Quaker Chemical Corporation and Houghton International Inc., companies with a combined 250-year history as providers of process fluids, chemical specialties, and technical expertise to the global primary metals and metalworking industries, last Wednesday announced that they have executed a definitive agreement to combine the companies. Both Quaker Chemical and Houghton International are headquartered in the Philadelphia area.

"The proposed combination of Quaker Chemical and Houghton International represents the next phase of our evolution, and stays true to the vision of growing in our core specialties," said Chairman and Chief Executive Officer of Quaker Chemical, Michael F. Barry, who will run the combined companies "Joining forces with Houghton International combines two highly complementary businesses, each having a long history of building tremendous expertise, technology and customer-centric cultures dedicated to delivering long-term sustainable value to customers, shareholders and associates. The new company will capitalize on best practices and expertise from both businesses."

Sanjay Hinduja, Chairman of Houghton International, which is owned by the Hinduja Group through its Gulf Oil business, said, "We are pleased to enter this agreement to unite these two distinguished and global companies. Together we will strengthen our capabilities and business models to better serve the global market and all our stakeholders."

Under the terms of the agreement, Houghton International shareholders will receive $172.5 million of cash and 24.5 percent ownership of the combined company, representing approximately 4.3 million shares of newly issued Quaker Chemical stock. In addition, Quaker Chemical will assume Houghton International's debt and cash, with net debt of approximately $690 million at year-end 2016. The agreement has been approved by both Quaker Chemical's board of directors and Houghton International's board of directors with full support of the Hinduja Group, which will become Quaker Chemical's largest shareholder.

"In addition to our complementary businesses," said Mike Shannon, Chief Executive Officer of Houghton International, "we are each committed to creating solutions for our customers through innovation, strong technical expertise and global reach with localized applications expertise."

Combining Quaker Chemical's and Houghton International's product solutions and service offerings will allow the new company to better serve customers in the automotive, aerospace, heavy equipment, metals, mining, machinery, marine, offshore, and container industries the companies said. The business will have one of the world's most expansive metalworking platforms comprised of specialty products that include removal fluids, forming fluids, protecting fluids, heat treating fluids, industrial lubricants and greases. The expanded portfolio is expected to generate significant cross-selling opportunities and allow further expansion into growth markets that include India, Korea, Japan, and Mexico.

Though they sell similar products, Barry said there is little overlap in the companies' factory and sales networks. Quaker has a plant in Mexico and significant sales in Brazil; Houghton has a plant in Thailand and has bought companies in Germany and South Korea. Of the companies' 15,000 total customers, most are "unique" to one or the other, creating sales opportunities after the merger, Barry told investors.

For 2016, Quaker Chemical had revenue of $747 million, $107 million of adjusted EBITDA, and $22 million of net cash. During the same period, Houghton International had revenue of $767 million, $120 million of adjusted EBITDA, and $690 million of net debt. After the close of the transaction, shares of the combined company will continue to be listed on the New York Stock Exchange.

The company anticipates achieving cost synergies of approximately $45 million, the majority of which will be realized within two years of closing. These synergies are expected to be driven primarily by supply efficiencies and cost reductions. Additional value creation is expected through cross-selling opportunities and the ability to provide an expanded array of products and solutions for customers.

Family-owned for most of its history, Houghton was sold by members of the McDonald family in 2007 to AEA, a buyout fund representing Rockefeller, Mellon, Harriman and S.G. Warburg investment interests. In 2012, AEA sold Houghton to the India-based Hinduja Group, whose properties include electric power, former Gulf Oil convenience stores, and Bollywood movies, along with manufacturing companies.

After the deal closes — late this year or early next, the partners hope — Hinduja will own almost one-quarter of Quaker and gain three seats on an expanded Quaker board totaling 12 members.