MAGNESITA REFRATÁRIOS S.A.
Publicly Held Company
CNPJ (Corporate Taxpayer Registration) Nr. 08.684.547/0001-65
NIRE (Commercial Registry Number) 31.300.026.485
MATERIAL FACT
Magnesita Refratários S.A. (“Company” or “Magnesita”), pursuant to the terms of Law No.
6.404/76 and Rule No. 358/02 of Comissão de Valores Mobiliários (“CVM”), hereby informs
its shareholders and the market in general of the following:
1.
On the present date, the Company was informed by Alumina Holdings, LLC (a
controlling entity of the following investment funds managed by GP Investments, Ltd. or its
affiliates (“GP”): GP Capital Partners III, L.P. and GP Capital Partners IV, L.P., among other
co-investment funds) (“Alumina”), Rearden L. Holdings 3 S.À R.L. (“Rearden”) and RHI AG
(“RHI”) that Alumina and Rhône Capital (“Rhône”, and together with Alumina, “Magnesita’s
Controlling Shareholders”) and RHI have reached an agreement to combine the operations of
RHI and the Company to create a leading company in refractory solutions. Accordingly, the
Management Board of RHI has agreed to sign an Agreement for the Sale and Purchase of
Shares in the Company (“SPA”) with Magnesita’s Controlling Shareholders regarding the
acquisition of a controlling stake of at least 46%, but no more than 50% plus one share, of the
entire share capital in the Company, pending RHI’s Supervisory Board approval (the
“Transaction”). The purchase price for the 46% stake will be paid in cash amounting to € 118
million and 4.6 million new shares to be issued by a new RHI entity, to be named RHI
Magnesita, established in the Netherlands and listed in London (“RHI Magnesita”). Based on
RHI’s six month volume-weighted average price (VWAP) of € 19.52, the implied value of the
46% stake amounts to € 208 million. Following completion of the Transaction, RHI Magnesita
or one of its affiliates will launch a mandatory tender offer for the remaining shares in
Company.
2.
Magnesita’s Controlling Shareholders and RHI have also informed the Company of the
following:
(a)
Overview
As a result of the Transaction, GP (and/or its affiliates) will become a relevant
shareholder of RHI Magnesita. In terms of corporate governance, RHI Magnesita will
have a one-tier board structure with GP (and/or its affiliates) represented on the board of
CLASSIFICAÇÃO DO DOCUMENTO: PÚBLICO
directors. All RHI Magnesita shares issued as a result of the Transaction and subsequent
mandatory tender offer will be subject to a minimum 12-month lock-up period.
The completion of the Transaction is amongst others subject to (i) approvals by the
relevant competition authorities, (ii) the migration of RHI to the Netherlands, (iii) the
listing of RHI Magnesita shares in the premium segment of the Official List on the
Main Market of the London Stock Exchange; and (iv) RHI’s Supervisory Board having
approved the Transaction and RHI’s shareholders not having exceeded statutory
withdrawal rights in an amount of more than € 70 million in connection with
organizational changes preceding RHI’s migration from Austria. The migration and the
preceding organizational changes in Austria require qualified approval by RHI’s
shareholders. If the Transaction is terminated for reasons not under the control of
Magnesita’s Controlling Shareholders, an aggregate break fee of up to €20 million is
payable by RHI to Magnesita’s Controlling Shareholders.
The migration of RHI to the Netherlands and the subsequent listing of RHI Magnesita’s
shares in the London Stock Exchange have the objective of reinforcing and underlining
the truly international scope of the combined operations, enhancing the capital markets
presence and maximizing the value potential for RHI Magnesita’s shareholders. The
migration of RHI will be effected by RHI Magnesita becoming the ultimate holding
company of RHI Group and the shareholders of RHI will cease to hold shares in RHI
and instead hold RHI Magnesita shares. Following registration of the corporate
restructurings, RHI’s shares will cease to be listed on the Vienna Stock Exchange. The
place of effective management of RHI Magnesita will be Austria.
(b)
Financial Terms of the Transaction
Based on RHI’s 6-month VWAP of € 19.52, the implied value for the entire share
capital of the Company will be € 451 million, 45% above the Company’s market
capitalization as of October 4, 2016. The Transaction will be financed by additional
debt and the issuance of 4.6 million RHI Magnesita shares to Magnesita’s Controlling
Shareholders.
(c)
Public Tender Offer
Following Completion, pursuant to Law No. 6.404/76, the regulations of the CVM and
to the Listing Rules of the Novo Mercado Segment of the Brazilian Stock Exchange
(BM&FBOVESPA S.A. – Bolsa de Valores, Mercadorias e Futuros), RHI Magnesita or
one of its affiliates will launch a mandatory tender offer to acquire the remaining shares
issued by the Company (“OPA”), in consideration for which the Company’s
CLASSIFICAÇÃO DO DOCUMENTO: PÚBLICO
shareholders will receive cash and newly issued shares of RHI Magnesita. As part of the
OPA, a maximum number of 5.4 million new RHI Magnesita shares will be issued to
shareholders of the Company who tender their shares in the Offer, resulting in an
aggregate number of no more than 10.0 million newly issued shares of RHI Magnesita
being issued to finance the acquisition.
The OPA will be directed at all the shareholders of the Company on the same terms and
conditions, including consideration per share, form of payment (i.e. RHI Magnesita
shares and cash) and a 12-month lock-up period, as those offered to Magnesita’s
Controlling Shareholders under the Transaction. In accordance with art. 29, § 8º of Rule
CVM No. 361, RHI Magnesita or one of its affiliates will also make an alternative offer,
whereby each OPA offeree will be able to choose, at its sole discretion, to receive this
consideration in cash only, instead of cash and RHI Magnesita shares (“Cash-only
OPA”). Shareholders who choose to tender their shares in the Cash-only OPA will
receive € 8.19 for each Magnesita share, subject to adjustments provided in the SPA.
If some or all of the Company’s remaining shareholders elect not to receive shares in
the OPA, Magnesita’s Controlling Shareholders have committed to purchase at least an
additional 1.9 million and at most 3.4 million of the remaining new RHI Magnesita
shares, thereby increasing their total number of RHI Magnesita shares to a maximum of
8.0 million. Any RHI Magnesita shares that are not taken up by Magnesita’s
shareholders in the OPA, including by the Magnesita’s Controlling Shareholders, may
be either placed in the market or with institutional investors.
RHI Magnesita or one of its affiliates may, at its sole discretion, decide to combine the
OPA with a delisting offer of the Company and/or a voluntary offer to exit the
Company from the Novo Mercado Segment of the Brazilian Stock Exchange, pursuant
to §4º, of article 4º, of Law no. 6.404/76, to Rule CVM No. 361 and to the Listing Rules
of Novo Mercado.
(d)
About RHI and other relevant information
RHI is a globally operating supplier of high-grade refractory products, systems and
services, which are indispensable for industrial high-temperature processes exceeding
1,200 °C. With approximately 7,900 employees, over 30 production facilities and more
than 70 sales offices, RHI serves more than 10,000 customers in the steel, cement,
nonferrous metals, glass, energy and chemical industries in nearly all countries around
the world. RHI produces more than 1.5 million tons of refractory products p.a. and
supplies customized product and system solutions. RHI’s shares are listed on the Vienna
Stock Exchange under the symbol RHI, with RHI being a member of the ATX index.
CLASSIFICAÇÃO DO DOCUMENTO: PÚBLICO
On this date, RHI issued a press release containing the information below in relation to
the combined operations of RHI and Magnesita, which are subject to the assumptions
and limitations described in RHI’s press release. Note that, in line with previous
practice the Company and Magnesita’s Controlling Shareholders do not give financial
guidance. The press release provides RHI’s mid-term financial guidance and synergy
estimates for RHI Magnesita:

The Transaction will increase RHI’s current financial leverage, measured as net
debt to EBITDA, to 4.0 times at closing of the Transaction, assuming an
acquisition of the Company’s entire share capital1. RHI expects, however, that
leverage will decline to below 2.0 times by 2020 as a result of the strong cash
generation profile of the newly combined operations. Magnesita will continue
to finance itself on a standalone basis without credit support from RHI Group.
Before or at completion, Magnesita is expected to adopt RHI's accounting
practices, which, according to RHI, could lead to significant, substantially noncash adjustments in Magnesita's equity book value;

RHI expects minimum net run-rate synergies at EBIT level of approximately €
36 million by 2020. However, RHI is optimistic that as a result of the Offer,
RHI Magnesita’s stake in Magnesita will significantly exceed 46%. In this case,
RHI expects substantially higher synergies of approximately € 72 million,
especially in the areas of enhanced production efficiency and cost benefits in
research and development, marketing and administrative functions. In addition,
capital expenditure synergies are expected to amount to between € 2 million and
to € 7 million annually, while aggregate working capital savings of € 40 million
are expected in the coming years. Cash integration costs are expected by RHI to
be of the magnitude of € 50 million to € 90 million, while non-cash integration
costs, effectively write-offs, should vary between € 20 million and € 35 million,
depending on the amount of Magnesita shares acquired pursuant to the
Transaction and subsequent to the Offer. Both cash and non-cash integration
costs will mainly crystallize in 2017 and 2018;

RHI’s mid-term financial targets will surpass RHI’s current targets. RHI
expects RHI Magnesita to generate fully consolidated revenues of € 2.6 billion
to € 2.8 billion (previously € 2.0 billion to € 2.2 billion) with an operating EBIT
margin of more than 12% (previously more than 10%) by 2020. RHI projects a
cumulative operating cash flow of approximately € 1.1 billion for the period
from 2017 to 2020 for the combined business, assuming an acquisition of
Magnesita’s entire share capital. RHI expects that RHI Magnesita will pay
1
Assuming that 10 million RHI Magnesita shares will be issued.
CLASSIFICAÇÃO DO DOCUMENTO: PÚBLICO
stable dividends in 2017 and 2018, in line with RHI’s previous years’ payment
levels. In the mid-to long-term, however, RHI Magnesita aims to increase its
dividend payments, as a result of stronger cash flow generation resulting from
synergies, organic growth and de-leveraging of the company’s capital structure.
3.
In view of the Transaction, a meeting of the Company’s Board of Directors will be
convened in due course to reevaluate the continuation of the corporate reorganization of
Magnesita Group disclosed to the market on December 22, 2015.
4.
The Transaction is expected to complete in 2017. Until then, the two companies will
remain completely separate and independent. Therefore, customer, suppliers, employees and
other stakeholders should expect no change in management teams, commercial relationships,
supply chains and product offerings, during this period.
5.
The Company will keep its shareholders and the market in general informed regarding
the next events of the Transaction.
São Paulo, October 5, 2016.
Eduardo Gotilla
CFO and Investor Relations Officer
Magnesita Refratários S.A.
CLASSIFICAÇÃO DO DOCUMENTO: PÚBLICO