CIRCOR International — Merger or Acquisition (June 2019)
48 slides from CIRCOR International's merger presentation, Jun 25, 2019
Slide 1: Crane Co. Response to Unrealistic CIRCOR Plan
Crane Co. Response to Unrealistic CIRCOR Plan June 25, 2019 Exhibit 99.2
Slide 2: Forward-Looking Statements–Disclaimer
Forward-Looking Statements–Disclaimer This presentation may contain forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current beliefs, expectations, plans, assumptions and objectives regarding the future financia
Slide 3: Presentation Outline
Presentation Outline 1 2 3 4 OFFER TO ACQUIRE CIRCOR CIRCOR’S HISTORY OF UNDERPERFORMANCE NO REASON TO BELIEVE THIS TIME IS DIFFERENT OUR OFFER PROVIDES A HIGHER VALUE THAN CIRCOR’S UNREALISTIC PLAN CIRCOR’S FAILURE OF GOVERNANCE CONCLUSION: TENDER YOUR SHARES 5 6
Slide 4: Offer to Acquire CIRCOR
OFFER TO ACQUIRE CIRCOR CRANE
Slide 5: Crane Co.'s Superior All-Cash Offer to Acquire CIRCOR
crane co.’S SUPERIOR ALL-CASH Offer to acquire CIRCOR Significant premium Positioned for rapid execution Crane Co. to acquire CIRCOR in an all-cash transaction at $45.00 per share Cash consideration represents a significant premium: 47% over the closing share price on May 20, 2019 37% over the undis
Slide 6: CIRCOR Disregarding Best Interest of Shareholders
CIRCOR DISREGARDING BEST INTEREST OF SHAREHOLDERS Crane’s offer represents certain value at a significant premium Immediate cash versus the standalone risk in CIRCOR’s “new plan” CIRCOR shareholders should not give credence to revised targets Repeated failure to achieve multi-year financial objectiv
Slide 7: Why you should tender your shares
Why you should tender your shares Tendering shares into our offer sends a clear message to CIRCOR’s Board of Directors Desire to maximize value Rejection of status quo Skepticism of yet another set of revised and unrealistic performance targets Dissatisfaction with governance Our offer is superior t
Slide 8: Opportunistic? It's simply chronic underperformance
Opportunistic? It’s simply chronic underperformance and persistent lack of ability to execute CIRCOR has failed to deliver on multiple sets of financial targets Missing self-set targets since 2011 driven by poor execution Substantially underperformed peers, even those with substantial O&G market exp
Slide 9: CIRCOR's History of Underperformance
circor’S history OF UNDERPERFORMANCE
Slide 10: Consistent underperformance vs. key indices
consistent underperformance VS. KEY INDICES persistent DECLINE in stock price DESPITE acquiring ATTRACTIVE ASSETS Source: Factset | Note: Indexed share price from 12/31/2013 to 5/17/2019; Indexed to 100 | S&P Mid Cap 400 Capital Goods index constituents are equal weighted. ¹ S&P Mid Cap 400 Capital
Slide 11: CIRCOR TSR: single worst performer among peers
circor TSR: SINGLE worst performer among PEERS Total Shareholder Returns (12/31/2013 - 5/17/2019) ¹,² Source: Factset. ¹ Total shareholder returns from 12/31/2013 to 5/17/2019. ² Assumes dividends are reinvested on ex-date | Adjusted for stock splits and split-offs. ² Peers include S&P Mid Cap 400 C
Slide 12: "O&G exposure" not a credible excuse
“O&G exposure” not a credible excuse Source: FactSet. ¹ Total shareholder returns from 12/31/2013 to 5/17/2019. ² Assumes dividends are reinvested on ex-date | Adjusted for stock splits and split-offs. ² Peers include S&P Mid Cap 400 Capital Goods Index excluding constituents without data back to 12
Slide 13: From CIRCOR's own 10-K
FROM CIRCOR’S OWN 10-K… Source: CIRCOR 2018 Form 10-K. CIRCOR REPORTS LONG-TERM UNDERPERFORMANCE COMPARED TO MAJOR INDICIES AND SELF-SELECTED PEER GROUP
Slide 14: CIRCOR missed all five-year targets set in 2014
CIRCOR missed all Five-Year targets SET IN 2014 Source: Company filings and presentations, including CIRCOR’s 2014 Investor Day presentation dated 9/10/2014. ¹ Calculated using FY 2013 revenue figure and adding the impact of operations on revenue for subsequent years, as reported in company filings.
Slide 15: And appears likely to miss prior 2020 goals set in 2017
And APPEARS LIKELY TO MISS prior 2020 goals SET IN 2017… Source: Company filings and presentations, including CIRCOR’s 2017 Investor Day presentation dated 5/25/2017. ¹ As reported in Q4 2018 earnings press release dated 2/27/2019. ADJUSTED OPERATING MARGIN ADJUSTED EPS ~16% 8.2% 1 $6.65 $2.11 1 lit
Slide 16: And likely to miss new 2020 targets issued June 24, 2019
…AND LIKELY TO MISS NEW 2020 TARGETS ISSUED on June 24, 2019, despite DOWNWARD revisions Source: Company filings and presentations, including CIRCOR’s 2017 Investor Day presentation dated 5/25/2017. ¹ As reported in Q4 2018 earnings press release dated 2/27/2019. 2 Revised target represents adjusted
Slide 17: CIRCOR has been missing its targets for a long time
AND REMEMBER, CIRCOR has been missing its targets for a long time Source: Company filings and presentations, including CIRCOR’s Q4 2010 Earnings Presentation dated 2/24/2011 and Gabelli Conference Presentation dated 2/9/2012. ¹ As reported in CIRCOR’s Q4 2014 earnings release dated 2/28/2015. 2 As r
Slide 18: CIRCOR's history of empty promises
circor’s History of empty promises 2014 Investor Day 2017 Investor Day Actual Performance (2013-2018) 1 Difference “CIRCOR is at an inflection point” “CIRCOR transformation on track” Adjusted EPS from $3.21 to $2.11 1 “Significant margin expansion opportunity” “Significant margin expansion opportuni
Slide 19: And this time is different...?
And This time is different….? Sound familiar? From CIRCOR Investor Update – June 24, 2019: “Our plan is expected to deliver significant shareholder value over the next 18 months – driven by strong earnings growth and balance sheet improvement”
Slide 20: CIRCOR CEO consistently missed internal targets
Circor CEO consistently missed internal targets CIRCOR’S 14d-9 Confirms underperformance Shareholders should not expect different result Source: Schedule 14D-9 dated 6/24/19.
Slide 21: No reason to believe this time is different
No reason to believe this time is different
Slide 22: CIRCOR's organizational disruption limits potential
CIRCOR’s Organizational disruption limits potential Significant turnover across top management Three CFOs, four Energy Segment Heads, and three Aerospace Segment Heads since 2013 Multiple organizational restructurings Three different reporting structures since 2013 Repeated segment realignments also
Slide 23: CIRCOR instability by-the-numbers
CIRCOR INSTABILITY by-the-numbers CFOs 9 VP-level changes 2 GCs (currently open) 4 Energy segment heads 3 Aerospace segment heads 3 Different reporting structures 10 Top executives have left the Pumps business since the December 2017 Colfax acquisition 11 of SIGNIFICANT MANAGEMENT TURNOVER AND ORGAN
Slide 24: EBITDA growth plan assumptions unrealistic
EBITDA growth plan assumptions unrealistic Source: CIRCOR’s Schedule 14D-9 1 Cost Reduction category includes Synergies and G&A Cost Reduction and Low Cost Manufacturing. Mix of EBITDA growth drivers appears unrealistic: extremely difficult to drive substantial cost reductions concurrent with big im
Slide 25: Industrial is a solid business...
Industrial is a solid business… Strong brands and attractive business that is already performing well After re-allocating Colfax Defense (pumps product line) back to Industrial (where we believe it belongs), this segment contributes more than half of overall segment profit with ~12.5% adjusted EBITD
Slide 26: ...but with limited room for operational improvement
…but with limited room for operational improvement Additional cost savings / margin upside questionable Managed for years by successive experienced Colfax management teams with strong track records Colfax Business System (derivative of Danaher Business System) was rigorously applied for many years P
Slide 27: Other industrial improvement constraints
Other industrial improvement constraints Difficult to drive improvement without a stable, experienced management team 10 of 11 top executives have left the pumps business since the December 2017 Colfax acquisition Historically, this business hasn’t received consistent price improvements Pricing part
Slide 28: Reduced exposure to energy won't help
Reduced exposure to energy won’t help Recent order and backlog performance make near-term turnaround out of reach Burning backlog with weak orders in recent quarters Margins remain well below industry average Margin deterioration disproportionate to sales decline and market conditions Poor execution
Slide 29: Near-term sales growth at Energy likely to be challenging
Near-term sales growth at Energy likely to be challenging Energy burning substantial backlog with increasingly negative book-to-bill Source: Company filings and presentations. 1 Backlog for all quarters of 2018 adjusted to exclude Reliability Services which had 25.6m backlog in 1Q18 (assumed to be s
Slide 30: Energy – no sign of operational improvement
Energy – no sign of operational improvement Energy Adjusted Segment Margin (ex-Reliability Services) Source: Company filings and presentations. 2018 data presented pro forma for the 2019 divestiture of Reliability Services based on information contained in the January 28, 2019 press release “CIRCOR
Slide 31: Aerospace & defense has limited margin potential standalone
Aerospace & defense has limited margin potential in current standalone structure After prior restructurings, no further opportunity for consolidation among existing CIRCOR facilities $237m 2018 sales and five facilities $47m average sales per facility is sub-scale Wide variation in manufacturing cap
Slide 32: Aerospace & defense growth limited near-term
Aerospace & defense growth limited near-term Industry growth rates on a blended basis +2-3% No growth details by business/segment provided in Schedule 14D-9 Strong book-to-bill consistent with the rest of the industry which has been receiving multi-year orders for certain platforms; not necessarily
Slide 33: Our offer provides a higher value than CIRCOR's unrealistic plan
Our offer provides a higher value than circor’s unrealistic plan
Slide 34: CIRCOR's plan does not deliver value equivalent to Crane's offer
Circor’s plan does not deliver value equivalent to crane co.’s offer Even if CIRCOR could execute on its plan, the resulting value would still be a discount to crane’s offer Source: Company filings and presentations, including CIRCOR’s investor presentation dated 6/24/2019. 1 Long Term Multiple base
Slide 35: No reason CIRCOR should trade above long-term peer average multiple
No reason CIRCOR should trade above long-term peer average multiple on normalized EBITDA Source: Capital IQ Note: Market data as of 6/17/19 TOTAL ENTERPRISE VALUE / FY+1 EBITDA – Last 10 Years for S&P Mid Cap 400 Capital Goods Index 10-year average: 9.4x
Slide 36: CIRCOR's Failure of Governance
circor’S Failure of governance
Slide 37: Examples of poor governance
Examples of poor governance We urge circor shareholders to tender their shares to encourage the CIRCOR board to engage with crane co. Staggered Board Had proposal in hand during last annual meeting and shareholder vote without disclosure Maintaining other defenses typical of an “entrenched” Board Hi
Slide 38: Low insider ownership misaligns incentives with shareholders
Low insider ownership misaligns incentives with shareholders Insider Ownership as a % of Basic Shares Outstanding Source: Schedule 14D-9 dated 6/24/19 and FactSet ¹ Excludes impact of merger agreement on accelerated vesting of options ² Index includes all S&P Mid Cap 400 Capital Goods constituents T
Slide 39: Questionable capital allocation decisions
QUESTIONABLE CAPITAL ALLOCATION DECISIONS Source: Company filings. CIRCOR Spent More Than 4x as Much Cash As IT Generated 2014-2018 cumulative cash deployment 2014-2018 cumulative cash from operations
Slide 40: Undisciplined M&A has destroyed shareholder value
Undisciplined M&A has destroyed Shareholder value Source: Company filings and FactSet. Note: Enterprise value calculations inclusive of net pension liabilities. ~$1bn Enterprise value (12/30/14) ~$1bn Net value of acquisitions ~$1.5bn Current enterprise value (5/17/19) ~$500mm of lost value + POORLY
Slide 41: Returns for prior acquisitions overstated?
Returns for prior acquisitions overstated? circor’s roic targets for its two prior significant transactions appear overstated As they imply legacy Circor ebit contribution of <$11mM Source: CIRCOR 14D-9 dated 6/24/19, CIRCOR 10-K dated 3/1/19 and Crane estimates ¹ Year 3 expected ROIC per 14D-9 date
Slide 42: CIRCOR has one of the weakest credit profiles among peers
CIRCOR has one of the weakest credit profiles among peers Net Debt / LTM EBITDA 6.7x 1.9x 1.8x High financial leverage leaves little room for error Source: Company filings. ¹ Peers include all S&P Mid Cap 400 Capital Goods Index constituents. Note: Total debt adjusted for net pension labilities | EB
Slide 43: Conclusion: Tender your shares
Conclusion: Tender your shares
Slide 44: CIRCOR shareholders' call to action
Circor shareholders’ call to action CIRCOR management has a demonstrated history of missed financial targets CIRCOR’s revised, short-term business plan insufficient to deliver competitive standalone value for shareholders Crane Co.’s certain, all-cash $45 per share offer remains the best alternative
Slide 45: Crane
CRANE
Slide 46: Additional Information and Where to Find It (1/2)
Additional Information and Where to Find It (1/2) This presentation shall not constitute an offer to sell or the solicitation of an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any sale of securities in any jurisdiction in which such offer, solicitation or
Slide 47: Additional Information and Where to Find It (2/2)
Additional Information and Where to Find It (2/2) This presentation shall not constitute a solicitation of a proxy from any stockholder. This communication relates only to a proposal that the Company has made for a business combination with CIRCOR. In furtherance of the acquisition proposal, and sub
Slide 48: Investor Contacts
Investor Contacts: Jason D. Feldman Director, Investor Relations 203-363-7329 [email protected] www.craneco.com Scott Winter / Larry Miller / Gabrielle Wolf Innisfree M&A Incorporated 212-750-5833 Media Contacts: Tom Davies / Molly Morse Kekst CNC 212-521-4873 / 212-521-4826 Tom.davies@kekst
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