Private equity firm Apollo Global Management has agreed to acquire OM Group, a producer of metal-based chemicals, for $1 billion. Apollo will then sell OM’s electronic chemicals and photomasks business to Platform Specialty Products for $365 million.
When the deals are done by the end of this year, Apollo will own OM’s magnetic technologies, battery technologies, and advanced organics businesses.
Apollo has played a hand in the buyout and development of several big chemical firms. It says it will support the growth of the OM assets it keeps.
For Platform, OM’s electronics and photomask operations complement similar businesses run by its MacDermid unit, which Platform acquired two years ago for $1.8 billion.
OM has been under pressure since January from the activist investment firm Front Four Capital to improve profitability and return money to shareholders. The investor group, which owns 5% of OM, accused the firm of generating poor returns while pursuing a value-destroying merger and acquisition strategy.
OM acquired the magnetic technologies business in 2011 for $970 million and the battery unit in 2010 for $170 million. It then sold cobalt assets for $470 million. OM reported a net loss of $173 million last year.
In announcing the deal, OM CEO Joseph M. Scaminace didn’t mention Front Four, noting instead that OM has been reviewing its strategic alternatives since last year. The deal “will deliver significant and immediate cash value for our shareholders,” he said.
Christopher J. Kapsch, an analyst at the investment banking firm BB&T Capital Markets, points out that the $1 billion sale price is just barely more than what OM paid for the magnetic technologies business four years ago.
On the other hand, Apollo’s willingness to pay a 28% premium over OM’s recent stock price means “value has been unlocked for equity shareholders immediately,” Kapsch says. “In the end, this premium is most relevant.”