Chart Industries (GTLS -4.62%) just went shopping, and investors aren't happy with the purchase. The manufacturer of equipment for the energy industry and industrial gas markets announced this morning that it has signed a definitive agreement to acquire Howden, a global provider of air and gas handling products and services.
As of 11:33 a.m. ET, shares of Chart are down 25%.
In a transaction valued at $4.4 billion, Chart will expand its offerings for customers looking to decarbonize their operations with the acquisition of Howden. Lauding the merits of the deal, Chart estimates that acquiring Howden will result in numerous financial benefits.
First, Chart estimates that its backlog will grow to $3.7 billion, suggesting there is ample growth in the company's future. For context, Chart had a backlog of $2.3 billions as of Sept. 30.
Management also believes the deal will benefit Chart's free cash flow generation. Including cost synergies of $175 million and revenue synergies of $150 million, Chart estimates that it will achieve free cash flow conversion of 90% in the first 12 months following the closing of the transaction.
Chart expects the transaction to close in the first half of 2023.
While there seem to be a variety of benefits to the acquisition of Howden, Chart's investors are concerned about the cost. Planning to funding the transaction mostly with cash, Chart also intends to create a new class of stock, which represents about $1.1 billion. This prospect of dilution may be what's roiling investors today.
But that's not all. Chart has secured $3.375 billion in bridge financing related to the transaction, so investors are likely concerned about interest charges that the company will be incurring.