Canada-headed Methanex Corporation (Methanex), the world's largest methanol producer has announced that it has entered into a definitive agreement to acquire OCI Global’s (OCI) international methanol business for US$2.05 billion. The transaction includes OCI’s interest in two world-scale methanol facilities in Beaumont, Texas (TX), one of which also produces ammonia. The transaction also includes a low-carbon methanol production and marketing business and a currently idled methanol facility in the Netherlands.
According to a statement, OCI’s methanol business enhances Methanex’s asset portfolio with highly attractive assets in a low-risk jurisdiction that has an ample and economic supply of feedstock natural gas.
This is a unique opportunity to create value by acquiring two highly attractive North American methanol assets that will further strengthen our global production base and we expect it will be immediately accretive to free cash flow per share. The Beaumont plants benefit from access to North America’s abundant and favorably-priced supply of natural gas feedstock and are expected to increase our global methanol production by over 20 percent, said Rich Sumner, President and CEO of Methanex.
Leverage cost synergies
As part of the transaction, Methanex expects to achieve approximately US$30 million of annual cost synergies from lower logistics costs and lower selling, general, and administrative expenses.
Methanex anticipates low integration costs because of OCI’s similar operating model and expects that additional value can be obtained by applying its global expertise and extensive operational experience to the OCI assets.
We are pleased with the opportunity to achieve a significant ownership position and are highly confident in Methanex’s ability to create enduring value for shareholders. As the global leader committed to safety and operational excellence, we identified Methanex as the natural owner of OCI Methanol at the outset of our strategic process, which we initiated in the spring of 2023, said Nassef Sawiris, Executive Chairman of OCI.
Methanex plans to integrate key operational practices at the facilities and will incorporate the OCI assets into its global risk-based management processes including turnaround and capital planning post-closing.
We believe the transaction will provide significant long-term value to Methanex shareholders while aligning with our strategic objectives of industry leadership, operational excellence, and financial resiliency. From an operating perspective, we have a shared culture of safety and operational excellence, and we expect the OCI team will help us build new skills in ammonia while enhancing our capabilities in the evolving business of low-carbon methanol production and marketing, said Rich Sumner.
Provide entry into ammonia
OCI’s ammonia production, while modest compared with its methanol production, provides Methanex with a low-risk entry into a new and synergistic commodity in an adjacent and complementary segment to methanol with similar feedstock-based advantages.
In addition to industrial and agricultural uses, ammonia has low-carbon alternative fuel capabilities for power generation and as a marine fuel and is a revenue diversification opportunity for Methanex.
This is an outstanding strategic fit for Methanex. We look forward to working closely with Methanex’s management to fully integrate the business after closing, and to ensure continuity and successful stewardship of the business, said Ahmed El Hoshy, CEO of OCI.
As part of the transaction, Methanex will acquire the following:
- A methanol facility in Beaumont, Texas with an annual production capacity of 910,000 tonnes of methanol and 340,000 tonnes of ammonia. This plant was restarted in 2011 and since that time the plant has been upgraded with US$800 million of capital for full site refurbishment and debottlenecking.
- A 50 percent interest in a second methanol facility also in Beaumont, Texas, operated by the joint venture Natgasoline LLC (Natgasoline). The Natgasoline plant was commissioned in 2018 and has an annual capacity of 1.7 million tonnes of methanol, of which Methanex’s share will be 850,000 tonnes.
- OCI HyFuels, which produces low-carbon methanol and sells industry-leading volumes with trading and distribution capabilities for renewable natural gas (RNG). With nine years of experience in the low-carbon methanol business and with an array of blue-chip customers, this will enhance Methanex’s existing Low Carbon Solutions function with additional expertise in this developing segment.
- A methanol facility in Delfzijl, the Netherlands with an annual capacity to produce 1 million tonnes of methanol. This facility is not currently in production due to unfavorable pricing for natural gas feedstock.
Purchase price
Under a definitive agreement with OCI, the US$2.05 billion purchase price will consist of US$1.15 billion in cash, the issuance of 9.9 million common shares of Methanex valued at US$450 million (based on a US$45 per share price), and the assumption of US$450 million in debt and leases.
The purchase price implies a multiple of 7.5 times Adjusted EBITDA at a US$350/tonne realized methanol price, including anticipated synergies. The world-scale North American operating assets have been acquired below reinvestment economics of brownfield or greenfield capacity.
After the transaction, Methanex will have approximately 77 million shares outstanding, of which OCI will own approximately 13 percent.
Methanex intends to fund the cash consideration of the transaction through a combination of cash on hand and new debt issuance and has obtained a fully committed debt financing package from the Royal Bank of Canada (RBC) to support the transaction.
We expect the acquisition to add incremental annual Adjusted EBITDA of US$275 million to our expected run-rate Adjusted EBITDA of US$850 million at a US$350/tonne realized methanol price1. We remain firmly committed to maintaining financial flexibility and have in place a robust financing plan that will support de-levering to our target range of 2.5 to 3.0 times debt/Adjusted EBITDA within approximately 18 months from closing, assuming an average realized price of US$350/tonne. The plan includes the repayment of our US$300 million bond as scheduled in December 2024, said Dean Richardson, SVP of Finance and Chief Financial Officer of Methanex.
Next steps
Closing of the transaction is expected in the first half of 2025. The transaction has been approved by the boards of directors of both companies and is subject to receipt of certain regulatory approvals and other closing conditions including TSX approval for the issuance of Methanex shares to OCI.
The transaction is also subject to approval by a simple majority of the shareholders of OCI. The largest shareholder of OCI has signed an agreement to vote for the transaction.
There is currently a legal proceeding between OCI and its Natgasoline joint venture partner over certain shareholder rights.
The obligation of Methanex to purchase OCI’s 50 percent stake in Natgasoline is subject to the resolution of this legal proceeding. If it is not settled within a certain period, Methanex has the option to carve out the purchase of the Natgasoline joint venture and close only on the remainder of the transaction.
If Methanex elects to complete the transaction on a carved-out basis, it will retain the right to acquire OCI’s joint venture interest for a specified period thereafter at its sole option.
Approximately 40 percent of the gross transaction and operating metrics are attributable to Natgasoline. Substantially all the debt in the total transaction is attributable to Natgasoline.
Methanex’s financial advisors for the transaction were Deutsche Bank and RBC Capital Markets. McCarthy Tétrault LLP, Baker McKenzie LLP, Loyens & Loeff N.V., and Reed Smith LLP acted as legal counsel for Methanex.
Deutsche Bank and RBC Capital Markets provided fairness opinions to Methanex’s Board of Directors.
Morgan Stanley & Co. International plc is serving as the exclusive financial advisor to OCI on the transaction. A&O Shearman is acting as its legal advisor.
