UPDATE 3-Graftech snaps up rival, supplier for $692 mln

Thu Apr 29, 2010 2:52pm EDT

* Deals to add to earnings in first year after closures

* Deals expected to close independently

* Posts strong Q1 results on improving volumes

* Shares up as much as 31 pct (Adds details from conference call, analyst comments, background; updates share movement)

By A.Ananthalakshmi

BANGALORE, April 29 (Reuters) - Electrodes maker GrafTech International Ltd (GTI.N) will buy rival C/G Electrodes LLC and the rest of raw material supplier Seadrift Coke LP it does not already own, for a total of $692 million, to strengthen its presence in the graphite electrode market.

Shares of GrafTech, which also reported forecast-beating first-quarter results, rose as much as 31 percent Thursday to touch an 18-month high of $17.59 on the New York Stock Exchange.

"These acquisitions underscore our belief in the strong graphite electrode industry fundamentals," Chief Executive Craig Shular said.

GrafTech, which makes graphite and carbon electrodes, expects the deals to add to earnings in the first full year following closures.

It also expects the buyouts to add $90 million to $110 million, after synergies, to 2011 EBITDA, the company said on a conference call with analysts.

GrafTech already owns 18.9 percent of Seadrift, the world's second largest manufacturer of petroleum-based needle coke.

Needle coke, the primary raw material used for making electrodes, accounts for about 40 to 45 percent of GrafTech's total costs.

GrafTech, whose electrodes are used in the automotive, electronics, power and oil markets, gets its needle coke from suppliers such as Seadrift and ConocoPhillips (COP.N).

"The Seadrift purchase is important as it backward integrates GrafTech into more than 70 percent of its needle coke needs and will reduce its dependence on Conoco," Oppenheimer analyst Ian Zaffino said.

On the other hand, C/G Electrodes is one of GrafTech's competitors and will add about 10 percent to its graphite electrode capacity. GrafTech already supplies about 15 percent of the graphite electrodes in the market.

GrafTech said owners of both the companies will together receive 24 million shares, $233 million in cash and $200 million in non-interest bearing five-year senior subordinated notes.

Nathan Milikowsky, general partner and majority owner of both Seadrift and C/G Electrodes, will be named to GrafTech's board of directors upon the deal closures.

Barclays Capital advised Seadrift and C/G Electrodes.

STRONG RESULTS, OUTLOOK

GrafTech reported first-quarter adjusted earnings of 25 cents a share, ahead of Wall Street estimates of 20 cents a share. Revenue rose 61 percent to $216 million. [ID:nASA00ACL]

The company expects second-quarter results to be slightly higher than the first quarter. It sees 2010 operating income of $170 million to $180 million.

This implies earnings per share of $1.09 to $1.15, said analyst Zaffino, who has an "outperform" rating on the stock.

Analysts were expecting earnings of $1.06 a share, according to Thomson Reuters I/B/E/S.

"We view guidance as conservative and believe any upside to pricing would represent upside to guidance," Zaffino said.

GrafTech also completed refinancing of its principal revolving credit facility.

The new $260 million revolver represents a $45 million increase over the prior agreement and extends the maturity date to April 29, 2013.

GrafTech shares, which have risen 6 percent in the last six months, were up $3.58, or 27 percent, at $17.05 in afternoon trade. (Reporting by A.Ananthalakshmi in Bangalore; Editing by Maju Samuel, Ratul Ray Chaudhuri)

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