Thursday 18th February 2016
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Nuplex Industries chief executive Emery Severin says it’s likely to take until June or July to finalise a takeover proposal from US-based Allnex Belgium SA, which offers investors the choice of a premium on the current share price or waiting for promised returns in two years from its Asian growth strategy and new coating technology Acure.
Allnex, which is controlled by Boston private equity firm Advent International, is offering $5.55 a share for Nuplex, valuing the specialty chemicals maker at $1.05 billion. Nuplex is paying an interim dividend of 12 cents a share, meaning Allnex's proposed $5.55 a share offer reduces to $5.43. That's still a 41 percent premium to the stock price before the Allnex approach was disclosed this week.
The deal is via a scheme of arrangement process, which has a lower threshold to cross than a traditional takeover needing 75 percent shareholder approval versus the 90 percent needed to enforce a compulsory sale.
Severin said the scheme of arrangement process is unusual in the New Zealand market but common in Australia. Advent will perform due diligence for the next six weeks with both parties locked into a reciprocal break fee of 1 percent of the transaction to ensure they both treat it seriously, he said.
After that, both parties will sign a scheme implementation agreement which, along with an independent appraisal report, will be put before shareholders to vote on and to the courts to ratify. A merger of the two companies would create one of the world’s largest makers of coating resins.
First New Zealand Capital analyst Greg Main said the offer comes as no surprise given the company’s share price was undervalued and the deal would give Advent “more dots on the map” in its roll-up strategy and potential expertise around the breakthrough Acure technology.
Main said shareholders would need to weigh up two major factors before making their decision – whether the company would achieve the promised returns from its Asian growth strategy which had “still to earn its stripes” and how much upside there was in the Acure technology which will take some years to get there.
“It’s a trade-off for shareholders on whether to take the one in the hand or wait for a bit more later and risk saying no now,” he said.
The share price rose 0.6 percent to $5.01 today with the release of its half-year results with profit from continuing operations up by 10 percent and upgraded guidance of improved earnings for the 2016 full-year.
Profit from continuing operations was $26.8 million in the six months ended Dec. 31, from $24.3 million a year earlier with a marked improvement in the Australia New Zealand operations and despite a slowdown in Europe which is its main revenue earner.
Sales from continuing operations rose 2.1 percent to $700.5 million, benefiting from a favourable exchange rate. Without that currency benefit, sales would have dropped 6.4 percent to $641.8 million.
First NZ's Main said the stand out in the half-year results has been the improved performance in Australia and New Zealand where sales rose 2 percent and earnings before interest, tax, depreciation and amortisation was up 201 percent to $9.3 million. Although only a relatively small contributor to overall earnings, Australia and New Zealand has been “a big swing factor”, soaking up a lot of management time turning it around in the past three years, he said.
Nuplex upgraded its ebitda guidance for the full year to between $145 million and $157 million, compared to a range of $140 million and $155 million previously, on an expected stronger half in Europe, the Middle East, and Africa and Asia.
Severin said typically EMEA sales volumes were weighted 57/43 in the second half compared to the first and powder sales are also better in the second half. While China suffered some impact in the first quarter from one-off events, he expects the second half performance to improve as its new Changshu plant ramps up production.
Full restructuring benefits are not expected until the 2017 and 2018 financial years with Severin confident of achieving its targets of boosting sales to $400 million by the end of the 2018 financial year and lifting return on funds employed to greater than 16 percent from 14.8 percent currently.
One of Severin’s priorities as CEO has been to improve the manufacturer’s health and safety record. During the first half lost time injury frequency rate for employees and contractors was zero and the number of reportable staff injuries dropped to 5 from 9 in the prior half. At the end of last year, 12 of Nuplex’s 16 sites have been lost time injury free for three or more years.
Severin said it was no single measure that had achieved the improvement - the key thing was new rigorous safety procedures being backed up by frontline managers winning the “hearts and minds” of employees to take safety seriously.
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