Dresser Rand to acquire Grupo Guascor

Source: Dresser Rand

Dresser-Rand Group Inc. ("Dresser-Rand" or "the Company") (NYSE: DRC), a global supplier of high-speed rotating equipment and service solutions, announced today that it has signed a Share Purchase Agreement ("SPA") to acquire Grupo Guascor S.L. ("GG") for an enterprise value of euro 500 million ($690 million) in a cash and stock transaction. The enterprise value includes the assumption of approximately euro 125 million ($172 million) in net debt. Some of the more significant terms of the proposed transaction are outlined below and will be further discussed on a conference call hosted by the Company on March 7, 2011. Closing of the transaction is currently planned to occur in the second quarter 2011 but is subject to various closing conditions, including receipt of a variety of regulatory approvals, licenses and clearances, which may not be satisfactorily obtained.

GG, a private company founded in 1966, is headquartered in Vitoria-Gasteiz, Spain. GG's estimated revenues and adjusted EBITDA for 2010 were approximately euro 311 million ($413 million) and euro 49 million ($65 million), respectively, and as of December 31, 2010, it held total assets of approximately euro 407 million ($545 million). GG is a leading supplier of diesel and gas engines providing customized energy solutions across worldwide energy infrastructure markets based upon reciprocating engine power systems technologies. GG also has substantial experience in bio-energy and distributed generation applications.

"We are excited about our potential investment in Guascor and we believe this transaction can create significant and immediate value," said Vince Volpe, Dresser-Rand's President & CEO. "We view this as an outstanding strategic fit and a very compelling financial opportunity that we expect will benefit clients, stockholders and employees of both companies. A significant portion of the purchase price will be paid in Dresser-Rand stock. We intend to purchase an equivalent number of shares in a share repurchase program, thereby making this deal essentially a synthetic cash transaction. The proposed transaction is consistent with the objectives we outlined at our November 11, 2010, Investor / Analyst Day meeting."

"On a strategic level, we believe the gas and diesel engine technology is a good fit for both power generation and compressor drive applications in our traditional oil and gas markets," said Volpe. "Using the existing Dresser-Rand new units and aftermarket service channels, Guascor will use its technology to gain access to markets and geographies it previously did not serve. Similarly, by utilizing Guascor's existing market channels and overall project development expertise, the Dresser-Rand products presently being offered into the environmental space should increase significantly, particularly in power generation new unit and aftermarket sales opportunities."

"From a financial standpoint, the accelerated growth by combining technologies and market channels is expected to generate returns in excess of our cost of capital, with accretion of at least $0.05 and $0.40 per share in 2011 and 2012, respectively. Synergies are estimated to be approximately $30 million of operating income per year on a run rate basis in the third year following closing."

"Finally, from an operational standpoint, we have been very impressed with the business model that Joseba Grajales, Guascor's Chairman and principal owner, and his leadership team have built. It is very much in line with the flexible manufacturing strategy we have implemented at Dresser-Rand. Hence, we believe the integration of our two companies should go smoothly."

Mr. Grajales stated, "When we at Guascor looked at entering into a relationship with Dresser-Rand, it was clear that our companies' products, services and organizational skill sets were complementary and that our market strategies and business philosophies were consistent. On this basis, we are confident in the opportunity of our joint effort to create incremental value for both groups of stockholders. We are excited about the strategic value of the combined company which is why we've elected to take a significant amount of Dresser-Rand shares as part of the transaction consideration."

"Our belief in the future of energy needs for regions and nations require an integrated approach, like the one we are building, to create value from a solution of cooperation between businesses, governments and communities. We are committed to the development of technologies with converging strategies aimed towards a new energy approach to achieving environmentally sustainable offerings," said Grajales.

Share Purchase Agreement ("SPA")

Under the terms of the SPA, Dresser-Rand will acquire GG for an enterprise value of euro 500 million or approximately $690 million in a cash and stock transaction. The enterprise value includes the assumption of approximately euro 125 million or $172 million in net debt. Dresser-Rand will pay the sellers cash of approximately $283 million and will issue approximately 5.0 million Dresser-Rand common shares. In accordance with the SPA, the number of shares issued was determined based on a volume weighted closing price of $46.75 per share for the 20 trading days prior to March 1, 2011. The closing is subject to closing conditions set forth in the SPA, which may not be satisfactorily obtained.

Financing Plan

Concurrent with this transaction, the Company's Board of Directors authorized a new stock repurchase program permitting for the repurchase of approximately 5.0 million of Dresser-Rand common shares. In addition, the Company intends to repurchase approximately $130 million of its common shares to complete its previously authorized $200 million share repurchase program.

Dresser-Rand intends to raise approximately $330 million of term loan financing, the proceeds of which, along with the use of cash-on-hand totaling approximately $335 million, will be used for the acquisition of GG and to fund the share repurchase programs. The term loan will allow for multiple draws to better match the timing of cash requirements. The Company also intends to increase the size of its revolving credit facility by $100 million to $600 million and extend the maturity to 2016.

Assuming successful completion of the GG acquisition, term loan and the share repurchase programs, on a pro forma basis as of December 31, 2010, Dresser-Rand's net debt to capital would have been approximately 42% and its net debt to adjusted EBITDA would have been 2.1x, with expectations of near term deleveraging based on the strong cash flow generation expected over the next three years.

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