expected growth in wood pellet consumption in the
Northeast; NEWP’s expected financial performance and the return on
the Company’s investment; and the Company’s wood fibre processing
business. These statements are based on management’s current
expectations and actual results may differ materially as a result
of various risks and uncertainties. Factors that could cause actual
results to differ from those reflected in the forward-looking
statements are set forth in Rentech’s press releases and periodic
reports filed with the Securities and Exchange Commission, which
are available via Rentech’s website at www.rentechinc.com. The
forward-looking statements in this news release are made as of the
date of this release and Rentech does not undertake to revise or
update these forward-looking statements, except to the extent that
it is required to do so under applicable law.
Rentech, Inc.Julie Dawoodjee CafarellaVice President of Investor
Relations and Communications310-571-9800ir@rentk.com
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