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Koppers Signs Agreement to Acquire Brown Wood Preserving

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Rhea-AI Summary
Koppers Holdings Inc. (KOP) announces the acquisition of Brown Wood Preserving Company, Inc. for $100 million, expanding its utility pole business. The deal is expected to enhance capabilities, geographic reach, and profitability in the utility sector.
Positive
  • Acquisition of Brown Wood Preserving Company, Inc. by Koppers Holdings Inc. for $100 million.
  • Expected closure of the transaction in the second quarter of 2024.
  • Focus on growing utility pole treatment business through organic and inorganic means.
  • Anticipated adjusted EBITDA of $315-325 million by 2025.
  • Brown Wood has approximately 100 employees and serves customers in the Midwest and Southeast regions.
  • Transaction to be financed through cash and borrowing capacity.
Negative
  • None.

The acquisition of Brown Wood by Koppers Holdings represents a strategic expansion of Koppers' utility pole business. From a market research perspective, this move is indicative of Koppers' commitment to scale its operations and deepen its market penetration, particularly in the Midwest and Southeast regions of the United States. The utility pole market is a niche but essential segment of the infrastructure sector and growth in this area is often driven by the need to replace aging infrastructure and expand electrical grids to support growing populations and economic development.

By integrating Brown Wood's manufacturing capabilities and customer base, Koppers is likely to enhance its competitive positioning. It's important to note that the utility pole business has high barriers to entry due to regulatory standards and the need for specialized treatment processes, which means that the acquisition could also serve as a strategic defense against new entrants. However, the success of such an acquisition will depend on the effective integration of Brown Wood's operations and the realization of potential synergies.

From a financial standpoint, the acquisition's base purchase price of $100 million needs to be evaluated in the context of Koppers' overall financial health and its ability to generate a return on this investment. The financing through cash and borrowing indicates confidence in the company's liquidity and capital structure. However, investors should closely monitor the impact of this acquisition on Koppers' leverage ratios and interest coverage, especially since the CEO has indicated that it will not add materially to 2024 results due to integration costs.

Furthermore, the projected adjusted EBITDA for 2025 suggests that Koppers anticipates a significant contribution from the acquisition in the medium term. Stakeholders should consider this projection in light of industry averages for EBITDA margins in the treated wood products sector. If Koppers can achieve these targets, it could imply a positive impact on the company's valuation and stock performance, contingent on broader market conditions and the successful integration of Brown Wood.

On the legal front, the acquisition is subject to customary closing conditions, which likely include regulatory approvals and the satisfaction of certain financial and operational criteria. Given the size of the transaction and the nature of the industry, antitrust considerations will be important, although the specialized market may mitigate competition concerns. It is also crucial for Koppers to ensure compliance with environmental regulations, particularly those pertaining to wood treatment chemicals, as failure to do so could result in significant liabilities. The due diligence process leading up to this acquisition would have been extensive, aimed at identifying and mitigating any legal risks associated with Brown Wood's operations and assets.

Represents Growth, Market Expansion and Scale in Utility Pole Business

PITTSBURGH, Feb. 28, 2024 /PRNewswire/ -- Koppers Holdings Inc. (NYSE: KOP), an integrated global provider of treated wood products, wood treatment chemicals, and carbon compounds, today announced that Koppers Utility and Industrial Products Inc. (UIP), a wholly owned subsidiary of Koppers Holdings, signed an agreement to acquire substantially all of the assets of Brown Wood Preserving Company, Inc. and certain of its affiliates (Brown Wood) for approximately $100 million in cash.  Brown Wood manufactures and sells pressure-treated wood utility poles.  The transaction is expected to close in the second quarter of 2024, subject to customary closing conditions.

Commenting on the transaction, James Sullivan, President and Chief Operating Officer of Koppers said, "I am really pleased to add the Brown Wood group to the Koppers team.  Together, we will be able to bring even greater capabilities to our customer base while growing our geographic reach.  I am excited to see the results of this combination in the Koppers portfolio and the positive impact it will have on the profitability of our now larger global utility business."

Chief Executive Officer Leroy Ball added, "The acquisition of Brown Wood is the logical next step to our announced intentions to focus on growing our utility pole treatment business through both organic and inorganic means.  While this likely will not add materially to 2024 results due to timing and integration costs, all things equal, it should enable Koppers to achieve 2025 adjusted earnings before interest, taxes, depreciation and amortization of between $315 million and $325 million."

Founded in 1929, Brown Wood is headquartered in Louisville, Kentucky.  The company has approximately 100 employees, serving customers primarily in the Midwest and Southeast regions of the United States, with locations in Kennedy, Alabama, and Mathiston, Mississippi.

Terms of Transaction

Under the terms of the transaction, Koppers is acquiring Brown Wood for a base purchase price of $100 million in cash, subject to certain closing adjustments, and plans to finance the acquisition through cash and borrowing capacity.  Brown Wood will be operated as part of Koppers Utility and Industrial Products upon closing.

About Koppers

Koppers, with corporate headquarters in Pittsburgh, Pennsylvania, is an integrated global provider of treated wood products, wood treatment chemicals, and carbon compounds.  Our products and services are used in a variety of niche applications in a diverse range of end markets, including the railroad, specialty chemical, utility, residential lumber, agriculture, aluminum, steel, rubber, and construction industries.  We serve our customers through a comprehensive global manufacturing and distribution network, with facilities located in North America, South America, Australasia, and Europe.  The stock of Koppers Holdings Inc. is publicly traded on the New York Stock Exchange under the symbol "KOP."

For more information, visit: www.koppers.com. Inquiries from the media should be directed to Ms. Jessica Franklin Black at BlackJF@koppers.com or 412-227-2025.  Inquiries from the investment community should be directed to Ms. Quynh McGuire at McGuireQT@koppers.com or 412-227-2049.

Non-GAAP Financial Measures

This press release contains certain non-GAAP financial measures.  Koppers believes that adjusted EBITDA provides information useful to investors in understanding the underlying operational performance of the company, its business and performance trends, and facilitate comparisons between periods and with other corporations in similar industries. The exclusion of certain items permits evaluation and a comparison of results for ongoing business operations, and it is on this basis that Koppers management internally assesses the company's performance.  In addition, the Board of Directors and executive management team use adjusted EBITDA as a performance measure under the company's annual incentive plans and for certain performance share units granted to management.

Although Koppers believes that these non-GAAP financial measures enhance investors' understanding of its business and performance, these non-GAAP financial measures should not be considered an alternative to GAAP basis financial measures and should be read in conjunction with the relevant GAAP financial measure. Other companies in a similar industry may define or calculate these measures differently than the company, limiting their usefulness as comparative measures. Because of these limitations, these non-GAAP financial measures should not be considered in isolation or as substitutes for performance measures calculated in accordance with GAAP.

Koppers does not provide reconciliations of guidance for adjusted EBITDA to the comparable GAAP measure, in reliance on the unreasonable efforts exception.  Koppers is unable, without unreasonable efforts, to forecast certain items required to develop meaningful comparable GAAP financial measures. These items include, but are not limited to, restructuring and impairment charges, acquisition-related costs, mark-to-market commodity hedging, and LIFO adjustments that are difficult to forecast for a GAAP estimate and may be significant.

Safe Harbor Statement

Certain statements in this press release are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and may include, but are not limited to, statements about sales levels, acquisitions, restructuring, declines in the value of Koppers assets and the effect of any resulting impairment charges, profitability and anticipated expenses and cash outflows. All forward-looking statements involve risks and uncertainties.

All statements contained herein that are not clearly historical in nature are forward-looking, and words such as "outlook," "guidance," "forecast," "believe," "anticipate," "expect," "estimate," "may," "will," "should," "continue," "plan," "potential," "intend," "likely," or other similar words or phrases are generally intended to identify forward-looking statements. Any forward-looking statement contained herein, in other press releases, written statements or other documents filed with the Securities and Exchange Commission, or in Koppers communications and discussions with investors and analysts in the normal course of business through meetings, phone calls and conference calls, regarding future dividends, expectations with respect to sales, earnings, cash flows, operating efficiencies, restructurings, the benefits of acquisitions, divestitures, joint ventures or other matters as well as financings and debt reduction, are subject to known and unknown risks, uncertainties and contingencies.

Many of these risks, uncertainties and contingencies are beyond our control, and may cause actual results, performance, or achievements to differ materially from anticipated results, performance, or achievements. Factors that might affect such forward-looking statements include, among other things, the impact of changes in commodity prices, such as oil and copper, on product margins; general economic and business conditions; potential difficulties in protecting our intellectual property; the ratings on our debt and our ability to repay or refinance our outstanding indebtedness as it matures; our ability to operate within the limitations of our debt covenants; unexpected business disruptions; potential impairment of our goodwill and/or long-lived assets; demand for Koppers goods and services; competitive conditions; capital market conditions, including interest rates, borrowing costs and foreign currency rate fluctuations; availability and fluctuations in the prices of key raw materials; disruptions and inefficiencies in the supply chain; economic, political and environmental conditions in international markets; changes in laws; the impact of environmental laws and regulations; parties' failure to perform their indemnity obligations to us; unfavorable resolution of claims against us, as well as those discussed more fully elsewhere in this release and in documents filed with the Securities and Exchange Commission by Koppers, particularly our latest annual report on Form 10-K and any subsequent filings by Koppers with the Securities and Exchange Commission. Any forward-looking statements in this release speak only as of the date of this release, and we undertake no obligation to update any forward-looking statement to reflect events or circumstances after that date or to reflect the occurrence of unanticipated events.

For Information:

Quynh McGuire, Vice President, Investor Relations


412 227 2049


McGuireQT@koppers.com

 

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SOURCE KOPPERS HOLDINGS INC.

FAQ

What is the acquisition cost of Brown Wood Preserving Company, Inc. by Koppers Holdings Inc.?

Koppers Holdings Inc. is acquiring Brown Wood Preserving Company, Inc. for a base purchase price of $100 million in cash.

When is the expected closure of the transaction between Koppers Holdings Inc. and Brown Wood Preserving Company, Inc.?

The transaction is expected to close in the second quarter of 2024, subject to customary closing conditions.

Where is Brown Wood Preserving Company, Inc. headquartered?

Brown Wood Preserving Company, Inc. is headquartered in Louisville, Kentucky.

How does Koppers Holdings Inc. plan to finance the acquisition of Brown Wood Preserving Company, Inc.?

Koppers Holdings Inc. plans to finance the acquisition through cash and borrowing capacity.

What is the anticipated adjusted EBITDA range by 2025 for Koppers Holdings Inc.?

Koppers Holdings Inc. anticipates achieving adjusted EBITDA of between $315 million and $325 million by 2025.

Koppers Holdings Inc.

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About KOP

koppers, headquartered in pittsburgh, pennsylvania, is a global wood preservation technology company that creates safe and environmentally responsible solutions to solve our customer’s most important challenges. our products and services are used in a variety of niche applications in a diverse range of end-markets including railroad, specialty chemical, utility, residential lumber, agriculture, aluminum, steel, rubber and construction industries. with more than 2,100 employees, we maintain a global manufacturing and distribution network, with facilities in north america, south america, australasia, china and europe. koppers is committed to living a culture of zero harm that places the care of our people, our environment and our communities first at all times. the company is also a member of the american chemistry council and dedicated to adopting its responsible care® initiative at all of our locations worldwide.