Cabot's CEO Hosts Norit N.V. Acquisition Conference (Transcript)

Cabot Corp. (CBT)

Norit N.V. Acquisition Conference Transcript

June 21, 2012 8:30 AM ET

Executives

Erica McLaughlin – Vice President, Investor Relations

Patrick Prevost – President and CEO

Eddie Cordeiro – Chief Financial Officer

Brian Berube – General Counsel

Analysts

Saul Ludwig – NorthCoast Research

Laurence Alexander – Jefferies

John Roberts – Buckingham Research

Jeff Zekauskas – JP Morgan

James Sheehan – Deutsche Bank

Christopher Butler – Sidoti & Company

Andrew Dunn – KeyBanc Capital Markets

Bruce Zessar – Advisory Research

Presentation

Operator

Good day, ladies and gentlemen. And welcome to the Cabot Corporation Norit Acquisition Conference Call. At this time, all participants are in a listen-only mode. Later we’ll facilitate a question-and-answer session. (Operator Instructions)

As a reminder, this conference is being recorded for replay purposes. I would now like to turn the call over to Erica McLaughlin, Vice President of Investor Relations. You may proceed.

Erica McLaughlin

Thank you. Good morning. I would like to welcome you to the Cabot Corporation Norit acquisition teleconference. Here this afternoon are Patrick Prevost, Cabot’s President and CEO; Eddie Cordeiro, Cabot’s Chief Financial Officer; and Brian Berube, Cabot’s General Counsel.

This morning we announced, we have entered into a definitive agreement to acquire Norit N.V., a copy of the press release is posted on the Investor Relations section of our website. For those on our mailing list, you received a press release either by e-mail or fax. If you are not on our mailing list and are interested in receiving this information in the future, please contact Investor Relations. The slide deck that accompanies this call is also available on the Investor Relations portion of our website, and will be available in conjunction with the replay of the call.

I remind you that our conversation today will include forward-looking statements, which are subject to risks and uncertainties, and Cabot’s actual results may differ materially from those expressed in forward-looking statements.

A list of factors that could affect Cabot’s actual results can be found in the press release we issued this morning and are discussed more fully in the reports we filed with the Securities and Exchange Commission, particularly in our last annual report on Form 10-K. These filings can be found in the Investor Relations portion of our website.

I will now turn the call over to Patrick Prevost, who will discuss the transaction and the strategic rationale for this acquisition. Eddie Cordeiro will then review the financial details of the deal. Following this, Patrick will provide closing comments and open the floor to questions. Patrick?

Patrick Prevost

Thank you, Erica, and good morning, ladies and gentlemen. I’m excited to announce that last night we entered into an agreement to acquire Norit N.V., the industry leader in activated carbon. This is a significant event in our company’s history and it’s a next step to becoming a higher margin leading specialty chemicals company.

This morning we issued a press release that providing details on the transaction and let me begin by covering a few of the highlights. We have agreed to acquire Norit’s $1.1 billion, which will be financed by combination of cash and debt. The deal is immediately accretive to EPS and we expect the transaction to close within calendar year 2012.

Instantly this acquisition will add over 20% to our current EBITDA base, all of this, while adding a stable earnings stream and end market diversification. This is a new growth platform for Cabot.

Norit will enable our participation in environmental and purification solutions worldwide. It will also provide us with further growth opportunities in emerging markets and new customer tailored applications.

Before we get to the details, I wanted to recollect a bit over the progress we have made in the last few years, which has positioned us to take advantage of this opportunity. During this time, we are substantially strengthen the overall profitability of the company through a focus on reducing our fixed and variable costs, while ensuring that our pricing reflects the value we bring to our customers.

In addition to strengthening our margins, we have also continued to make appropriate investments to support our existing businesses. We have improved the profitability of our business without sacrificing our commitment to developing our technology for new products, new processes and new businesses.

Through these efforts, we establish a new baseline of earnings per share of $3 per share last year and set a new target for 2014 of $4.50. With the sale of our Supermetals Business, we have reduced the volatility and cyclicality of our earnings, and strengthened our balance sheet.

All of these efforts have positioned us to be able turn our focus generating long-term sustainable growth. The acquisition of Norit is the next step of our strategy that positions us to achieve this growth.

In considering this acquisition we are looking for fit with Cabot, opportunities for growth and overall financial performance. Norit clearly met all of these criteria. We believe that Norit is an excellent fit with Cabot and qualifies as a premier specialty chemicals business.

Its leading market position, unique technology and applications development expertise is very similar to that of Cabot’s performance segment businesses. We are excited about the growth prospects as we leverage Cabot’s existing global footprint and capability.

Over the last five years, Norit has demonstrated annual growth rates of 12%, notwithstanding a difficult global economy and we expect future growth rates between 10% and 12%.

The users for activated carbon are non-discretionary and the end markets are non-cyclical. The business receive attractive EBITDA margin in excess of 25% for its specialty products that enable customer performance.

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