Velan, a world-leading manufacturer of industrial valves, announced major strategic initiatives that will significantly reduce operating and financial risks as well as strengthen its financial position. All amounts are expressed in U.S. dollars unless indicated otherwise.
“We believe these two transactions are key to unlocking Velan’s inherent value and we are delighted with an outcome that makes us a financially and operationally stronger company going forward. The divestiture of asbestos-related liabilities will allow Velan to confidently move ahead with the execution of its business plan while selling French subsidiaries to local interests also supports the protection of French sovereign interests,” stated James A. Mannebach, Chairman of the Board and CEO of Velan.
“Beyond these transactions, the Company will continue as a leader in flow control solutions for clean energy and other industrial sectors driven by its strong brand, high-quality products and a superior market positioning combined with expertise in demanding applications. Our activities will also benefit from robust momentum in the clean energy sector, including nuclear, which is undergoing a multi-year growth cycle throughout the world. We remain well-positioned in this market with our proprietary valve offerings for small modular reactors, along with our global installed base of products at existing nuclear reactors. In addition, we are firmly entrenched in other markets buoyed by global energy transition trends. Consequently, we intend to focus on executing our strategic plan and are committed to delivering sustained profitable growth. The Company continues to review options to maximize value for our shareholders,” added Mr. Mannebach.
“These transactions would meet two key financial objectives, namely the reduction of risk and resolution of our asbestos-related liabilities through the divestiture transaction and the strengthening of our balance sheet. Following their closing, Velan would be virtually debt free which would allow for greater investments in growth opportunities. Ultimately, the successful conclusion of these initiatives would offer a significantly higher value proposition to all our shareholders,” said Rishi Sharma, Chief Financial and Administrative Officer of Velan.
Divestiture of Velan’s asbestos liabilities
Velan has entered into an agreement with an affiliate of Global Risk Capital to permanently divest its asbestos-related liabilities. Global Risk Capital is a long-term liability management company specializing in the acquisition and management of legacy corporate liabilities. The Asbestos Divestiture Transaction will be achieved by Velan selling its existing U.S. subsidiary, Velan Valve Corp., which will have been capitalized with US$143 million (subject to certain adjustments) from Velan and US$7 million from the Buyer. The Asbestos Divestiture Transaction will permanently remove all asbestos-related liabilities and obligations from Velan’s balance sheet and will indemnify Velan for all legacy asbestos liabilities. Velan plans to fund the Asbestos Divestiture Transaction by using available cash and a portion of proceeds from the sale of its French subsidiaries detailed below. The Company will retain its U.S. operations and continue to carry out its activities in the U.S. under a newly created subsidiary.
The closing of the Asbestos Divestiture Transaction is subject to securing financing and other customary closing conditions. If the France Transaction (as defined below) is not completed, the Company will be seeking alternative financing options for the Asbestos Divesture Transaction.
The Asbestos Divestiture Transaction is expected to result in a one-time non-cash charge to earnings of approximately US$67 million, before the benefit of any taxes.
Sale of French subsidiaries
The Company’s wholly-owned subsidiary, Velan Valves Limited, has entered into a memorandum of understanding relating to the sale of 100% of the share capital and voting rights of its French subsidiaries, Segault SAS and Velan S.A.S., to Framatome SAS, a world leader in nuclear energy, for a purchase price of US$175.2 million (€170 million), with the benefit of the transfer of an intercompany loan of US$23.2 million (€22.5 million), for total consideration to the Company of US$198.4 million (€192.5 million).
In accordance with French laws, Segault, Velan France, and Framatome will inform and consult their employee representative bodies before any definitive agreement is entered into between the parties.
The completion of the France Transaction under the definitive agreement would be subject to the approval of Velan’s shareholders. Velan Holding Co, the controlling shareholder of Velan, has entered into a voting and support agreement with Velan in respect of the approval of the France Transaction.
If, and once a definitive agreement has been signed, a meeting of Velan’s shareholders will be called to consider and approve the France Transaction. Additional information related to the France Transaction would be contained in the management information circular to be distributed in connection with the Meeting.
Advisors
In connection with the Asbestos Divestiture Transaction, Ducera Partners is acting as exclusive financial advisor to the Company. Legal counsel was provided by Latham & Watkins in connection with the Asbestos Divestiture Transaction and related corporate matters. Davies Ward Phillips & Vineberg is also acting as legal advisor to the Company. Jones Day is acting as legal advisor to Global Risk Capital.
In connection with the France Transaction, BMO Capital Markets is acting as financial advisor to the Company, and Davies Ward Phillips & Vineberg and Bredin Prat are acting as legal advisors to the Company. McCarthy Tétrault is acting as legal advisor to Velan Holding, and Jones Day is acting as legal advisor to Framatome.