Engelhard sets buyback to foil BASF takeover bid
Wed Apr 26, 2006 1:31 PM ET
NEW YORK/FRANKFURT, April 26 (Reuters) - Chemical company Engelhard Corp. on Wednesday unveiled a plan to buy back 20 percent of its stock at $45 a share, stepping up its defense against a takeover bid by Germany's BASF.
Engelhard, which makes catalysts used in pollution control, also rejected BASF's raised bid of $38 per share, or $5 billion.
The U.S. company said it would seek to increase the size of its board to help fend off a move by BASF to solicit permission from other Engelhard shareholders to increase the board and fill it with BASF nominees.
Such "consent solicitations" involve canvassing shareholders to get Engelhard's by-laws changed, allowing BASF to get a majority on Engelhard's board and prevent the U.S. company from issuing new shares as a takeover.
Engelhard plans to increase its board to nine members from six, with its own slate of three new members to be named at the June 2 annual meeting.
"The company believes the board's decision to increase its size provides both Engelhard and BASF with a fair opportunity to present their cases to Engelhard shareholders and for Engelhard shareholders to ultimately decide whether the recapitalization plan or BASF's offer serves their best interests," Engelhard said in a statement.
BASF said in a statement that it was considering all its options.
"BASF's offer would provide cash to Engelhard's stockholders for 100 percent of their shares within three weeks after reaching a negotiated merger agreement. By contrast, Engelhard's proposal carries significantly higher execution, timing and realisation risks," the company said.
Engelhard shareholders were displeased with how long the process was taking and the implications for ongoing volatility in the company's shares.
"We're not too happy with the directors at this point," said Dick Earnest, fund manager with the HighMark Value Momentum Fund in Los Angeles and a long-term Engelhard investor. "We thought this was over."
Engelhard said it had secured initial financing for the stock buyback from Merrill Lynch and JPMorgan, with permanent financing from hybrid securities and various classes of debt. HighMark's Earnest questioned that move as well.
"You don't want to leverage your company too much when you're in the middle of trying to grow several units," he said.
Chief Executive Barry Perry told Reuters in a telephone interview that the door was still open to bidders but declined to comment when asked if there was any suitor left other than BASF.
MOVE A SURPRISE
Landesbank Rheinland-Pfalz analyst Silke Stegemann said the Engelhard move came as a surprise and showed the strong opposition of its management to a deal with BASF.
"Significantly more than $40 for Engelhard would be too costly. If BASF were to go so far, it would certainly be taken negatively by the market," Stegemann said.
Other analysts said valuing 20 percent of the company at $45 implied a value of $41-$42 for the whole business, unless BASF pulled its offer.
BASF shares were up 0.7 percent at 69.05 euros by 1716 GMT (1:16 p.m. EDT) in Frankfurt. Engelhard was up 1.7 percent in New York at $38.94.
"This is not a fight for independence," Engelhard CEO Perry told a conference call. "This is a fight for shareholders to get fair value for their shares."
Engelhard said that as part of a strategic review, it met with a number of bidders that wanted to acquire all or part of it, but no transaction materialized.
A BASF spokesman said the German company still felt its offer of $38 a share was a more attractive alternative than Engelhard's plans.
"Today's statement vindicates our opinion that there is no other bidder who can make as attractive an offer as BASF has made," he said, adding that the company wanted to check Engelhard's statement before commenting in detail.
BASF unveiled its hostile bid in January and last month signed a confidentiality agreement that allowed it access to Engelhard's books.
It had said at the outset it would raise its original offer of $37 by $1 if it liked what it saw in the books. The BASF spokesman confirmed that the offer had been raised but declined to comment on what BASF might do next.
BASF wants to buy Engelhard to reduce the cyclical nature of its own portfolio and soak up some of the cash generated by its highly integrated manufacturing plants. If it goes through, the acquisition would be the biggest in BASF's 140-year history.
Its offer for Engelhard runs out on Friday.
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