Monday, April 29, 2013

KMG Buying OM Group's Ultra Pure Chemicals

KMG Chemicals (NYSE: KMG  ) is buying OM Group's (NYSE: OMG  ) Ultra Pure Chemicals subsidiaries in the U.S., U.K., Singapore, and perhaps in France as well.

On Monday, OM announced the signing of definitive agreements to sell the first three subsidiaries to KMG, and said it has also offered to sell KMG the French subsidiary. Combined, the four subsidiaries would sell for $60 million cash in a deal set to close before the end of June.

OM CEO Joe Scaminace described the sales as "another step to optimize our portfolio and sharpen our strategic focus." If the sales go through, they will also be an example of some pretty sharp dealmaking on OM's part.

With $94 million in 2012 sales of "ultra pure chemical solutions" used in semiconductor and microelectronics manufacture, OM is unloading its subsidiaries for a price of about 0.64 times annual sales. OM's overall corporate P/S ratio, in contrast, is only 0.47 times sales, so the divestitures are bringing a higher valuation than the company as a whole commands.

From its perspective, KMG is also getting a deal, buying subsidiaries at a valuation below its own 0.83 P/S ratio.

Shares of KMG are nonetheless down a fraction of a percent, closing at $18.48 Monday. OM Group shares, in contrast, gained 2% to close at $24.52.

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