Kennametal Inc. announced June 8 that it has completed the previously reported divestiture of its J&L Industrial Supply business unit for $349.5 million, subject to post-closing adjustments, to MSC Industrial Direct Company Inc. MSC is a national supplier of maintenance, repair and operations products and services. Proceeds from the sale will be used to further build shareholder value over the long term in a manner consistent with Kennametal's previously stated priority uses of cash, including but not limited to the following:
-- Acquisitions in Kennametal's core business, with emphasis on advanced
materials and engineered components, conducted according to a
disciplined process that is part of the Kennametal Value Business
System (KVBS).
-- Buyback of minority share interests in certain foreign subsidiaries to
capture a greater share of these earnings.
-- Continued repurchase of Kennametal stock under the previously announced
share repurchase program depending on market conditions.
-- Debt reduction, which will be limited to opportunistic situations since
Kennametal's investment grade credit metrics are stable and ongoing
cash flow generation remains strong.
The disposition of this unit is in line with the continued execution of Kennametal's strategy to concentrate on its core technology businesses and expand its global footprint. It also completes the company's planned exit from owned distribution.
As part of the transaction, Kennametal will recognize an estimated $215 to $225 million pre-tax gain in the quarter ending June 30, 2006, including transaction related expenses. This will result in an earnings-per-share impact of approximately $3.15 to $3.25. Net cash proceeds are expected to be $220 to $225 million, including a repayment related to the company's accounts receivable securitization program. The above estimates are subject to post- closing adjustments.
Previously stated guidance will be affected by approximately $28 million in sales and $0.07 in earnings per share associated with the month of June as the transaction closed sooner than originally anticipated.
