MANILA, Philippines - D&L Industries Inc. (DNL) said it will acquire all the outstanding shares of Chemrez Technologies Inc., a manufacturer of oleochemicals, resins and other specialty-chemical products, through a public tender offer.
The company said in a statement that it will buy Chemrez for P6 per share, a 24-percent premium over the 60-day average price as of August 29.
At the said price, the total acquisition cost is placed at P5.1 billion and values Chemrez at P7.81 billion.
DNL currently owns 34.7 percent of Chemrez, and the deal will make the chemical firm its wholly owned subsidiary early fourth quarter when the transaction is completed.
“The reason most acquisitions fail is it is very difficult to ensure the two companies don’t have a culture clash that jettisons the deal. In this case, no such issue as both companies are managed by the same people and governed by shared values,” said Alvin Lao, the company’s executive vice president and chief finance officer.
The acquisition will be financed by the remaining P2 billion in cash from proceeds of DNL’s initial public offering (IPO) in December 2012 and the rest with debt or equity.
Chemrez may consider delisting from the Philippine Stock Exchange (PSE) if it no longer complies with the minimum public float after the tender offer, the company said.
“Chemrez’s size in terms of revenues and market cap is not large enough to attract sufficient attention from investors, which resulted in lackluster trading. This stock-market mispricing of Chemrez presents an opportunity on which we can further our $-billion market cap aspiration. Owning 100 percent of Chemrez broadens our portfolio, strengthens our capabilities, including cash generation, and bolsters growth as the specialty- chemicals business continues to improve,” said Lao, also treasurer of Chemrez.
From a traditionally resin and powder coating-based company, Chemrez has transformed its portfolio based on green chemistry principles. The Lao family also established Chemrez but sold a significant chunk of its shares to the public over the years.
DNL said it aims to maximize its participation and profit in the fast-growing markets of Chemrez’s specialty-chemicals business through its full ownership. After the tender offer, DNL will start to partially consolidate the financial results of Chemrez beginning fourth quarter of 2014 and is expected to be accretive to earnings in the same period. Full-year consolidation will begin in 2015, the company said.
With about a fifth of its staff dedicated in research and development activities, Chemrez discovered new markets for established products like specialty oleochemicals. Combined, DNL will have 12 percent of the workforce— food technologists, chemists and engineers—in research and development.
As of the first six months of 2014, Chemrez’s net income went up by 45 percent to P207 million and gross profit margin improved by 1.3 percentage points year-on-year. First listed in the PSE in 2000 as Corro-Coat Inc. at an IPO price of P1.28 per share, Chemrez underwent a name change and did a secondary offering at P4.40 per share in 2006.