UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
August 1, 2019
Date of Report (Date of earliest event reported)
QUAKER CHEMICAL CORPORATION
(Exact name of Registrant as specified in its charter)
Commission File Number 001-12019
| PENNSYLVANIA | No. 23-0993790 | |
| (State or other jurisdiction of incorporation or organization) |
(I.R.S. Employer Identification No.) |
One Quaker Park
901 E. Hector Street
Conshohocken, Pennsylvania 19428
(Address of principal executive offices)
(Zip Code)
(610) 832-4000
(Registrant’s telephone number, including area code)
Not Applicable
(Former name or former address, if changed since last report)
Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:
| ¨ | Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425) |
| ¨ | Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12) |
| ¨ | Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b)) |
| ¨ | Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c)) |
Securities registered pursuant to Section 12(b) of the Act:
| Title of each class | Trading Symbol(s) | Name of each exchange on which registered |
|||
| Common Stock, $1 par value | KWR | New York Stock Exchange |
Indicate by check mark whether the registrant is an emerging growth company as defined in Rule 405 of the Securities Act of 1933 (§230.405 of this chapter) or Rule 12b-2 of the Securities Exchange Act of 1934 (§240.12b-2 of this chapter).
Emerging growth company ¨
If an emerging growth company, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act. ¨
INFORMATION TO BE INCLUDED IN THE REPORT
| Item 8.01 | Other Events. |
On April 4, 2017, Quaker Chemical Corporation, a Pennsylvania corporation (the “Company”), entered into a Share Purchase Agreement (the “Share Purchase Agreement”) with Gulf Houghton Lubricants, Ltd., an exempted company incorporated under the laws of the Cayman Islands (“Gulf Houghton”), Global Houghton Ltd., an exempted company incorporated under the laws of the Cayman Islands (“Global Houghton”), and certain members of the management of Global Houghton (collectively with Gulf Houghton, the “Sellers”) and Gulf Houghton, as agent for the Sellers. On August 1, 2019, the parties consummated the transactions contemplated by the Share Purchase Agreement, substantially pursuant to the terms and conditions set forth in the Share Purchase Agreement. The Share Purchase Agreement was filed with the Securities and Exchange Commission (“SEC”) as an exhibit to the Company’s Current Report on Form 8-K filed on April 5, 2017, and is incorporated by reference as an exhibit to the Company’s latest Annual Report on Form 10-K, as amended.
The Company released a press release providing information about the closing of the transactions on August 1, 2019. A copy of that document is attached hereto as Exhibit 99.1 and is incorporated herein by reference.
The Company made available on its website a slide presentation providing information about the closing of the transactions on August 1, 2019. A copy of that document is attached hereto as Exhibit 99.2 and is incorporated herein by reference.
The information required by Item 2.01 will be filed in a separate Current Report on Form 8-K.
| Item 9.01. | Financial Statements and Exhibits. |
The following exhibits are included as part of this report:
| Exhibit No. |
Description | |
| 99.1 | Press Release, dated August 1, 2019 (furnished herewith). | |
| 99.2 | Slide Presentation, dated August 1, 2019 (furnished herewith). | |
Cautionary Statement Regarding Forward Looking Statements
This Current Report on Form 8-K contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts. We have based these forward-looking statements on our current expectations about future events. These forward-looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations, future performance, and business, including but not limited to statements relating to the potential benefits of the combination described above, our current and future results and plans, and statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “intend,” “plan” or similar expressions. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such statements. A major risk is that demand for the Company’s products and services is largely derived from the demand for its customers’ products, which subjects the Company to uncertainties related to downturns in a customer’s business and unanticipated customer production shutdowns. Other major risks and uncertainties include, but are not limited to, significant increases in raw material costs, customer financial stability, worldwide economic and political conditions, foreign currency fluctuations, significant changes in applicable tax rates and regulations, future terrorist attacks and other acts of violence. Furthermore, the Company is subject to the same business cycles as those experienced by steel, automobile, aircraft, appliance, and durable goods manufacturers. Our forward-looking statements are subject to risks, uncertainties and assumptions about the Company and its operations that are subject to change based on various important factors, some of which are beyond our control. These risks, uncertainties, and possible inaccurate assumptions relevant to the Company’s business could cause its actual results to differ materially from expected and historical results. Other factors beyond those discussed in this Current Report could also adversely affect us including, but not limited to, the following related to the combination described above:
| • | potential adverse effects on the Company’s business, properties or operations caused by the implementation of the combination; |
| • | the Company’s ability to promptly, efficiently and effectively integrate the operations of Global Houghton and the Company; |
| • | the ability to develop or modify financial reporting, information systems and other related financial tools to ensure overall financial integrity and adequacy of internal control procedures; |
| • | the ability to identify and take advantage of potential synergies, including cost reduction opportunities, while maintaining legacy business and other related attributes; |
| • | difficulties in managing a larger, combined company, addressing differences in business culture and retaining key personnel; |
| • | risks related to each company’s distraction from ongoing business operations due to the combination; and |
| • | the outcome of any legal proceedings that may be instituted against the companies related to the combination. |
Therefore, we caution you not to place undue reliance on our forward-looking statements. For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of our Form 10-K for the year ended December 31, 2018, as amended, and in our quarterly and other reports filed from time to time with the SEC. We do not intend to, and we disclaim any duty or obligation to, update or revise any forward-looking statements to reflect new information or future events or for any other reason. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.
| QUAKER CHEMICAL CORPORATION | ||
| Date: August 1, 2019 | By: | /s/ Robert T. Traub |
| Robert T. Traub | ||
|
Senior Vice President, General Counsel and Corporate Secretary | ||
Exhibit 99.1
| News |  |
Investor Contact: Mary Dean Hall Senior Vice President, Chief Financial Officer and Treasurer hallm@quakerchem.com T.+1.610.832.4000 |
Media Contact: Melissa McClain Director, Global Communications mcclainm@quakerchem.com T. +1.610.832.7809 |
For Release: Immediate
Leaders in Industrial Process Fluids Combine
to Form Quaker Houghton
| · | Cost synergies estimate increased to $60 million from $45 million |
| · | Combination enables continued above-market growth |
| · | New executive team and Board members named |
| · | Company expects its adjusted EBITDA to be over $300 million after two years |
CONSHOHOCKEN, PA (August 1, 2019) /PRNewswire/ Quaker Chemical Corporation and Houghton International have combined to create Quaker Houghton (NYSE: KWR), the global leader in industrial process fluids to the primary metals and metalworking markets. Along with the new name, the company revealed a new logo and brand representing the combined companies. The company will continue to be listed on the New York Stock Exchange and trade under the "KWR" ticker symbol.
A Strategic Combination is Formed
The combined $1.6 billion revenue company employs 4,000 associates serving 15,000 customers worldwide. Quaker was founded in 1918 and Houghton in 1865.
“We are rooted in companies commonly acknowledged as authorities in industrial fluids and valued experts in customer processes,” said Michael F. Barry, Chairman, Chief Executive Officer, and President of the new company. Mr. Barry, who previously served Quaker Chemical in similar capacities, went on to say, “Our similar cultures and values, combined with the talent and resources we bring to Quaker Houghton, create exciting opportunities to deliver innovative solutions that will help our customers’ operations run even more efficiently and effectively.”
The company’s combined breadth of product and service offerings can be found in end-markets such as aerospace, aluminum, automotive, machinery, can manufacturing, industrial parts manufacturing, mining, offshore, steel, and tube and pipe industries.
With its expanded products and services portfolio, the company expects that cross-selling opportunities will facilitate continued above-market growth. Specific products the company offers include metal cutting and forming fluids, corrosion protection fluids, specialty hydraulic fluids, and steel and aluminum rolling oils. In addition, legacy-Houghton customers will benefit from Quaker’s strength in specialty greases, high-pressure die casting, mining specialties, surface treatment and bio-based lubricants, while legacy-Quaker customers will now have access to Houghton’s heat treatment quenchants, offshore hydraulic fluids, metal finishing products, and a broader metal removal fluids portfolio.
quakerhoughton.com
“Our foundation will be the same customer-intimate operating model that has been key to the success of our customers,” Mr. Barry said. “Moving forward together, we will draw upon our rich history and shared expertise to enhance our product and service offerings and continue to deliver value-added service expertise to our customers.”
Value Creation for Shareholders
The combination of Quaker Chemical and Houghton International nearly doubles the size of either company with trailing twelve month revenue as of June 30, 2019 of $1.6 billion. For additional information regarding historical financial performance of Quaker, Houghton, and proforma for the combined company, please see the investor presentation furnished concurrently with this press release.
The company expects to achieve significant cost reductions as a result of the combination and has increased its estimate of cost synergies to $60 million from $45 million. The cost synergies are broad based and are expected to come from three major areas: Asset Optimization (17%), Logistics and Procurement (35%) and Operational Efficiencies (48%). The cost synergies are expected to be fully realized on a run-rate basis by the end of year two; with ~$20 million being achieved in year one, ~$45 million in year two and the full $60 million in year three, reflecting 100% achievement as the company exits year two. On a calendar year basis, the cost synergies achieved are estimated to be ~$5 million in 2019, ~$35 million in 2020, ~$50 million in 2021, and $60 million in 2022. The company has utilized a top consulting firm over the past two years to help with its integration planning efforts and they will continue to assist the company during the integration.
In addition to cost synergies, the company expects that its growth strategy will create additional value over time. Revenue-based synergies, such as cross-selling, will be an important contributor to growth going forward. The legacy product portfolios of both Quaker and Houghton can now be offered to the combined, complementary customer base, where 14,000 of the 15,000 total customers are unique to one company or the other. The company believes the revenue synergies are achievable and will be significant over time, beginning after year one. In the first year, the company’s focus will be to maintain service levels for its customers and ensure no supply chain disruptions, while successfully executing its integration plans. In year two, the revenue synergies will begin to be visible as the company expects to grow above the market by 2% to 4% as it has in the past.
The company also expects to continue to grow through acquisitions which remain part of its core growth strategy. In the short term, the company will focus on paying down debt, but will continue to consider smaller acquisitions that can create value. Both Quaker and Houghton have long histories of building value through acquisitions.
“Today is a historic day for our businesses,” Mr. Barry said. “We are finally beginning our journey as Quaker Houghton, and are now the leading global supplier of industrial process fluids to the metals and metalworking markets. Two years from now, we expect to have an enterprise that will be integrated and generating over $300 million of adjusted EBITDA on a going-forward basis. More importantly, we will be well-positioned to continue to achieve above-market growth organically driven by our differentiated business model and the cross-selling opportunities created by our combination.”
Mr. Barry continued, “While we are certainly a leader in our chosen markets, there is significant growth potential for this new company. We estimate that Quaker Houghton’s revenue of $1.6 billion represents less than 20% market share in a more than ten billion dollar addressable market. The near-doubling of the size of the company today gives us greater scale to invest in new technologies and make future acquisitions. We are very excited about the future and the opportunities that lie ahead for Quaker Houghton and what it means for our customers, our employees, and our shareholders.”
quakerhoughton.com
Transaction Details
The final purchase consideration at closing of the combination was comprised of: 1) approximately $170.8 million in cash; 2) the issuance of approximately 4.3 million shares of common stock to the Hinduja Group and other former owners of Houghton International, comprising 24.5% of the stock of the combined company; and 3) the refinancing of approximately $660 million of Houghton net indebtedness. This purchase consideration does not reflect the cash proceeds from the required divestiture which is discussed below.
To fund the purchase, the company borrowed a total of $930 million at close under its new $1.15 billion credit facility as follows: 1) $600 million U.S. dollar term loan; 2) $150 million (equivalent) euro term loan; and 3) $180 million revolving credit borrowing. The term loans and the multi-currency revolving credit facility each have a five-year maturity, and the revolving credit facility has remaining availability of approximately $220 million for additional liquidity. The company estimates that its annual interest expense at today’s interest rates, including the cost to convert a portion of the term loan to a fixed rate as required by the lenders, will be in the range of 3.4-3.6%.
In addition, the company divested certain product lines at closing in compliance with the United States Federal Trade Commission and European Commission requirements. The company received approximately $37 million from the buyer, Total S.A., at close. The revenue of the divested product lines was approximately $50 million, approximately 3% of the combined company’s revenue.
Leadership and Governance
In addition to Mr. Barry, Quaker Houghton’s management includes existing leaders from both legacy companies. The newly formed executive leadership team is comprised of:
Business Leaders
| · | Joseph A. Berquist, SVP, Global Specialty Businesses & Chief Strategy Officer |
| · | Jeewat Bijlani, SVP, Managing Director – Americas |
| · | Dieter Laininger, SVP, Managing Director – APAC |
| · | Adrian Steeples, SVP, Managing Director – EMEA |
Global Functional Leaders
| · | Mary Dean Hall, SVP, Chief Financial Officer & Treasurer |
| · | Kym Johnson, SVP, Global Human Resources, CHRO |
| · | Wilbert Platzer, SVP, Global Operations, EHS & Procurement |
| · | Dr. Dave Slinkman, SVP, Chief Technology Officer |
| · | Robert T. Traub, SVP, General Counsel & Corporate Secretary |
Quaker Houghton now has an 11-member Board of Directors, consisting of the eight directors from Quaker Chemical and three directors nominated by the Hinduja Group. The three new independent directors of Quaker Houghton are the following former Board members of Houghton International:
| · | Sanjay Hinduja |
| · | Ramaswami Seshasayee |
| · | Michael J. Shannon |
quakerhoughton.com
Conference Call and Webcast Information
Quaker Houghton has scheduled an investor call beginning at 7:30 a.m. Eastern time on Friday, August 2, 2019 to discuss Quaker’s second quarter performance and the closing of the combination. The call can be accessed in the following ways:
| Teleconference: | August 2, 2019, 7:30 a.m. (ET) Participate live by phone or listen to live audio webcast through the Investor Relations section of either www.quakerhoughton.com or www.quakerchem.com |
| Dial-in Number: | +1 877-269-7756 Please call 5-10 minutes prior to the scheduled start of call. No password required. |
If unable to participate live, select from one of the following replay options:
| |
| Digital Replay: | Available through August 8, 2019 Call +1 877-660-6853 (toll free); Conference ID No. 13692496 |
| Archived Webcast: | Visit the Investor Relations section of either www.quakerhoughton.com or www.quakerchem.com |
Non-GAAP Measures
The information included in this public release references certain non-GAAP (unaudited) financial measures. The Company presents EBITDA which is calculated as net income attributable to the Company before depreciation and amortization, interest expense, net, and taxes on income before equity in net income of associated companies. The Company also presents adjusted EBITDA which is calculated as EBITDA plus or minus certain items that are not indicative of future operating performance or not considered core to the Company’s operations. The Company believes the non-GAAP financial measures provide meaningful supplemental information as it enhances a reader’s understanding of the financial performance of the Company, are more indicative of future operating performance of the Company, and facilitate a better comparison among fiscal periods, as the non-GAAP financial measures exclude items that are not indicative of future operating performance or not considered core to the Company’s operations. Non-GAAP results are presented for supplemental informational purposes only and should not be considered a substitute for the financial information presented in accordance with GAAP.
Forward-Looking Statements
This release contains “forward-looking statements” within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of 1934. These forward-looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such statements. A major risk is that demand for the Company’s products and services is largely derived from the demand for its customers’ products, which subjects the Company to uncertainties related to downturns in a customer’s business and unanticipated customer production shutdowns. Other major risks and uncertainties include, but are not limited to, significant increases in raw material costs, customer financial stability, worldwide economic and political conditions, foreign currency fluctuations, significant changes in applicable tax rates and regulations, future terrorist attacks and other acts of violence. Other factors could also adversely affect us, including those related to the Houghton Combination and the integration of the combined company. For more information regarding these risks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of our Form 10-K for the year ended December 31, 2018, the proxy statement the Company filed on July 31, 2017 and in our quarterly and other reports filed from time to time with the Securities and Exchange Commission. Therefore, we caution you not to place undue reliance on our forward-looking statements. This discussion is provided as permitted by the Private Securities Litigation Reform Act of 1995.
quakerhoughton.com
About Quaker Houghton
Quaker Houghton (NYSE: KWR) is the global leader in industrial process fluids. With a robust presence around the world, including operations in over 25 countries, our customers include thousands of the world’s most advanced and specialized steel, aluminum, automotive, aerospace, offshore, can, mining, and metalworking companies. Our high-performing, innovative and sustainable solutions are backed by best-in-class technology, deep process knowledge and customized services. With 4,000 employees, including chemists, engineers and industry experts, we partner with our customers to improve their operations so they can run even more efficiently, even more effectively, whatever comes next. Quaker Houghton is headquartered in Conshohocken, Pennsylvania, located near Philadelphia in the United States. Visit quakerhoughton.com to learn more.
quakerhoughton.com
Exhibit 99.2
Forward Together ™ Combination of Quaker Chemical and Houghton International
Risks and Uncertainties Statement Regulation G The attached charts include Company information that does not conform to generally accepted accounting principles (“GAAP”). Man agement believes that an analysis of this data is meaningful to investors because it provides insight with respect to ongoing operating results of the Company and allows investors to better ev aluate the financial results of the Company. These measures should not be viewed as an alternative to GAAP measures of performance. Furthermore, these measures may not be consistent with simi lar measures provided by other companies. This data should be read in conjunction with the Company’s most recent annual report filed on form 10 - K and 10 - K/A as well as the second quarter ear nings news release dated August 1, 2019, which has been furnished to the Securities and Exchange Commission (“SEC”) on Form 8 - K and the Company’s Form 10 - Q for the period ended June 30 , 2019, which has been filed with the SEC . Forward - Looking Statements This presentation contains “forward - looking statements” within the meaning of Section 27A of the Securities Act of 1933, as amen ded, and Section 21E of the Securities Exchange Act of 1934, as amended. These statements can be identified by the fact that they do not relate strictly to historical or current facts. We ha ve based these forward - looking statements on our current expectations about future events. These forward - looking statements include statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, intentions, financial condition, results of operations, future performance, and business, including but not limited to statements relating to the potential benefits of t he Combination described above, our current and future results and plans, and statements that include the words “may,” “could,” “should,” “would,” “believe,” “expect,” “anticipate,” “estimate,” “inte nd, ” “plan” or similar expressions. These forward - looking statements are subject to certain risks and uncertainties that could cause actual results to differ materially from those projected in such sta tements. A major risk is that demand for the Company’s products and services is largely derived from the demand for its customers’ products, which subjects the Company to uncertainties related to downturns in a customer’s business and unanticipated customer production shutdowns. Other major risks and uncertainties include, but are not limited to, significant increases in raw mate ria l costs, customer financial stability, worldwide economic and political conditions, foreign currency fluctuations, significant changes in applicable tax rates and regulations, future terrorist atta cks and other acts of violence. Furthermore, the Company is subject to the same business cycles as those experienced by steel, automobile, aircraft, appliance, and durable goods manufacturers. Our fo rwa rd - looking statements are subject to risks, uncertainties and assumptions about the Company and its operations that are subject to change based on various important factors, some of which ar e beyond our control. These risks, uncertainties, and possible inaccurate assumptions relevant to the Company’s business could cause its results to differ materially from expected and hist ori cal results. Other factors beyond those discussed in this Report could also adversely affect us including, but not limited to the following related to the Combination : • potential adverse effects on the Company’s business, properties or operations caused by the implementation of the Combination ; • the Company’s ability to promptly, efficiently and effectively integrate the operations of Houghton and Quaker Chemical; • the ability to develop or modify financial reporting, information systems and other related financial tools to ensure overall fi nancial integrity and adequacy of internal control procedures; • the ability to identify and take advantage of potential synergies, including cost reduction opportunities, while maintaining leg acy business and other related attributes, as well as the risk that the costs to achieve synergies may be more than anticipated; • difficulties in managing a larger, combined company, addressing differences in business culture and retaining key personnel; • risks related to each company’s distraction from ongoing business operations due to the Combination; and, • the outcome of any legal proceedings that may be instituted against the companies related to the Combination. Therefore, we caution you not to place undue reliance on our forward - looking statements. For more information regarding these ri sks and uncertainties as well as certain additional risks that we face, you should refer to the Risk Factors detailed in Item 1A of our Form 10 - K for the year ended December 31, 2018 as well as the pr oxy statement the company filed on July 31, 2017 and in our quarterly and other reports filed from time to time with the SEC. We do not intend to, and we disclaim any duty or obligation to , update or revise any forward - looking statements to reflect new information or future events or for any other reason. This discussion is provided as permitted by the Private Securities Liti gat ion Reform Act of 1995 . ©2019 Quaker Houghton. All Rights Reserved 2
• Transaction Overview • Value - Creating Combination • Financial Performance • Summary & Next Steps • Appendix
4 ©2019 Quaker Houghton. All Rights Reserved Purchase Price and Structure • Houghton shareholders to receive ~$170.8 million in cash and 24.5% (~4.3 million shares) of Quaker Houghton; Quaker Houghton has refinanced Houghton’s net debt of ~$660 million (versus $690 million at announcement) • Represents a transaction multiple at announcement of 11.9x Houghton’s 2016 adjusted EBITDA and 7.9x with updated run - rate synergies Leadership, Governance and Ownership • Michael Barry is the Chairman, CEO, and President of the combined company • Executive leadership selected and in place on Day 1 • Quaker Board increased from 8 directors to 11 by adding 3 independent former Houghton directors Financial Updates • Cost synergy estimate of $60 million, approximately 7% of Houghton’s 2018 revenue, exceeds initial $45 million estimate • Divested revenue of approximately $50 million in line with original expectations • Combined 2018 adjusted EBITDA of $236 million, net of divestiture and other adjustments, up 7% compared to 2017 and 10% from 2016 Financing and Leverage • Quaker has secured $1.15 billion in committed financing from a syndicated group of banks • Leverage of ~3.4x net debt to 2018 adjusted EBITDA at close; ~2.7x with run - rate synergies • Attractive pricing and terms; cost of debt ~3.4% to 3.6% at today’s rates Key Deal Terms
• $1.15 billion syndicated bank facility • $400 million revolver (~$180 million funded at close) • $600 million Term Loan A • $150 million (euro - equivalent) Term Loan A • $930 million in new debt to finance transaction • ~$170.8 million for cash portion of purchase price, ~$700 million for refinancing of Houghton’s gross debt, and ~$60 million for refinancing of existing Quaker debt, and fees and expenses • ~$ 220 million remains undrawn on the revolver providing ample liquidity; also have ability to upsize by $300 million • Attractive cost of debt and terms • ~3.4% - 3.6% at today’s rates ©2019 Quaker Houghton. All Rights Reserved 5 Attractive Financing and Ample Liquidity
6 ©2019 Quaker Houghton. All Rights Reserved x Strong Talent and Cultural Fit x Increases Size and Scale x Accelerates Growth Opportunities x Achieves Significant Cost Synergies x Balanced Capital Structure Approach • Adds talent to our most precious asset - people • New Executive Leadership Team in place • Creates the global leader in industrial process fluids • Nearly doubles the revenue of Quaker today • Manufacturing and technical support on 5 continents • Increased cost synergies estimate to $60mm from $45mm • Extensive integration plan developed with consultants; ready to execute • Revenue synergies expected from cross - selling • Expect continued above market growth of 2 - 4% • Disciplined leverage management • Improved balance sheet at closing vs. initial expectations due to strong cash flow • Committed to 2x - 2.5x target net debt / adjusted EBITDA within 2 years of close x Strong Free Cash Flow to De - lever Quickly x Enhanced R&D Capabilities • Ability to develop better products, faster • Ability to flex resources and bring deep expertise to solve customer problems Strategic Rationale: Creates a Clear Industry Leader
©2019 Quaker Houghton. All Rights Reserved 7 • Retain current customers • No supply chain disruption • Deliver excellence in products and services Customer Focused Execute Integration and Deliver Synergies Growth Initiatives Capital Allocation 1 2 3 4 • Begin cross selling expanded portfolio • Develop better products through enhanced R&D • Continue to grow organically 2 to 4% above the market over the long - term • $60mm run - rate cost synergies in 2 years • Detailed execution plan ready for action • Harmonize talent and culture • Maintain and enhance focus on safety, environment, social and governance • Committed to de - lever to 2x - 2.5x • Grow dividends with earnings • Continue to invest in organic growth • Make bolt - on acquisitions as opportunities arise Key Priorities to Unlocking Value Creation
• Transaction Overview • Value - Creating Combination • Financial Performance • Summary & Next Steps • Appendix
©2019 Quaker Houghton. All Rights Reserved 9 $1.6 billion in sales 115 countries served around the world 15k customers 4k colleagues 35 manufacturing locations Creates Leading Global Supplier of Industrial Process Fluids
©2019 Quaker Houghton. All Rights Reserved 10 Global Functional Leaders Business Leaders Jeewat Bijlani – SVP, Managing Director – Americas Dieter Laininger – SVP, Managing Director – APAC Adrian Steeples – SVP, Managing Director – EMEA Joseph Berquist – SVP, Global Specialty Businesses & Chief Strategy Officer Kym Johnson – SVP, Global Human Resources, CHRO Mary Dean Hall – SVP, CFO, & Treasurer Robert T. Traub – SVP, General Counsel & Corporate Secretary Dr. Dave Slinkman – SVP, Chief Technology Officer Wilbert Platzer – SVP, Global Operations, EHS & Procurement Mike Barry - Chairman, Chief Executive Officer, and President Proven Executive Leadership Team
©2019 Quaker Houghton. All Rights Reserved 11 Expands Commercial Footprint Across Multiple Fronts Increased Scale and Diversity = More Opportunities, Less Risk Increases global customer base from 3,500 to 15,000. Highly complementary with only 1,000 overlapping customers. Strengthens presence with OEM producers in all regions of the world. Customers Adds new product lines such as quenchants, forging, and metal finishing products and deepens existing product portfolio including metal removal fluids and specialty hydraulic fluids. Products Adds multiple markets including heat treatment, architectural aluminum, and offshore drilling while expanding important areas like aerospace and fabricated metal goods. Markets Strengthens presence in key strategic markets including Germany, Korea, Eastern Europe, Middle East, and Southeast Asia, with manufacturing and technical support on five continents. Geography
©2019 Quaker Houghton. All Rights Reserved 12 Quaker • 3,500 customers • Largest customer ~8% of sales • Top 10 customers ~25% of sales • Steel and Automotive major end markets Quaker Houghton • 15,000 customers • Complementary - only 1,000 overlap • Largest customer ~4% of sales • Top 10 customers ~17% of sales • Numerous markets expanded including Aerospace, Offshore, Aluminum, Heat Treatment, Fabricated Metal Goods and Architectural Aluminum Diversifies and Expands Customer Base
©2019 Quaker Houghton. All Rights Reserved 13 BEFORE: Focused on a limited set of markets with primarily large customers NOW: At nearly 2x our previous size, we have a leadership position in a more diverse set of markets Steel Steel Auto Components/OEM Bearings Tube & Pipe Auto Components/OEM Bearings Tube & Pipe Heat Treatment Fabricated Metal Goods Aerospace Mining Grease Containers Aerospace Maskants Arch. Aluminum Offshore Mining Grease Containers Aerospace - Maskants Steel Aluminum Steel Aluminum Specialty Specialty Metalworking Metalworking Significantly increases presence in $10B+ market Nearly Doubles Our Size and Scale
©2019 Quaker Houghton. All Rights Reserved 14 Increases Addressable Markets Company with Stronger Market Presence Quaker Houghton Both Strong The Combination Makes Us Stronger. Together.
©2019 Quaker Houghton. All Rights Reserved End Markets Primary Metals Aluminum Primary Metals Steel Transportation Engine & Transmission Transportation Components General Industrial Aerospace and Defense Tube & Pipe Metal Containers Mining Offshore Hydraulics & Sub - sea Control Specialty Grease Architectural Aluminum Aerospace Maskants Increased Market Leadership Position Enhanced Capabilities Enhanced R&D capabilities ↑ ↑ ↑ ↑ ↑ ↑ - ↑ ↑ ↑ - ↑ - Greater ability to serve; people ↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑ Greater expertise/ portfolio depth ↑ - ↑ ↑ ↑ ↑ - ↑ - ↑ - ↑ - Increased portfolio breadth ↑ ↑ ↑ ↑ ↑ ↑ - ↑ - ↑ - ↑ - Geographic market expansion ↑ ↑ ↑ ↑ ↑ ↑ ↑ ↑ - ↑ ↑ ↑ - Q QH Q QH Q QH Q QH Q QH Q QH Q QH Q QH Q QH Q QH Q QH Q QH Q QH High Medium Low No Presence Market Leadership Position Improves Leadership Position and Enhances Capabilities to Serve Customers Across End Markets 15
Industrial Synthetic Fire - Resistant Hydraulic Fluids Water Glycol Fire - Resistant Hydraulic Fluids Specialty Grease Offshore Sub - Sea Control Fluids ©2019 Quaker Houghton. All Rights Reserved 16 Metalworking Metal Removal Fluids - Synthetic Metal Removal Fluids - Soluble Metal Removal - Neat Oils Metal Cleaning Corrosion Protection Metal Drawing and Forming Fluids Die Cast - Mold Release Heat Treatment/ Quenchants Metal Forging Fluids Q QH Q QH Q QH Q QH Q QH Q QH Q QH Q QH Q QH Q QH Q QH High Medium Product Portfolio Strength and Breadth Low No Presence Strengthens Product Portfolio: Broader and Deeper Metals Steel Rolling Tinplate Rolling Steel Surface Cleaners Corrosion Protection Ferrous Metal Surface Treatment Aluminum Hot Rolling Rod & Wire Drawing Q QH Q QH Q QH Q QH Q QH Q QH Q QH Q QH Q QH
©2019 Quaker Houghton. All Rights Reserved 17 Mexico Quaker had local manufacturing while Houghton did not; opportunity to better serve the customer and reduce cost South America Broadens footprint in Brazil and Argentina, as well as expands presence in other South American countries Germany Houghton had local manufacturing while Quaker did not, providing infrastructure in a leading automotive country and a closer export base to Eastern Europe India Quaker had local manufacturing while Houghton did not; opportunity to better serve the customer and reduce cost Thailand Houghton adds Thailand manufacturing capabilities to better serve existing customers South Korea Establishes a presence in a growing market where Quaker previously did not participate Enhances Global Footprint
©2019 Quaker Houghton. All Rights Reserved 18 Base markets expected to grow 1 - 3% Continued share gain in existing product portfolio through differentiated customer service Leverage acquired technologies to increase share of wallet Quaker Houghton will continue to consider strategic acquisition candidates Organic Growing Base Markets Gaining Market Share Leveraging Past Acquisitions Future Acquisitions Expect 2 - 4% growth above base markets over time Growth Strategy Continues
Significant Cost Synergies ©2019 Quaker Houghton. All Rights Reserved 19 Estimated Synergy Realization Timing Sources of Synergy ~$60 0 10 20 30 40 50 60 70 2019 2020 2021 2022 Asset Optimization Logistics Procurement Operational Efficiencies ~$50 ~$35 ~$5 19 Asset Optimization (17%) • Manufacturing footprint optimization • Optimize IT platforms Logistics & Procurement (35%) • Raw material purchasing • Freight / warehousing • Ester production Operational Efficiencies (48%) • Headcount reductions • Non - labor SG&A 0 10 20 30 40 50 60 70 Yr - 1 Yr - 2 Yr - 3 Asset Optimization Logistics Procurement Operational Efficiencies ~$45 ~$60 ~$20
• The U.S. Federal Trade Commission and European Commission required divestiture of certain steel and aluminum product lines in North America and Europe concurrent with close • Revenue of ~$50 million represents ~3% of combined Quaker Houghton revenue as expected; EBITDA of ~$11 million excludes certain manufacturing costs and SG&A which will be part of cost synergies • Buyer is TOTAL S.A.; sale proceeds of ~$37 million ©2019 Quaker Houghton. All Rights Reserved 20 Quaker Houghton Remains the Global Leader in Steel and Aluminum Divestiture Update
• Transaction Overview • Value - Creating Combination • Financial Performance • Summary & Next Steps • Appendix
©2019 Quaker Houghton. All Rights Reserved 22 Net Sales ($ in millions) $747 $820 $868 $851 $738 $785 $825 $786 2016 2017 2018 TTM Q2 '19 $1,485 $1,605 $1,693 $1,637 $107 $115 $126 $124 $119 $116 $122 $118 2016 2017 2018 TTM Q2 '19 119 115 117 119 July 2017 Proxy 14.3% 14.0% 16.1% 14.8% 14.5% 15.0% 14.8% 14.5% Adjusted EBITDA & Margin ($ in millions) $248 $231 $226 $242 • Korea equity affiliate * - ~$5 million decline in adjusted EBITDA largely due to slowdown in its markets • Offshore hydraulics * - ~$3 million decline due to reduced offshore drilling resulting from lower oil prices • Foreign exchange - ~$1 million decline in adjusted EBITDA due to strengthening of US dollar • Organic growth - ~ $8 million increase helps offset negatives above Key Drivers of Changes to Houghton’s Adjusted EBITDA (Changes from 2016 to TTM Q2 ’19) Actuals * Note: Korea and Offshore are not expected to decline further Quaker Houghton Houghton Quaker Historical Financial Performance Review Houghton’s adjusted EBITDA generally consistent with July 2017 proxy estimates Foreign exchange primary driver of 3% decrease in adjusted EBITDA
Quaker Houghton’s Pro - Forma Adjusted EBITDA ©2019 Quaker Houghton. All Rights Reserved 23 $215 $221 $236 $230 200 210 220 230 240 2016 2017 2018 TTM Q2'19 23 • Estimated pro - forma 2018 adjusted EBITDA of ~$236 million decreased to ~$230 million for TTM Q2’19 • $6 million decline largely due to foreign exchange impacts • Full year 2019 pro - forma adjusted EBITDA estimated to somewhat exceed the $236 million achieved in 2018 • Current year challenges due to global automotive market and foreign exchange begin to subside due to year - over - year comparisons (headwinds began at the end of Q2’18) • Expectation reflects ~$5 million cost synergy estimate Note: Estimated pro - forma adjusted EBITDA represents full year performance for both Quaker and Houghton and adjusts for divestiture and other accounting adjustments during each respective period ($ in millions). See appendix for reconciliations .
($ in millions ) Quaker Houghton Quaker Houghton (a) ∆ vs. Quaker standalone Net Sales $851 $786 $1,584 ~2x Gross Profit $307 $267 $589 ~2x Gross Margin 36.1% 34.0% 37.2% ~1% pts Adjusted EBITDA $124 $118 $290 ~2.5x Adjusted EBITDA Margin 14.5% 15.0% 18.3% ~4% pts ©2019 Quaker Houghton. All Rights Reserved 24 Quaker Houghton Combination Increased from $45mm at announcement TTM 6/30/2019 Adjusted EBITDA ($ millions) Divestiture $124 $118 $60 ($11) $290 Run - Rate Synergies a) Column includes Quaker and Houghton’s TTM 6/30/2019 financials as presented, adjusted for synergies and divestiture estimates . Enhanced Financial Profile, Better Together
• Net sales decrease of ~$30 - $40 million due to conforming of accounting policies including revenue recognition; minimal impact to consolidated EBITDA • Total depreciation and amortization expense estimate at close of ~$85 million per year, including ~$10 million due to estimated purchase accounting adjustments • One - time expenses related to integration and achieving cost synergies estimated to be ~1x cost synergies (~$60 million); timing of one - time expenses will be front loaded in 2019 and 2020 • Interest expense of ~3.4 - 3.6% reduces combined interest cost by $20 - 25 million per year • Non - GAAP tax rate estimates: Q3 ’19: 25 - 27%; Q4 ’19: 19 - 21%; Full year 2020: 22 - 24% • Share count increases ~4.3 million shares to ~17.6 million shares ©2019 Quaker Houghton. All Rights Reserved 25 Accounting and Other Adjustments to Financials
26 ©2019 Quaker Houghton. All Rights Reserved Strong Free Cash Flow Supports Key Capital Allocation Priorities • De - lever to 2x - 2.5x net debt to adjusted EBITDA within two years • Combined company has asset - lite profile with expected capex of ~1.5% of sales after two years; expect ~2.5% in first two years • Pay dividends consistent with Quaker’s practice over past 47 years • Continue strategic acquisitions considering leverage and liquidity
• Transaction Overview • Value - Creating Combination • Financial Performance • Summary & Next Steps • Appendix
• Combination nearly doubles the size of either company • Cost synergies increased to $60 million from $45 million • Continued above market growth of 2 - 4% expected beginning year 2 • Differentiated customer intimate business model • Cross - selling synergies become visible after year 1 • Debt structure flexible and low cost to meet strategic needs going forward • Allows for continued strategic investments and smaller acquisitions in the short term • Expect to be below 2.5x net debt to adjusted EBITDA within 2 years 28 ©2019 Quaker Houghton. All Rights Reserved Quaker Houghton Combination Summary
By August 2021, we expect: • To have achieved our cost synergies and be a $300+ million EBITDA company on a going forward basis • Be positioned for organic growth 2 to 4% above the market • Be at our target leverage range and positioned for greater acquisition opportunities 29 ©2019 Quaker Houghton. All Rights Reserved Quaker Houghton: A Market Leader Positioned for Growth
Save the Date: December 12, 2019 New York Stock Exchange CONFIDENTIAL, DO NOT DISTRIBUTE
• Transaction Overview • Value - Creating Combination • Financial Performance • Summary & Next Steps • Appendix
32 ©2019 Quaker Houghton. All Rights Reserved Adjusted EBITDA Reconciliation – 2016 ($ in millions, unless otherwise noted) Quaker Houghton Divestitures Other (c) NewCo Net Income Attributable to Quaker Houghton 61 (37) (8) 3 19 Depreciation and Amortization 20 55 - 10 85 Interest Expense, Net 1 51 - (14) 37 Taxes on Income (d) 23 (5) (2) 1 17 EBITDA 105 64 (10) 0 158 Equity Income in a Captive Insurance Company (2) - - - (2) Combination and Other Acquisition-Related Expenses 2 3 - - 5 Pension and Postretirement Benefit Costs, Non-Service Components 2 (1) - - 1 Cost Reduction Activities - 4 - - 4 Impairment of Goodwill and Intangible Assets - 41 - - 41 Affiliate Management Fees - 2 - - 2 Non-Income Tax Settlement Expense - 2 - - 2 Full-Year Impact of Wallover Acquisition - 3 - - 3 Other Addbacks (b) (0) 1 - - 1 Adjusted EBITDA 107 119 (10) 0 215 Adjusted EBITDA margin (%) 14.3% 16.1% 21.6% 0.0% 15.0% *EBITDA and Adjusted EBITDA may not calculate due to rounding. 2016 (a) (a) In the first quarter of 2019, the Company updated its calculation methodology to include the use of interest expense net of interest income compared to the historical use of only interest expense, and also to include the non-service component of the Company’s pension and postretirement benefit costs. Prior year amounts have been recast for comparability purposes. (b) Other Addbacks includes a charge related to a legal settlement, a charge related to inventory fair value adjustments in the Wallover acquisition, offset by a gain on the sale of an asset, currency conversion impacts of hyper-inflationary economies and a restructuring credit. (c) Other includes estimated increases to depreciation and amortization due to purchase accounting fair value adjustments and a reduction of interest expense based on the average borrowings of the period plus the purchase consideration under the Quaker Houghton facility estimated interest rates. (d) Taxes on Income related to the Divestitures and Other, as described above, each tax effected at the U.S. tax rate of 21%.
33 ©2019 Quaker Houghton. All Rights Reserved Adjusted EBITDA Reconciliation – 2017 ($ in millions, unless otherwise noted) Quaker Houghton Divestitures Other (b) NewCo Net Income Attributable to Quaker Houghton 20 (47) (9) 5 (30) Depreciation and Amortization 20 55 - 10 85 Interest Expense, Net 1 51 - (16) 37 Taxes on Income (c) 42 42 (2) 1 83 EBITDA 83 102 (11) 0 175 Equity Income in a Captive Insurance Company (3) - - - (3) Combination and Other Acquisition-Related Expenses 30 10 - - 40 Pension and Postretirement Benefit Costs, Non-Service Components 4 (1) - - 4 Cost Reduction Activities 0 2 - - 2 Loss on Disposal of Held-for-Sale Asset 0 - - - 0 Insurance Insolvency Recovery (1) - - - (1) Affiliate Management Fees - 2 - - 2 Non-Income Tax Settlement Expense - 1 - - 1 Other Addbacks (a) 0 0 - - 1 Adjusted EBITDA 115 116 (11) 0 221 Adjusted EBITDA margin (%) 14.0% 14.8% 20.4% 0.0% 14.2% *EBITDA and Adjusted EBITDA may not calculate due to rounding. 2017 (b) Other includes estimated increases to depreciation and amortization due to purchase accounting fair value adjustments and a reduction of interest expense based on the average borrowings of the period plus the purchase consideration under the Quaker Houghton facility estimated interest rates. (c) Taxes on Income related to the Divestitures and Other, as described above, each tax effected at the U.S. tax rate of 21%. (a) Other Addbacks includes charges related to inventory fair value adjustments in the Wallover acquisition, currency conversion impacts of hyper- inflationary economies and other non-recurring charges.
34 ©2019 Quaker Houghton. All Rights Reserved Adjusted EBITDA Reconciliation – 2018 ($ in millions, unless otherwise noted) Quaker Houghton Divestitures Other (b) NewCo Net Income Attributable to Quaker Houghton 59 0 (9) 11 62 Depreciation and Amortization 20 54 - 10 85 Interest Expense, Net 4 56 - (25) 35 Taxes on Income (c) 25 3 (2) 3 29 EBITDA 108 114 (12) (0) 210 Equity Income in a Captive Insurance Company (1) - - - (1) Combination and Other Acquisition-Related Expenses 16 7 - - 23 Pension and Postretirement Benefit Costs, Non-Service Components 2 (2) - - 1 Cost Reduction Activities - 0 - - 0 Currency Conversion Impacts of Hyper-Inflationary Economies 1 0 - - 1 Affiliate Management Fees - 2 - - 2 Other Addbacks (a) (1) 0 - - (0) Adjusted EBITDA 126 122 (12) (0) 236 Adjusted EBITDA margin (%) 14.5% 14.8% 22.6% 0.0% 14.4% * EBITDA and Adjusted EBITDA may not calculate due to rounding. 2018 (a) Other Addbacks includes charges related to non-recurring non-income tax and VAT charges, an insurance insolvency recovery and a gain on the liquidation of an inactive legal entity. (b) Other includes estimated increases to depreciation and amortization due to purchase accounting fair value adjustments and a reduction of interest expense based on the average borrowings of the period plus the purchase consideration under the Quaker Houghton facility estimated interest rates. (c) Taxes on Income related to the Divestitures and Other, as described above, each tax effected at the U.S. tax rate of 21%.
35 ©2019 Quaker Houghton. All Rights Reserved Adjusted EBITDA Reconciliation – TTM Q2 ‘19 ($ in millions, unless otherwise noted) Quaker Houghton Divestitures Other (b) NewCo Net Income Attributable to Quaker Houghton 57 1 (9) 12 61 Depreciation and Amortization 19 53 - 10 83 Interest Expense, Net 3 57 - (26) 35 Taxes on Income (c) 26 (2) (2) 3 24 EBITDA 105 109 (11) (0) 203 Equity Income in a Captive Insurance Company (1) - - - (1) Combination and Other Acquisition-Related Expenses 16 8 - - 24 Pension and Postretirement Benefit Costs, Non-Service Components 3 (1) - - 2 Currency Conversion Impacts of Hyper-Inflationary Economies 1 1 - - 1 Affiliate Management Fees - 1 - - 1 Other Addbacks (a) - 0 - - 0 Adjusted EBITDA 124 118 (11) (0) 230 Adjusted EBITDA margin (%) 14.6% 15.0% 22.0% 0.0% 14.6% *EBITDA and Adjusted EBITDA may not calculate due to rounding. (b) Other includes estimated increases to depreciation and amortization due to purchase accounting fair value adjustments and a reduction of interest expense based on the average borrowings of the period plus the purchase consideration under the Quaker Houghton facility estimated interest rates. (c) Taxes on Income related to the Divestitures and Other, as described above, each tax effected at the U.S. tax rate of 21%. (a) Other Addbacks includes an insurance insolvency recovery, a gain on the liquidation of an inactive legal entity, charges related to the settlement of a non-core equipment sale and cost reduction activities. TTM Q2 2019