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With a view to diversifying and expanding its product offering, NCI Building System (NCS - Analyst Report) has penned an agreement to acquire the leading insulated metal panel supplier, Metl-Span LLC, from a subsidiary of BlueScope Steel North America Corporation for $145 million.
To finance the acquisition, NCI Building has secured a new asset based-lending (ABL) facility and term loan and will refinance its existing ABL facility and term loan, both of which were to mature in 2014. The company will use ABL and term loan alongside cash on hand to fund the transaction.
Metl-Span is a leader in the advancement of insulated panel technology. It serves the Architectural, Commercial, Industrial and Cold Storage industries (non-residential building products market) with energy efficient and cost effective insulated metal wall and roof panels. Melt-Span operates in five manufacturing facilities in North America.
The acquisition of Metl-Span by NCI Building will position the latter as a leader in the insulated metal panel business by diversifying and expanding its existing product range. In addition, NCI Building will also benefit from a growing customer base as well as distribution network in North America. The company expects the acquisition to be accretive to its earnings in fiscal 2012.
Separately, NCI Builders has signed a deal with its holders of convertible preferred stocks, Clayton, Dubilier & Rice and affiliates (CD&R), to terminate its quarterly dividend obligations. The dividends were accrued at an annual rate of 12% if not paid in cash at an 8% rate.
As per the deal, CD&R will be receiving additional shares of convertible preferred stock totaling 37,834. The shares represent $6.5 million of dividends accrued from March 15, 2012, through May 18, 2012, and $31.4 million in additional liquidation preference of convertible preferred stock or 10% of the total $313.7 million of accreted value as of May 18, 2012.
As a result, CD&R will get 54.1 million shares of common stock enabling it to enjoy 72.7% of the voting power and common stock of the company on an as-converted basis. This also represents an approximate increase of 2% from its current position.
NCI Buildings has been hard hit by continued weakness in the non-residential construction business. The slow recovery from the prolonged recession which began late in 2008 reduced demand for the products and affected the business negatively. To make the situation worse, tight credit obligations made it difficult for the customers to finance their construction activities, resulting in further reduction or cancellation of orders.
To combat the economic downturn, it has realigned its manufacturing activities in a three-phase process. It has either closed down the operations that were least efficient or retooled some facilities to better utilize its assets. This initiative has helped the company deliver profitability in business.
Moreover, according to the non-residential construction forecast of the McGraw-Hill Constructions, construction activities would increase as compared to 2011. It expects an increase of 2% in square footage and 2% in dollar value. With the ongoing economic recovery along with the expansion of product portfolio, NCI Buildings is now in a better position to earn more profit.
Currently, we have a long-term Neutral recommendation on NCI Buildings. The stock retains a short-term Zacks #2 Rank (Buy).