Standard & Poor’s Ratings Services has put Valmont Industries Inc. (VMI), the U.S. maker of lighting poles and support structures, on a negative credit review. The news comes after VMI announced that it has agreed to acquire British industrial engineering firm Delta Plc. for £284.5 million ($429.1 million) in cash. The offer represents a premium of 20.3% to Delta’s closing price on March 3, 2009.
Standard & Poor’s may downgrade Valmont due to the debt the company is taking on with its purchase of Delta Plc. The agency also cited potential integration problems and smaller profits in 2010 as other reasons behind the possible downgrade.
According to the agency, Valmont is taking on about $350 million of Delta’s debt in the all-cash deal at a time when its U.S. markets are weak. The majority of Valmont’s business constitutes highway constructions. We believe that results in the industry could be softer than expected depending on the fate of a federal highway bill.
Standard & Poor’s did not cut its “BBB-” corporate credit rating on Valmont. The agency judges BBB debt as medium class debt, which is satisfactory at the moment. The rating agency stated that it would not downgrade Valmont if the $430 million deal is completed as it is currently proposed and market conditions do not change. Valmont expects to close the transaction in the second quarter of 2010. The company expects the deal to add to its earnings in 2011.
Delta is a manufacturer of support structures for the lighting, wireless and utility industry, industrial access systems and road safety systems in the U.K. The company has operations in Australia, New Zealand, the U.S., China, South Africa and throughout Southeast Asia. Delta’s engineered support structures business and galvanizing facilities will add size and geographic coverage to Valmont’s current businesses.
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