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Gulf acquires Houghton International
for USD 1.05 billion
Sanjay Hinduja, Chairman, Gulf Oil International

Sanjay Hinduja, Chairman,
Gulf Oil International

Hinduja Group's lubricants subsidiary Gulf Oil Corp has acquired US-based specialty chemicals company Houghton International from a private equity fund for $ 1.05 billion, or Rupees 5,714 crore.

The acquired company is nearly four times as big as Gulf Oil in revenues and six times bigger in terms of EBITDA. This is the largest acquisition by an Indian company this year and betters Rain Commodities' buyout of Belgium-based speciality chemicals group Ruetgers in a $918-million deal.

The acquisition is expected to offer Gulf Oil a much larger geographical reach and access to new technology and products. Houghton International is the world's biggest supplier of metal finish fluids and industrial lubricants with a 12% market share while its global peers BP Castrol and Quaker have a 7% share. "This is a fragmented industry. There is tremendous potential for Gulf Houghton," Sanjay Hinduja, Chairman, Gulf Oil International, told ET.

The financing will be done via a 3:1 debt-equity structure for which $ 785 million of loans have already been secured on Houghton's balance sheet at 6.5-6.6% rate of interest, a senior Hinduja Group official said.

For the remaining $ 260 million, Gulf Oil International — the parent company of the listed Indian entity — has given a commitment to make available necessary funds to the UK subsidiary, which may be extended by way of debt. More than half-a-dozen suitors were eyeing Houghton, and the private equity promoter had set a tight deadline that was made more difficult by Hurricane Sandy.

Gulf Oil plans to derive several synergies from the acquisition. Houghton has presence in the US and Europe, while Gulf Oil has operations in Asia and Middle East. Also, Gulf Oil is barely present in the product segments dominated by Houghton. And finally, at a combined level, the Group would become a large consumer of base oils that can bring down raw material costs.

"We as a Group will consume nearly 600,000 tonnes of base oil annually. This should help us bring down raw material costs by over 2 percentage points," said Frank Rutten, Vice-President, Gulf Oil International. Although the standalone balance sheet of the listed entity won't be burdened with the additional debt, the consolidated balance sheet would appear highly leveraged, as the business remains under its wholly owned subsidiary.

However, Houghton International, with over $ 858 million of turnover and 15% EBITDA margins, will be in a position to generate sufficient cash to service the debt. In addition, if the Group is able to derive the benefits of synergies at the earliest, it should turn out to be a good acquisition for Gulf Oil.

Courtesy: The Economic Times, November 2012

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