MSC to Acquire J&L Industrial

Staff -- Industrial Distribution, 4/1/2006

MSC Industrial Direct Co., Inc. signed a definitive agreement to acquire J&L Industrial Supply, a subsidiary of Kennametal Inc., for $349.5 million. The acquisition is expected to close during the second quarter of 2006, and will be financed using available cash and borrowings under an anticipated new credit facility.

Headquartered in Southfield, Mich., with operations in the United States and the United Kingdom, J&L is a specialty metalcutting and finishing distributor, with fiscal year 2005 sales of $257.5 million (unaudited, as reported by Kennametal).

MSC/J&L will be the exclusive national-level distributor in the U.S. of the Kennametal and Hertel lines of carbide cutting tools, pursuant to a five-year renewable distribution agreement.

J&L services its customers through a 2,100-page catalog, an e-commerce portal and a sales force of approximately 140 associates. J&L's senior management team will remain with the business following the acquisition, with Michael P. Wessner continuing in his position as president.

According to a statement from Kennametal, the J&L divestiture completes the company's planned exit from owned distribution, allowing Kennametal to build new, and grow existing, distributor relationships. This also presents an opportunity for Kennametal to improve customer options by delivering its full range of products to customers through the strongest distribution partners, the company said.

Commenting on the acquisition, David Sandler, president and chief executive officer of MSC, said, "This is an excellent strategic acquisition for MSC. We've always said that we're not averse to the right acquisition, but that it had to be additive to our business so that the company performed better over the long term than it would have performed had we not made the acquisition. We firmly believe that this opportunity meets that significant hurdle rate. ...Combining the two companies increases our value basket and will allow us to leverage the best attributes of both companies across the combined customer base."

As a part of the transaction, Kennametal will recognize an estimated $228.6 million pre-tax gain in the quarter ending June 30, 2006, including transaction-related expenses, resulting in an earnings-per-share impact of about $3.25, and expects to redeploy this capital in the next 12 to 24 months.