U.S. onshore proppant stalwart Fairmount Santrol has agreed to a cash-and-stock takeover by Connecticut-based Unimin Corp. to create an energy and industrial supplier with an estimated 45 million tons/year of sand and mineral processing capacity.
Unimin, a subsidiary of Belgium’s SCR-Sibelco NV, said the combined company would operate a comprehensive logistics platform with a large-scale terminal network across North America, comprising 96 distribution terminals with 18 unit-train capable terminals, and access to all of the major railways that serve leading oil and gas basins.
On a pro forma basis, the combined company at the end of September would have had about $2 billion in revenue. The industrial segment represents 45% of gross profit and the proppants segment represents 55%.
“This is a compelling transaction for our shareholders and for our many other stakeholders, including our customers, employees and communities,” said Fairmount CEO Jenniffer Deckard, who will lead the combined enterprise. “By combining the complementary strengths of both Unimin and Fairmount Santrol, we will create a premier provider of industrial materials and proppant solutions with benefits and growth opportunities that far surpass what either company could achieve alone.”
Chesterland, OH-based Fairmount has become a leading supplier to U.S. unconventional operators, and it has continued to expand its reach. In July, it secured a 40-year lease for 3,250 acres of reserves in the Permian Basin near Kermit, TX, with a 165 million ton mining facility able to produce about 3 million tons/year. Also this year, it reopened its Shakopee, MN northern white sand mine because of increased customer demand.
Unimin CEO Campbell Jones said the merger was “an ideal fit” to diversify products and end markets. Each board already has approved the merger, which includes a $170 million payment to Fairmount.
The tie-up would create a proppant and industrial materials supplier with more than 1.3 billion tons of combined reserves. Management said it would become the largest proppant provider to the energy industry.
The assets would extend the Fairmount and Unimin footprint from oil and gas to glass, construction, ceramics, coatings, polymers and foundry markets. The combination also is expected to reduce operational costs by about $150 million a year.
Unimin operates a portfolio of assets with 38 sand, mineral and coating processing facilities in the United States, Canada and Mexico that serve energy and industrial customers. The portfolio of minerals includes silica sand, with feldspar, nepheline syenite, lime, clays, calcium carbonate and olivine.
Unimin also operates an extensive logistics and distribution network with access to five Class 1 railroads, several in-basin oil and gas operating terminals and strong unit-train capabilities.
Under the terms of the merger agreement, Fairmount would receive $170 million in cash, or about 74 cents/share, and would own 35% of the combined company. Sibelco would be majority owner with 65%. Sibelco also is maintaining ownership of Unimin’s high-purity quartz business, which mainly serves electronics manufacturers in Asia.
Once the transaction is completed, the combined company plans to be listed on the New York Stock Exchange. Fairmount would be delisted.
The board would comprise 11 members, including six recommended by Sibelco, including CEO Jean Luc Deleersnyder, and four recommended by Fairmount. Sibelco would have the right to nominate the independent chair. The executive leadership team is to combine management. Headquarters has yet to be determined, but regional offices would be maintained.
The transaction is expected to close by mid-2018, subject to Fairmount shareholder approval and regulatory consents.
To better frame Unimin versus its peers, the company in 2016 generated an estimated $142 million in gross earnings, which is more than the combined earnings of Fairmount and its sand peers, U.S. Silica Holdings Inc. and Smart Sand Inc., according to Tudor, Pickering, Holt & Co.
“We firmly believe this transaction weds the lowest cost, impressively-logistically-capitalized northern white mine (Wedron) to the ‘Industrial Sand King,’ Unimin, which also owns a top-notch fracture sand business,” analysts said.
The go-forward company should be “the 800 pound gorilla in the overall sand mining industry, and we expect further sand consolidation will occur.”
The combination “should bring more discipline and pricing power,” said Jefferies LLC analyst Brad Handler.