Element Solutions Closes Kester Buyout, Reprices Term Loans

Element Solutions Inc (NYSE:ESI) announced that it completed the acquisition of Kester from Illinois Tool Works Inc (NYSE:ITW) for roughly $68 million in cash.

Per management, the Kester acquisition will add capabilities and scale to its existing electronics assembly materials business. The acquisition serves as a model for highly-strategic acquisitions that the company plans to undertake in addition to the judicious return of capital to shareholders in its capital allocation strategy.

Element Solutions will not witness any substantial increase in its net debt to adjusted EBITDA ratio due to the purchase.

Further, the company announced the repricing of its existing $744-million term loan B, which is expected to reduce borrowing costs by 25 basis points or annual interest expenses by $2 million.

Notably, Element Solutions’ earlier-announced cross-currency swaps and interest rate swaps will still be applicable with the same terms and conditions. Thus, it will effectively set the term loan interest rate at roughly 2% on the Euro equivalent balance of the loans through January 2024. The term loans’ maturity of January 2026 remained unchanged.

The company expects the cumulative impact of the Kester acquisition and the repricing of existing term loans to contribute 3-4% accretion to its adjusted earnings per share (EPS) in 2020.

Shares of Element Solutions have lost 7.3% in the past year against its industry’s 3.9% growth.

In the last month, the company had expected adjusted EPS of 84-87 cents per share for 2019, up from 83-86 cents stated earlier. It reaffirmed adjusted EBITDA growth outlook of 2-5% on a constant currency basis.

Moreover, it expects a 4% organic net sales decline for 2019 compared with a decrease of 1-3% stated previously.

Element Solutions Inc Price and Consensus

Zacks Rank & Other Stocks to Consider

Element Solutions currently carries a Zacks Rank #2 (Buy).

Some other top-ranked stocks in the basic materials space are Impala Platinum Holdings Ltd. (OTC:IMPUY) , currently sporting a Zacks Rank #1 (Strong Buy), and Franco-Nevada Corporation (TSX:FNV) , carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Impala Platinum has a projected earnings growth rate of 255.2% for 2019. The company’s shares have rallied 246.4% in a year.

Franco-Nevada has a projected earnings growth rate of 46.2% for 2019. The company’s shares have rallied 42.8% in a year.

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