Allnex wanted certainty of scheme of arrangement for proposed Nuplex offer, Springford says

Monday 15th February 2016

Allnex Belgium SA was willing to offer such a large premium to take over Nuplex Industries in part because of the certainty provided by a scheme of arrangement as opposed to a conventional takeover, says chairman Peter Springford.

Allnex, which is controlled by Boston, Massachusetts-based private equity firm Advent International, would offer $5.55 a share for Nuplex, valuing the target at $1.05 billion. The indicative, non-binding and conditional proposal is for a scheme of arrangement, which would require at least 75 percent of the company's voting stock to be cast in favour. That's a lower threshold than for a takeover, where guarantee of control kicks in at 90 percent.

"They wanted to have some certainty as to process," Springford said. "A takeover is more of an auction and also they have a break fee."

The parties have agreed to reciprocal break fees should either not proceed with the proposal. Springford said the fee hasn't been disclosed publicly but in Australia it is typically 1 percent of the transaction value.

Allnex, formerly Cytec Industries' coating resins business, was acquired by Advent in 2013 for US$1.15 billion, with annual sales of about US$1.5 billion. It is "a leading global producer of coating resins and additives for architectural, industrial, protective, automotive and special purpose coatings and inks," according to the statement. Nuplex makes paints and resins which are used in the production of cars, boats, heavy machinery, bridges, packaging and flooring.

Nuplex has granted Allnex and Advent a period of exclusivity for six weeks of advanced discussions and due diligence, and to arrange financing, which means it can't seek other offers, while Allnex and Advent have promised not to buy shares on-market in that time. But Springford said the announcement would signal to the market that Nuplex was in play and could attract some attention.

Nuplex said it had been in confidential talks with Advent since turning down its initial offer on Oct. 30 last year. After three offer revisions the terms were now deemed to be attractive enough to put to shareholders, it said.

"After careful examination, the board of Nuplex considers the offer to be attractive for Nuplex’s shareholders," it said. "As the board believes engaging further with Allnex and Advent is in the best interests of shareholders, Nuplex is entering into advanced discussions and due diligence with the aim to agree a binding scheme implementation agreement."

Nuplex stock hasn't been as high as $5.55 since October 2008. It surged 29 percent to $4.99 today. The proposed takeover price includes any dividend payments Nuplex makes in the interim, but given its first-half dividend is forecast to be 11 cents, the shares are still well below the indicative offer price.

Nuplex "has stable, strong businesses in a global environment that is still murky," said Shane Solly, portfolio manager at Harbour Asset Management. The proposal was "understandable" given the pieces of Nuplex that would be of interest to the bidder, although the development probably caught some in the market by surprise, he said. The fact that the shares haven't jumped to the offer price may reflect the conditionality of Allnex's proposal.

“The board is confident that Nuplex management can deliver growth in earnings, particularly from the platform now established in Asia" but achieving that growth "may take some time and that shareholders may value the certainty of NZ$5.55 per share today," Springford said . Any transaction would then need to be voted on by Nuplex shareholders and the company urged them to take no action prior to receiving documentation and the board's recommendation. It also requires court approval.

Nuplex has retained UBS and Bell Gully as advisers.

BusinessDesk.co.nz

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