Kennametal to sell J&L Industrial Supply to MSC

Kennametal Inc. announced Wednesay that it has signed a definitive agreement with MSC Industrial Direct Co. Inc. to sell Kennametal's J&L Industrial Supply business for $349.5 million. The disposition of this unit is in line with the continued execution of Kennametal's strategy to concentrate on its core manufacturing businesses. The J&L divestiture completes the company's planned exit from owned distribution and will allow Kennametal to build new and grow existing distributor relationships. This also presents an excellent opportunity for Kennametal to improve customer options by delivering its full range of products to customers through the strongest distribution partners.

The divestiture, which is expected to close in the second calendar quarter of 2006 (fourth fiscal quarter for Kennametal), remains subject to customary regulatory approval and negotiated conditions of closing. Goldman, Sachs & Co. is serving as financial advisor to Kennametal in this transaction.

As a part of the transaction, Kennametal will recognize an estimated $228.6 million pre-tax gain in the quarter ending June 30, including transaction related expenses, resulting in an earnings-per-share impact of about $3.25. The company expects to redeploy this capital in the next 12 to 24 months with strategic initiatives. Kennametal immediately plans to accelerate its manufacturing rationalization opportunities. This investment is expected to have a cost impact of approximately $0.55 to $0.70 per share and a payback of less than three years.

Proceeds from the sale will be used to further build shareholder value over the long term in a manner consistent with the company's previously stated priority uses of cash, including but not limited to the following:

   - Acquisitions in Kennametal's core businesses, with emphasis on advanced
     materials and engineered components, conducted according to a
     disciplined process that is part of the Kennametal Value Business
     System (KVBS).
   - Possible buyback of minority share interests in certain foreign
     subsidiaries to capture a greater share of these earnings.
   - Repurchase of as many as 1.7 million shares of Kennametal stock
     depending on market conditions.
   - Debt reduction will be limited to opportunistic situations since
     Kennametal's investment grade credit metrics are stable and ongoing
     cash flow generation remains strong.

Founded in 1941, MSC is one of the premier national suppliers of maintenance, repair and operations products and services. J&L Industrial Supply is a leading specialty metalworking distributor in North America, with a comprehensive product offering of metal cutting tools, abrasives, hand and power tools, precision measuring tools, work holding and tool holding products, machine tools and accessories used in metal cutting operations. The unit reported total annual sales of $257.5 million and operating income of $27.1 million in fiscal year 2005.

"We are very pleased with this agreement and are confident that this divestiture, in alignment with our strategy, enables us to accelerate strategic growth plans as we build and manage our corporate portfolio of technologies," said Kennametal president and CEO, Carlos M. Cardoso. "J&L has been a great success story with a committed team that has consistently delivered strong growth and margins. Our goal was to find a partner for J&L that could accelerate its growth, add incremental value to customers, and be a good home for J&L employees. MSC is a great match and will be able to fully leverage J&L's capabilities. In turn, J&L will remain a major distributor of Kennametal product and an important strategic channel partner. MSC will have access to the Kennametal portfolio of brands, and the Kennametal brand will be marketed through MSC and J&L as the premier brand of indexable cutting tool products."