Sept. 4, 2003 -- SUEZ has concluded the sale of Nalco, its subsidiary specializing in chemical water treatment and industrial process water1, to a consortium composed of the Blackstone Group, Apollo Management L.P., and Goldman Sachs Capital Partners. The transaction values Nalco at USD 4.350 billion2.
The sale of Nalco is a strategic decision, in line with the objectives of the SUEZ 2003-2004 action plan announced January 9 of this year, namely, to improve profitability and strengthen the Group's financial structure.
This decision also reflects the new economic environment, the Group's more stringent financial criteria, and Nalco's development potential. In addition, the sale of Nalco will reduce the Group's debt by approximately USD 3.8 billion.
Therefore, already in 2003, the Group has achieved one of the principal goals of the Action Plan, namely, to reduce its net debt (which stood at EUR 28 billion at June 30, 2002) by one-third. Total disposals carried out since February 2003 will have contributed EUR 10 billion to reducing SUEZ debt.3
The Nalco transaction, slightly accretive, boosts the Group's profitability by improving its return on capital employed (ROCE) in its global businesses: 9.1% ROCE for global businesses in 2002, excluding Nalco, to be compared with 8.6% ROCE for global businesses in 2002, including Nalco. Furthermore, the Nalco sale improves SUEZ's major financial ratios (debt-to-equity, EBITDA on net financial expenses, cash flow-to-debt), and reduces goodwill and intangible assets on SUEZ's balance sheet by more than one third.
Nalco's sale was arranged through a competitive private bidding process over a period of several months. Nalco's valuation took into account operating performance improvements, cost reductions of the past several years, as well as a potential rebound in U.S. industrial activity.
The transaction price implies an EBITDA multiple of approximately 8.1 times on the basis of the last 12 months EBITDA under US GAAP, to be compared with an EBITDA multiple of 10 at the time of the acquisition.
This unfavorable financial market trend is not totally offset by the continuous progress of Nalco performances. Thus, the Group will record an exceptional charge of EUR 700 million for the first half results of 2003 following the sale of Nalco.
With the disposal of Nalco, the Group continues to implement its action plan, while confirming its business strategy focused on two businesses (energy, environment), from a solid base in Europe and with strong positions in the rest of the world (including North America, Brazil and China), pursuing a profitable and sustainable growth.
On this transaction SUEZ was advised by UBS and Rohatyn Associates. HSBC issued a fairness opinion on Ondeo Nalco's valuation and the sale procedure.
1 This sale, which is subject to some usual conditions especially the agreement by the anti-trust American, Canadian and European authorities, should occur by the end of 2003. The financing of this operation is fully underwritten.
2 i.e. USD 4.2 billion plus the assumption of certain leases.
3 Since the beginning of the year, SUEZ has disposed of non-strategic equity investments in AXA, Total, Vinci, SES, as well as the bulk of its investment in Fortis, its stake in Cespa, along with 75% of Northumbrian Water Group whose capital requirements no longer corresponded to Group objectives.
In 2003, Nalco generated 5.9% of Group revenues (less than 15% of the Group's industrial customer revenues), approximately 27% of Group revenues derived from North American operations, accounted for 6.5% of Group EBITDA, 6.8% of Group NCR, and 13.6% of the Group's capital employed. Ondeo Nalco has a work force of 10,000 employees.
SUEZ, a worldwide industrial and services Group, provides companies, municipalities, and individuals innovative solutions in Energy - electricity and gas - and the Environment - water and waste services. In 2002, SUEZ generated revenues of EUR 40.218 billion (excluding energy trading). SUEZ is listed on the Euronext Paris, Euronext Brussels, Luxembourg, Zurich and New York Stock Exchanges.
