On Friday, March 22, 2019, Pipe metallurgical company (TMK) of Dmitry Pumpyansky announced the signing of an agreement with the Italian pipe manufacturer Tenaris on the sale of 100% of the shares of its American “daughter” IPSCO Tubulars.
The transaction amounted to $1,209 billion, it includes $270 million of working capital, but does not include cash and debt. Companies have yet to obtain all necessary regulatory approvals.
The Chairman of the Board of TMK Dmitry Pumpyansky said that the deal done on favorable terms to the company’s strategy of monetizing its international assets. His words are given in the message of the company on the London stock exchange.
Immediately after the publication of the news about the deal, the company’s shares rose by 11%, TMK’s capitalization amounted to $765.8 million.
If TMK directs the funds received to repay the debt, the ratio of net debt to EBITDA will decrease from 3.7 to 2.9, taking into account financial leasing. If the performance of the Russian division this year will be good, the debt burden may be reduced to 2.5.
Since 2017, TMK has been thinking about carrying out an IPO of its North American division. For the IPO, the share price was determined at $20-23, the company was going to sell 23-25 million shares for $465-535 million.
In total, IPSCO Tubulars has 60.8 million shares in circulation, that is, for the IPO, the company was estimated at $1,216–1,398 billion. However, the IPO was postponed several times due to market conditions.
At the same time, TMK’s top managers spoke positively about the prospects of IPSCO, hoping that the growth of drilling for shale oil and gas in the US will support the high demand for pipes. At TMK’s strategy day on March 19, 2019, Vladimir Shmatovich, Deputy General Director for strategy and development, said that the company was maintaining its plans for an IPO.
Currently, Tenaris buys shares at a discount, as TMK will receive $939 million from the transaction. TMK IPSCO is sold without debt, but with $270 million of working capital.
TMK surprised investors by announcing the sale of 100% IPSCO to Tenaris just a few days after it confirmed plans for an IPO of the US division. The funds received from the transaction should significantly help to reduce the debt burden of TMK.
This transaction is consistent with TMK’s strategy, the key elements of which are the monetization of international business and reduction of the debt burden, TMK said. “It is premature to talk about the use of funds from the sale until the transaction is closed, but one of the components will be the reduction of the debt burden,” the company noted.
The North American division of TMK consists of 10 plants in the USA and two in Canada. IPSCO manufactures welded and seamless carbon steel pipes primarily for the oil and gas industry, as well as pipes with premium threaded connections of the Ultra family and oilfield tools.
TMK acquired IPSCO in 2008, Bloomberg estimated the purchase at $1.18 billion. IPSCO’s share in 2018 accounted for 26.5% of TMK’s revenue ($1.349 billion of $5.099 billion) and 23.4% of EBITDA ($164 million of $700 million).
TMK representative stated that the key objectives of the sale are to monetize international business and reduce the debt burden. He noted that the company has no plans to sell European assets, but the possibility of an IPO is still being considered.
The European division includes the enterprises located in Romania: TMK-ARTROM pipe plant and TMK-RESITA metallurgical combine. The plants produce industrial pipes and steel billets.