H.B. Fuller agrees to acquire Tonsan, releases financials

ST. PAUL, Minn.—H.B. Fuller Co. signed an agreement to purchase Tonsan Adhesive Inc., a Chinese developer and manufacturer of engineering adhesives, for about $230 million.

The transaction is subject to customary closing conditions and regulatory approvals. H.B. Fuller said it is expected to closer in the fourth quarter of 2014.

H.B. Fuller also released its financial results for the second quarter ending May 31. Net income dropped about 21 percent to $20.5 million compared to 2013, while net revenue increased 4.8 percent to $544 million.

The firm said it will acquire 95 percent of Tonsan, and the four founding shareholders of Tonsan will remain with the firm as part of the leadership team and retain a minority equity interest.

“With this acquisition, we enter the fast-growing and profitable engineering adhesives market and strengthen our business in China,” said Jim Owens, H.B. Fuller president and CEO. “Together with Tonsan's management, we will grow in China and expand this business around the globe in ways that were not possible when Tonsan was an independent Chinese company.”

H.B. Fuller, a global adhesives provider that focuses on adhesives, sealants and other specialty chemiclal products, said engineering adhesives comprise about 30 percent of the global adhesives market and is expected to grow at rates significantly above the average for the adhesives industry.

Tonsan, according to H.B. Fuller, is the largest independent engineering adhesives provider in China. It offers silicone, epoxy, anaerobic and cyanoacrylate technologies that will facilitate H.B. Fuller's global entry into the segment.

Tonasan serves the transportation—automotive, rail and shipbuilding—market in addition to the machinery, photovoltaic, electronics and electrical industries.

For the first half of 2014, net income sits at $35.1 million, a drop of 24.5 percent compared to 2013. Net revenue is up 3.1 percent compared to 2013 at $1.03 billion.

The firm has adjusted its full-year earnings per share guidance down from a range of $3 to $3.15 per share to a range of $2.80 to $2.95 per share.

H.B. Fuller cited higher volume and a positive foreign currency translation as positive factors for net revenue increasing in the second quarter.

When the firm released its fiscal year 2013 report, it said it had initiated a multi-year, $60 million project—Project One—to install SAP application software as its global information technology platform. The project is expected to be complete by the end of fiscal year 2016. Its North American adhesives business went live on SAP on April 7 as expected.

H.B. Fuller said the initial go-live for the project disrupted its business process and required a high level of technical support to stabilize. The duration of the disruption and cost of the technical support required was significantly higher than anticipated.

The firm said its adjusted second quarter earnings exclude $8.1 million of unplanned and non-recurring costs associated with Project One. In its 2013 fiscal year report, it said it had spent $22 million to date on Project One.

H.B. Fuller said it has been working since March 2012 on a comprehensive business integration project to fully assimilate Forbo Group's industrial adhesives business and to improve the operating performance of its EIMEA operating segment.

The firm acquired Forbo's industrial adhesives business in 2012.

It initially estimated the costs associated with the project to be $125 million, but now expects the total project costs to exceed those estimates primarily because of delays in completing the European potion of the project.

H.B. Fuller projects the project to be substantially complete by the end of the third quarter 2014.