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Hillenbrand Set to Acquire Milacron (MCRN) in Deal Worth $2B

Zacks Equity Research

Milacron Holdings Corp. MCRN has entered into an agreement with Hillenbrand, Inc. HI, per which Hillenbrand will acquire Milacron in a cash-and-stock transaction, valued at $2 billion, including Milacron’s net debt of $686 million as of Mar 31, 2019.
The agreement, which has been approved by the board of directors of both companies, is expected to close in the first calendar-quarter of 2020.
Following the deal, Milacron’s shares jumped 24% on Jul 12. Per the terms of the agreement, Milacron shareholders will receive $11.80 in cash and a fixed exchange ratio of 0.1612 shares of Hillenbrand stock for each Milacron share held.

Per Hillenbrand’s Thursday’s closing price, Milacron’s shareholders will receive $18.07 per share, which represents 34% premium to Milacron’s closing price on Jul 11, 2019. Also, shareholders will get 38% premium to Milacron’s 30-day volume-weighted average price as of the same date. Upon the deal’s closure, Hillenbrand shareholders will own 84% of the combined company, while Milacron will own the balance 16%.
Milacron’s acquisition highlights compelling financial and strategic benefits:

Leading Brands & New Technologies Spur Growth

The new entity will expand its product offerings to reach additional customer segments by leveraging its industry-leading technologies. Moreover, Milacron’s technologies will enable Hillenbrand to offer plastic processing solutions, including extrusion, injection molding and hot runner systems. Additionally, the combined entity will have an extended reach in end markets, such as automotive, consumer packaging, construction, medical, recycling and electronics.

Addition of Complementary Business & Expanding Global Reach

Hillenbrand intends to add new complementary businesses in hot-runner systems and injection molding to its portfolio through Milacron’s leading brands, including Mold-Masters and Milacron injection molding. Hillenbrand’s Milacron buyout will also help it achieve leading positions in plastics technology and processing. With broader global scale, product diversification and a solid presence in more than 50 countries, the combined company will be well placed to bank on emerging trends across the plastics value chain, including plastic base resins production, compounding, processing both extruded and injection-molded products, and recycling.

Driving Significant Efficiencies through Cost Synergies
While Milacron will benefit from the Hillenbrand Operating Model (HOM), Hillenbrand expects to leverage the global shared services center of the former to boost operational efficiency. This transaction will likely generate annual, run-rate cost synergies of around $50 million within three years following the closing. The deal is also estimated to generate revenue synergies, by cross-selling extruder and material handling equipment. The combined organization will be committed to serve customers with innovation and excellence while gaining efficiencies through utilizing the HOM.

The aforementioned transaction is also anticipated to deliver double-digit adjusted EPS, which is immediately accretive to the adjusted EBITDA margin in the first year following the closing.
Coming to the share price performance, Milacron’s shares have depreciated 11.2% over the past year compared with the industry’s decline of 9.1%.

Notably, this July, Milacron sold its Uniloy Blow Molding Business to Osgood Capital Group, LLC and Cyprium Investment Partners, LLC. The company generated $51.9 million in proceeds, following the transaction’s conclusion on Jul 1.

During the March-end quarter, Milacron initiated a process to divest its blow-molding business as it is no longer considered a strategic fit with the company's long-term growth and operational objectives. This business has historically been difficult to predict and has not met the projected profitability targets.

Milacron Holdings Corp. Price and Consensus

Milacron Holdings Corp. Price and Consensus

Milacron Holdings Corp. price-consensus-chart | Milacron Holdings Corp. Quote

Zacks Rank & Stocks to Consider

Milacron currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the Industrial Products sector are Roper Technologies, Inc. ROP and CIRCOR International, Inc. CIR, each sporting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Roper Technologies has an expected earnings growth rate of 9.4% for the current year. The stock has appreciated 36.9% in a year’s time.

CIRCOR International has a projected earnings growth rate of 7.6% for 2019. Shares of the company have gained 8% over the past year.

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