MSC Industrial to enter Canada with $550 million Barnes unit buy

Fri Feb 22, 2013 10:59am EST

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(Reuters) - Industrial products distributor MSC Industrial Direct Co Inc (MSM.N) said it would buy the North American distribution business of Barnes Group Inc (B.N) for $550 million to gain access to the metalworking and maintenance, repair and operations (MRO) market in Canada.

Barnes shares rose as much as 14 percent to $27.85 on the New York Stock Exchange in early trading. MSC's shares rose 4 percent to $86.50.

The acquisition would nearly double MSC's sales force and boost revenue to about $4 billion by 2016, Chief Executive Erik Gershwind said in a statement.

MSC had total revenue of $2.36 billion in the year ended September 1.

Cleveland, Ohio-based Barnes Distribution North America (BDNA), which has 1,400 employees, distributes fasteners and other consumables to the manufacturing, transportation and natural resources industries. It had sales of about $300 million in 2012.

"We're excited to sell MSC's broader portfolio of MRO supplies to customers in industries that are new to us, such as transportation and natural resources," Gershwind told analysts on a conference call.

The acquisition also adds fasteners, fittings, fuses and other high-margin consumable products and services - often referred to as Class C items - to MSC's portfolio, the company said.

"Barnes Group is further advancing its strategy of adjusting the business portfolio to focus on core manufacturing and after-market capabilities," said Barnes CEO Gregory Milzcik, who is set to retire on May 3.

The company, which reported better-than-expected fourth-quarter results on Friday, appointed Chief Operating Officer Patrick Dempsey to take over from March 1.

Barnes reorganized its operations to focus on three businesses - aerospace, industrial and distribution - in early 2012 and has since divested most of its distribution units.

The company sold its European distribution business to Berner SE, a direct seller of consumables, tools and specialist technical chemicals, in December 2011.

Barnes will realign the rest of its distribution business within its industrial unit once the BDNA sale is complete, the company said.

DEAL DETAILS

The deal, which is expected to close during MSC's third quarter, would generate cost synergies in the range of $15 million to $20 million by fiscal 2015, MSC said.

MSC, which distributes industrial supplies such as metalworking tools and measuring instruments, said the acquisition will reduce second-quarter earnings by 2 cents per share.

The company said in January it expected to earn between 86 cents and 90 cents per share, excluding items, for the second quarter ending March.

The deal is expected to add to 2014 earnings in the range of 15 cents to 20 cents per share, MSC said.

MSC said it expects to finance the deal using available cash and additional debt. It had cash and cash equivalents of $168.5 million as of September 1.

"We expect the proceeds to be immediately used to reduce our debt levels after closing," Barnes Chief Financial Officer Christopher Stephens said on a post-earnings conference call.

Barnes said it expects after-tax proceeds of about $400 million from the transaction.

"Going forward, we expect to use up to half of the proceeds to buy back shares. We expect to repurchase between $4 million and $5 million shares in 2013."

Goldman, Sachs & Co was financial adviser to MSC, while Baird advised Barnes Group. Curtis, Mallet-Prevost, Colt & Mosle LLP was legal adviser to MSC.

(Reporting by Sagarika Jaisinghani in Bangalore; Editing by Roshni Menon, Supriya Kurane)

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