GrafTech International Ltd. (GTI) said Tuesday that it acquired an 18.9% minority stake in Seadrift Coke L.P., a privately held producer of petroleum needle coke, from Falcon Mezzanine Partners, L.P. for $135 million.
The Parma, Ohio-based GrafTech noted that needle coke is the primary raw material used in the manufacturing of graphite electrodes and represents about 40% of the company's total cost of producing a graphite electrode. The company further noted that based on market conditions, needle coke supply is expected to remain tight in the foreseeable future, and therefore sees its Seadrift investment to enable it to share in anticipated favorable economic returns.
GrafTech will use about $35 million of cash on hand to fund the purchase price. The remainder will be financed through its revolving credit facility, which it expects to repay within the next 12 months with its operating cash flow.
Commenting on the deal, Craig Shular, GrafTech chief executive officer, said, "The transaction is expected to be accretive to earnings in 2008 and underscores our belief in the strong graphite electrode industry supply chain fundamentals."
Shular added, "The investment in Seadrift includes minority rights consisting of one out of five Board seats and a put provision, whereby GrafTech can exercise its right to sell its stake in Seadrift for fair market value, exercisable beginning in May 2011."
In addition, GrafTech said it does not expect its minority interest in Seadrift to affect its most recently issued guidance for 2008, as its proportionate share of Seadrift's earnings would be reported as "Other Income," which is excluded from the operational results and guidance.
GrafTech is a manufacturer and provider of high quality synthetic and natural graphite and carbon-based products, as well as technical and research and development services.
GTI closed Monday's regular trading at $26.83, up $0.30, on a volume of 2.6 million shares.
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