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Elementis rejects improved USD1-billion bid by Minerals Technologies

December 10/2020

MOSCOW (MRC) -- Elementis (London, UK) has rejected a third, improved takeover offer from Minerals Technologies (New York, New York) that values the company at GBP754 million (USD1.01 billion). The revised conditional cash offer was received on 4 December, offering 130 pence per Elementis share, and was rejected on 6 December, according to Chemweek with reference to the company's statement.

The latest proposal “falls significantly short of value that would merit engagement and access to the company’s non-public information, despite the continued opportunistic bidding tactics of Minerals Technologies,” according to Elementis. In an indication that it could be prepared to enter into talks with Minerals, Elementis says its board “would like to emphasize that it is focused on maximizing value for shareholders and would always consider engagement at a level that appropriately reflects the fair value of Elementis.” However, as the third offer “continues to significantly undervalue Elementis and its future prospects, the board unanimously rejected the proposal,” it says.

As part of a detailed response, Elementis has issued its own estimate that values the company at approximately 200 pence/share, equating to ?1.16 billion, which is almost double the original conditional offer.

“Elementis has refocused its business and built strong market positions in three high-margin specialist sectors with strong underlying growth. We have a clear strategy to capture this growth and profitability and we are confident that this will deliver significant value for our shareholders. It is the quality of these businesses that has attracted Minerals Technologies,” says Andrew Duff, Elementis chairman. “As a board, we are fully aware of our responsibility to create and capture value for our shareholders, but this ‘best offer’ falls well short of that threshold for us to engage.”

In the first, detailed public response by Elementis since the initial 107 pence/share takeover bid was received on 5 November and rejected five days later, the company says that a letter from Minerals Technologies related to the latest offer stated that “it is the best proposal that Minerals Technologies is able to make absent meaningful engagement from the Elementis Board and access to non-public information.” The letter requested a response by 5 pm GMT on 6 December.

Minerals made a second rejected bid for Elementis on 24 November, having raised its offer price to 117 pence/share, which valued the company at GBP679 million, or 9% higher than the initial offer valuation of ?621 million.

Elementis says after receipt of the first proposal the board, together with its management and advisers, conducted a “thorough review to assess the fundamental value of Elementis as well as the likely value to be created by the continued delivery of its strategy.” It also evaluated the share price levels at which it believes its shareholders would “consider a proposal to be attractive.” This valuation framework has continued to be tested and revised by the board and its advisers, including considering shareholder feedback since the approach from Minerals Technologies became public, it says.

The latest proposal fails to recognize Elementis’s differentiated, high-quality assets that merit a premium multiple, is highly opportunistic, ignores the company’s strategy to create value for its shareholders, and significantly undervalues Elementis and its future prospects, it states. The company is the owner of differentiated resources including the world’s only commercially viable high-quality rheology-grade hectorite mine, while over 80% of its earnings are currently from its premium performance additives businesses of personal care, coatings, and talc (PCCT) as a result of significant refocusing of the group, which all benefit from fundamentally attractive high margins and above global GDP growth, it says.

The latest offer is also “significantly below” the company’s closing share price at the end of 2019 of 179 pence/share, it adds.

Elementis says its adjusted operating profit for the current financial year has been impacted in the short term by COVID-19 headwinds and the industrial cycle, but is “not reflective” of business fundamentals, with its 2019 figures approximately 20% less than in 2018 for its PCCT businesses, and 70% down year on year in its chromium business. It has also implemented efficiency measures including USD10 million of forecast annual supply chain savings in 2021 underpinned by the recent announcement of the closure of its Charleston facility, while a new plant in India is on track for ramp-up in 2021 and fully qualified by 2022, it says.

In a brief business update for the fourth quarter, Elementis says trading continues to be resilient and in line with its expectations. Demand continues to be impacted by COVID-19, but sales in October and November have shown sequential progress compared with the third quarter, it says. The company remains on track to deliver a significant reduction in net debt by year-end 2020, it adds. 

Its medium-term objective remains unchanged, with a target of 17% adjusted operating profit margin driven by COVID-19 recovery, growth, and efficiency. Elementis says its PCCT businesses have achieved average adjusted operating profit margin of approximately 15% over the last three years.

Using other specialty chemicals companies in the 14–17% margin range as a guide, Elementis says that applying this to average operating profit for its PCCT businesses over the last three years gives an implied value of 163–190 pence/share. Chromium, meanwhile, could be valued at an additional approximate 35 pence/share. This gives a total implied value of at least 200 pence/share for Elementis as it delivers on its medium-term objectives, it says. “Elementis has a bright future as an independent company,” it adds.

Minerals Technologies is required in accordance with stock-market regulations by 10 December to announce a firm intention to make an offer for Elementis or to confirm that it does not intend to proceed. It has not yet issued a response to the rejection of its latest offer.

As MRC informed before, earlier this month, Brenntag said it ha signed a deal with Elementis under which Brenntag will distribute the company’s products in coatings, adhesives, sealants, inks and construction materials in Canada. Exact terms of the deal were not disclosed. The product range includes rheology modifiers, defoamers, and various types of additives.

We remind that in April 2020, Brenntag sai it had acquired the operating assets of Suffolk Solutions’ (Suffolk, Virginia) caustic soda distribution business. Financial terms of the deal have not been disclosed.

We also remind that October production of sodium hydroxide (caustic soda) in Russia were 109,000 tonnes (100% of the basic substance) versus 108,000 tonnes a month earlier. Russia's overall output of caustic soda totalled 1,054,600 tonnes in the first ten months of 2020, down by 1.6% year on year.

Elementis plc is one of the UK's largest speciality chemicals business. The Company comprises three businesses: Specialty Products, Surfactants and Chromium. Both Specialty Products and Chromium hold leading market positions in their chosen sectors. Elementis employs over 1,200 people at more than 30 locations worldwide.
Author:Margaret Volkova
Tags:kausticheskaya soda, petrochemistry, adhesives, construction, Brenntag, Elementis Specialities, UK, Canada, Russia, USA.
Category:General News
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