CHG Chemring Group Plc

 

TIDMCHG 
 
RNS Number : 1996O 
Chemring Group PLC 
24 June 2010 
 

FOR IMMEDIATE RELEASE 
                                 24 JUNE 2010 
 
                               CHEMRING GROUP PLC 
 
                     UPDATE ON THE CONDITIONAL ACQUISITION 
                       OF THE ALLIED DEFENSE GROUP, INC. 
 
 
On 19 January 2010, Chemring Group PLC ("Chemring") announced that it had 
entered into a conditional agreement (the "Merger Agreement") to acquire the 
entire issued stock capital of The Allied Defense Group, Inc. ("ADG"), a US 
public company traded on the NYSE AMEX, for a cash consideration of $7.25 per 
share equating to $59 million (GBP40 million). 
 
On the same day as Chemring's announcement, ADG received a subpoena from the US 
Department of Justice ("DOJ") requesting that ADG produce documents relating to 
its dealings with foreign governments. ADG also became aware that day that an 
employee of its US subsidiary, Mecar USA, Inc. ("Mecar US"), had been indicted 
by the DOJ for allegedly engaging in schemes to bribe foreign government 
officials to obtain and retain business. The unsealed indictment of this 
employee and the DOJ's press release indicated that the alleged criminal conduct 
was on behalf of another US company unrelated to ADG or Mecar US. Whilst the DOJ 
initially agreed that ADG could limit its response to the subpoena to matters 
related to the indicted former employee of Mecar US, the DOJ has recently 
requested additional documents from ADG and indicated that it would be expanding 
its review. Against this background, Chemring concluded that it could not 
complete the acquisition of ADG pursuant to the Merger Agreement. 
 
Revised transaction structure 
 
Chemring has instead entered into a new conditional agreement with ADG to 
acquire ADG's two principal operating businesses - Mecar S.A., based in 
Nivelles, Belgium and Mecar US, based in Marshall, Texas (collectively "Mecar"). 
Pursuant to this new agreement, Chemring will acquire the entire issued share 
capital of Mecar S.A. and the business and assets of Mecar US for a total cash 
consideration of $59 million (GBP40 million). 
Description of the business and reasons for the acquisition 
Mecar S.A. is a niche manufacturer of medium and large calibre ammunition, 
particularly for modern, light armoured vehicles ("LAVs"). Mecar US provides 
load, assemble and pack and procurement services for the US Government and prime 
contractors. 
In the year ended 31 December 2009, Mecar generated an audited underlying 
operating profit (before non-recurring costs) of $1.7 million (GBP1.2 million) 
on revenue of $142 million (GBP95 million). Gross assets as at that date were 
$101 million (GBP68 million). Mecar's order book is currently valued at around 
$88 million (GBP59 million). The acquisition is expected to enhance Chemring's 
earnings in the first full financial year post-completion.* 
The acquisition of Mecar brings to Chemring complementary markets, products and 
technologies. Mecar has a strong presence in the Middle East, complementing 
Chemring's current emphasis on NATO customers. As a prime contractor, Mecar's 
focus on ammunition for LAVs fits well with Chemring's leading position in naval 
ammunition. Finally, the acquisition of Mecar creates an internal customer for 
Chemring's propellants, explosives and fuzes, whilst its precision machining 
capacity should be able to supply a growing Group requirement for metal parts. 
Principal terms of the acquisition 
The cash consideration of $59 million (GBP40 million) will be funded from the 
proceeds of the private placement of $280 million (GBP188 million) of fixed 
interest loan notes completed by the Group in November 2009. 
On completion of the acquisition, Chemring will assume approximately $11 million 
(GBP7 million) of net cash at Mecar. Approximately $14 million (GBP9 million) 
will need to be invested in working capital in the short-term. This, therefore, 
produces an overall enterprise value for Mecar of approximately $62 million 
(GBP42 million). 
Completion, which is anticipated within ninety days, is conditional upon, inter 
alia, US regulatory and ADG shareholder approvals. 
Commenting on the acquisition, Dr David Price, Chief Executive of Chemring, 
said: "The two Mecar subsidiaries will enhance our position in both the Middle 
East and Far East markets. They provide a wide range of complimentary products 
and technology to our existing businesses. I am delighted that we have been able 
to negotiate this revised agreement." 
 
 * This statement should not be taken to mean that the earnings per share of 
Chemring will necessarily match or exceed the historical reported earnings per 
share of Chemring and no forecast is intended or implied. 
 
 
 
 
For further information: 
Dr David Price            Chief Executive, Chemring Group PLC          01489 
881880 
Paul Rayner                Finance Director, Chemring Group PLC        01489 
881880 
Rupert Pittman           Cardew Group 
     0207 930 0777 
 
 
 
This information is provided by RNS 
            The company news service from the London Stock Exchange 
   END 
 
 ACQBXGDLLBDBGGS 
 

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