KMG Chemicals, Inc. (NYSE: KMG)

Cabot Microelectronics Corporation (Nasdaq: CCMP), the world’s leading supplier of chemical mechanical planarization (CMP) polishing slurries and second largest CMP pads supplier to the semiconductor industry, and KMG Chemicals, Inc. (NYSE: KMG), a global provider of specialty chemicals and performance materials, have entered into a definitive agreement under which Cabot Microelectronics will acquire KMG in a cash and stock transaction with a total enterprise value of approximately $1.6 billion. Under the terms of the agreement, KMG shareholders will be entitled to receive, per KMG share, $55.65 in cash and 0.2000 of a share of Cabot Microelectronics common stock, which represents an implied per share value of $79.50 based on the volume weighted average closing price of Cabot Microelectronics common stock over the 20-day trading period ended on August 13, 2018. The transaction has been unanimously approved by the Boards of Directors of both companies and is expected to close near the end of calendar year 2018.

The combined company is expected to have annual revenues of approximately $1 billion and approximately $320 million in EBITDA, including synergies, extending and strengthening Cabot Microelectronics’ position as one of the leading suppliers of consumable materials to the semiconductor industry. Additionally, the combined company will be a leading global provider of performance products and services for improving pipeline operations and optimizing throughput.

"We are excited about the combination of two world-class organizations with dedicated and talented employees that provide innovative, high quality solutions to solve our customers' most demanding challenges," said David Li, President and CEO of Cabot Microelectronics. "KMG's industry-leading electronic materials business is highly complementary to our CMP product portfolio, while its performance materials business broadens our product offerings into the fast-growing industry for pipeline performance products and services. We welcome KMG's employees to our team and look forward to our future together as one company."

Chris Fraser, KMG Chairman and CEO, said, “This is an outstanding combination, bringing together two leading companies that will benefit from increased size, scale and geographic reach. For KMG shareholders, this transaction creates significant and immediate value while also providing participation in the future growth of the combined company. Thanks to the dedication and hard work of KMG employees around the world, KMG has achieved significant progress over the past several years, and I am confident that Cabot Microelectronics will continue to build on this success to further enhance value for our shareholders.”

Transaction HighlightsThe purchase price represents a total enterprise value for KMG of approximately $1.6 billion, inclusive of KMG's net debt, or approximately 10.9x KMG’s estimated FY18 adjusted EBITDA post $25 million of estimated annual cost synergies.

Under the terms of the transaction, KMG shareholders will receive a combination of $55.65 in cash and 0.2000 shares of Cabot Microelectronics common stock per share of KMG common stock.

The transaction is expected to be significantly accretive to Cabot Microelectronics’ free cash flow and accretive to adjusted earnings per share in year one, excluding any acquisition and integration related costs. Cabot Microelectronics expects to achieve $25 million of annual run-rate cost synergies within the first two years after closing the transaction.

The transaction is subject to the satisfaction of customary closing conditions, including HSR clearance and approval by KMG shareholders. Cabot Microelectronics expects to finance the cash portion of the transaction consideration through a combination of existing cash and additional debt supported by commitments from its key lenders.

After the close of the transaction, it is intended that Mr. Fraser becomes an advisor to Cabot Microelectronics during the integration. His extensive experience across the electronic chemicals and performance materials industries is expected to benefit the combined company with its integration efforts, customer and supplier relationships, and revenue expansion.

Cabot Microelectronics has retained Goldman Sachs & Co. LLC as its financial advisor and Wachtell, Lipton, Rosen & Katz as its legal counsel in the proposed transaction.

KMG is advised in the transaction by KeyBanc Capital Markets Inc. as financial advisor with Shearman & Sterling LLP and Haynes and Boone, LLP as legal counsel.

The transaction will be supported by committed financing led by J.P. Morgan, Bank of America, and Goldman Sachs & Co. LLC.

If you are a current shareholder and would like to discuss your options of exercising your rights as a shareholder, which include ensuring that the company is getting the highest possible price for the company, and that the board of directors will act in the best interest of the shareholders, please contact us.

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