Corporate News
23.09.2016, Luxembourg

Four Clear Reasons to REJECT the Unsolicited Offer from Standard Industries

Dear Shareholder,

On 15 September 2016, Standard Industries Inc. (“Standard Industries”), a private US corporation, announced its intention to launch a takeover offer for Braas Monier Building Group S.A. (“Braas Monier”) for a cash consideration of EUR 25 per share (the “Offer”).

The Offer is unsolicited and your Board will recommend you REJECT it.

The purpose of this letter is to provide shareholders with important background to the Standard Industries approach; to respond to certain comments made by Standard Industries; and set out four clear financial reasons why the Board recommends you should REJECT the Offer.

Background
On 29 June 2016, 40 North Management LLC (“40 North”), an affiliate of Standard Industries, acquired 29.1% of Braas Monier.

David Millstone and David Winter (“Messrs Millstone and Winter”) the Co-Chief Executive Officers of Standard Industries are also the Co-Chief Investment Officers of 40 North. Standard Industries and 40 North are affiliated companies.

The Braas Monier articles of association entitle any shareholder owning 25% or more of the Company’s share capital to propose three board members. Accordingly, since June 2016 your Board has sought to agree a Relationship Agreement with Messrs Millstone and Winter to ensure compliance with corporate governance best practice and put in place appropriate procedures to address any potential conflicts of interest which may arise between Standard Industries’ position as a competitor and the duties of directors to act in the interests of all stakeholders.

On 13 September 2016 your Chairman, Pierre-Marie De Leener, and Independent Director, Francis Carpenter, met Messrs Millstone and Winter in London, expecting to finalise the proposed Relationship Agreement. However, and without prior notice, Messrs Millstone and Winter outlined the intention of Standard Industries to publicly launch a takeover offer at EUR 25 per share on the following Monday, 19 September and asked that the Board negotiate a Business Combination Agreement and provide a Board recommendation within the following five days.

On 14 September 2016 the Board, after consultation with its financial and legal advisers, announced that if an offer was made at EUR25 it would recommend that Shareholders REJECT it.

Monier Holdings SCA (“Monier Holdings”) and 40 North relationship

It is important that Braas Monier shareholders understand the background to and nature of Monier Holdings and 40 North who are the only shareholders who are publicly supporting the Standard Industries offer.

Monier Holdings
Monier Holdings is the company through which three private equity and hedge funds Apollo, TowerBrook and York (together with certain other investors) own their shareholdings in Braas Monier. Monier Holdings became the 100% equity owner of Braas Monier in 2009.

Investors of a similar nature to Monier Holdings are generally not natural long-term shareholders in publicly-listed companies. At the IPO in June 2014, Monier Holdings sold 52% of its shareholding in Braas Monier at EUR 24 per share. It subsequently sold 8% in October 2015, when the average market price was EUR 23 per share. In June 2016 Monier Holdings sold 29.1% of Braas Monier to 40 North for an undisclosed price. These share sales have resulted in Monier Holdings now owning only 10.8% of Braas Monier. It is clear Monier Holdings has been seeking to exit from Braas Monier for some time and they have now disposed of almost 90% of their shares in the company. For Standard Industries to claim that the willingness of an already exiting shareholder to provide an irrevocable undertaking at EUR 25 per share somehow validates the value of its offer is simply not credible.

40 North
40 North is an affiliate of Standard Industries. Messrs Millstone and Winter are Co-Chief Investment Officers of 40 North and Co-Chief Executive Officers of Standard Industries. By transferring its 29.1% Braas Monier shareholding, 40 North is simply supporting a company with which it has common control and common interests. The action of 40 North provides no credible guidance on an appropriate takeover value for Braas Monier.

Four reasons to REJECT the Offer

  1. No Premium for Control
    • The Offer price of EUR25 per share is at a discount to the current trading price of EUR26
    • There is no customary premium being offered to Shareholders in exchange for control
  2. No value for synergies
    • Standard Industries owns Icopal, a competitor to Braas Monier in the European roofing market. Icopal operates principally in the flat roof market whereas Braas Monier operates principally in the pitched roof market
    • Standard Industries has indicated its intention to combine Icopal with Braas Monier
    • The Board believes that EUR 30-40 m would be a reasonable estimate of the amount of annual synergies which would arise from a combination of Icopal and Braas Monier
    • The capital value of that range of synergies is significant
    • The Offer would deprive Braas Monier shareholders from any benefit arising from those synergies
  3. Discount to most recent comparable transaction
    • The 2016 acquisition of Icopal by the Standard Industries subsidiary, GAF Corporation (“GAF”), is the most comparable recent transaction in this sector
    • Standard Industries paid a multiple of 10.5x EBITDA for Icopal
    • Braas Monier has superior EBITDA margins compared to Icopal, yet the Offer by Standard Industries represents only 8.7x EBITDA
  4. Significant future shareholder value as an independent company
    • Braas Monier has successfully implemented a strategy of significant rationalisation and restructuring. Since 2013:
      • EBITDA has increased 25% to EUR 197 m
      • Operating income has increased 63% to EUR 111 m
      • ROIC has increased by over 4 percentage points to 10.7%
      • Annual operating cash flow has improved by nearly EUR 100 m to EUR 122 m
      • Net debt has been reduced by EUR 115 m
      • Net debt / EBITDA has improved from 2.8x to 1.7x
    • This material improvement in Braas Monier’s financial position has enabled it to:
      • Successfully acquire and integrate seven value accretive bolt-on acquisitions
      • Increase market share in several European markets, including Germany
      • Undertake a refinancing which will improve annual cash flow by around EUR 12 m
      • Increase the 2015 annual dividend by 33%
    • Braas Monier is now strongly positioned financially and operationally to benefit from a recovery in its European markets

Recommendation to REJECT the Offer
The Board continues unanimously to reject the offer of EUR 25 per share because it contains no premium for control; it does not reflect the value of the significant synergies which would accrue to Standard Industries by Braas Monier being part of the same group as Icopal; it is at a significant discount to the EBITDA multiple paid by Standard Industries for Icopal; and overall significantly undervalues the company and its future prospects.

The Board is focused on maximizing the value and position of all stakeholders over time. To the extent that the Board receives a takeover or merger proposal which offers fair and appropriate value, such a proposal would receive full consideration.

However, the Board will not recommend the acceptance of an offer at EUR 25 per share and will further detail its recommendation not to accept this offer in its statement pursuant to section 27 (1) of the German Securities Acquisition and Takeover Act (WpÜG). Such statement will be released following review of the offer document, which is not yet available and will only be published by Standard Industries following clearance by the German Federal Financial Supervisory Authority (Bundesanstalt für Finanzdienstleistungsaufsicht).

In the meantime, Shareholders are asked to continue their support of the Board and await further developments.

The Board of Braas Monier is being advised by Rothschild in relation to this matter. Scott Harris is advising the Board in relation to shareholder engagement.

 

Yours faithfully


Pierre-Marie De Leener
Chairman

Press documents

160923_Braas_Monier_Letter_to_Shareholders_4_Reasons_to_Reject_the_Offer.pdf