Reliance Worldwide Corporation Ltd (ASX: RWC) shares entered a voluntary trading halt on the ASX Thursday morning pending the acquisition of John Guest.
Reliance Worldwide Corporation is an Australian plumbing supplies and water solutions business, perhaps best known by plumbers for its SharkBite pipe connector.
RWC’s ASX-listed shares entered the trading halt after the company announced it will undertake a huge capital raising to fund an acquisition of the UK’s John Guest Holdings Limited.
What is John Guest?
John Guest is a UK-based tubing and push-to-connect (PTC) fittings business established in the 1950’s. It has operations around the world, including in Europe and the USA. In 2017, it generated around $300 million of sales.
RWC says John Guest is a very similar business to its own and provides it with extensive market exposure and product lines.
“We are excited about the opportunity to join these two great companies,” RWC CEO Heath Sharp said. “We have previously noted our intention to scale the RWC business via additional manufacturing and distribution capabilities in the UK and continental Europe.”
Deal Price
RWC will buy all shares in John Guest for around $1.22 billion. For context, all shares in RWC are worth $2.4 billion, according to Google Finance data.
RWC said the purchase price is equivalent to about 12 times John Guest’s 2017 earnings before interest, taxes, depreciation and amortisation (EBITDA). Despite a seemingly high purchase multiple, RWC says the transaction should produce a 20% or greater increase in profit per share. That’s despite the company issuing many more shares to fund the deal.
John Guest Acquisition Funding
RWC will pay for the deal with a $1.1 billion capital raising, with all shareholders able to take up the offer in proportion to the size of their current holding.
Institutional investors, like fund managers and Super funds, will receive $945 million of the new shares, with J.P. Morgan and Macquarie Group Ltd (ASX: MQG) to take up any shares not bought by these investors. RWC said its Chairman Jonathan Munz will take up his full entitlement, worth $110 million.
Shareholders can buy 1 new share for every 1.98 they hold, for $4.15 each. Any shortfall in the raising will be made up by debt funding, provided by Australia and New Zealand Banking Group (ASX: ANZ) and Commonwealth Bank of Australia (ASX: CBA).
Trading update
RWC took the opportunity to reaffirm its EBITDA guidance for 2018, before costs and assuming no earnings from John Guest.
Shares of RWC are expected to return to ASX trading on Monday, May 28th.
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