DGAP-News: Braas Monier Building Group S.A. / Key word(s): Statement
Response to Standard Industries' Letter dated 25 September 2016
Standard Industries' 25 September 2016 letter questioned the validity of certain information included in Braas Monier's 23 September 2016 letter.
The Board of Directors of Braas Monier (the "Board") believes it is necessary and in the interests of shareholders to rectify any suggestion that they may have been misled.
1. No premium for control
- The Standard Industries takeover offer of EUR 25 per share is at a discount to the current market price of EUR 26
- The takeover offer is also at a discount to independent analysts' consensus trading target share price of EUR 26
- The average customary control premia paid for European companies over the last 20 years has been 36%
- EUR 25 per share does not provide shareholders with a customary premium in exchange for control
- The Board also notes that EUR 25 is the price per share which 40 North (Standard Industries' affiliate) paid in June 2016 for its non-controlling 29.1% shareholding in Braas Monier
- The actions of Monier Holdings, which has been seeking to exit for some time, do not validate any offer price
The Board is therefore correct to state that the offer of EUR 25 per share contains no customary premium in exchange for control.
2. No value for synergies
- Standard Industries has indicated its intention to combine Braas Monier with Icopal
- 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. This estimate is supported by an analysis undertaken by a leading international management consultancy firm
- EUR 30-40 m equates to less than 2% of Braas Monier's and Icopal's combined revenues and is in line with the level of synergies announced with other combinations of building materials manufacturers
- The EUR 30-40 m synergies would arise both from revenue gains principally from cross-selling, and cost savings from areas such as duplicate corporate and regional functions, procurement, logistics and the removal of public company costs
The Board is therefore correct to state that the offer of EUR 25 per share would deprive Braas Monier shareholders from any benefit arising from synergies.
3. Discount to most recent comparable transaction
- The 10.5x historic EV/EBITDA multiple paid by Standard Industries for Icopal referred to in the Board's 23 September 2016 letter is based on public data including GAF's own public announcement and Icopal's IFRS 2015 Annual Report. The sources and bases of this calculation were fully disclosed in the 23 September 2016 letter
- In contrast, Standard Industries has not disclosed details of its alternative calculation, without which it is not possible to assess whether Standard Industries' analysis has been undertaken on an appropriately comparable basis
- Braas Monier has superior financial metrics compared to Icopal. Braas Monier's EBITDA margins are substantially higher than Icopal and Braas Monier generates c.2.5x the annual operating cash flow of Icopal
- Braas Monier has no requirement to fund its pension schemes. This contributes to Braas Monier's sector leading equity free cash flow yield of c.8%
- Reference by Standard Industries to a trading multiple for Wienerberger is an incorrect comparison when assessing an appropriate takeover multiple
The Board is therefore correct to state that the offer of EUR 25 per share is at a discount to the most recent comparable transaction.
4. Unrecognised value in German pension schemes
- Braas Monier's pension liabilities relate almost exclusively to German pension schemes which are (a) unfunded (with no legal funding obligation) and (b) closed to new entrants
- Over the last 5 years the Braas Monier pension liabilities have increased by around EUR 177 m due principally to changes in discount rate assumptions. During this period the cash outflows under these pension schemes have remained stable at around EUR 15 m per annum, an amount which is not expected to increase materially in future years
- The after tax pension liability under these pension schemes at 30 June 2016 was EUR 370 m. This accounting liability is derived in accordance with IFRS and assumes that this sum would be invested in high quality corporate bonds (or similar risk assets) generating investment returns of 1% per annum
- This contrasts with the c.8% equity free cash flow yield which Braas Monier currently generates at the current share price of EUR 26
- Jefferies, the independent equity analyst, estimates that this mismatch could add a further
5. Significant future shareholder value as an independent company
- Braas Monier has successfully implemented a strategy of significant rationalisation and restructuring, resulting in a strong improvement in earnings and cash flows and a significant reduction of net debt
- These material improvements in Braas Monier's financial position have enabled it to implement a successful strategy of organic and inorganic growth; to undertake a refinancing which will improve annual cash flow by around EUR 12 m; and to implement a progressive dividend policy
- Braas Monier is strongly positioned financially and operationally to benefit from any recovery in its European markets. Braas Monier offers:
- A sector leading equity free cash flow yield of c.8%
- High cash generation with material further de-leveraging expected in the medium term
- High operational leverage, which the Board believes will generate improved earnings and even greater cash flows in any European recovery
- Strong pricing power and sector leading sustainable EBITDA margins
- A high quality platform for growth which is well positioned in all its key markets and with a strong geographic footprint
- A successful ongoing M&A strategy with a well-developed pipeline of future opportunities
The Board is therefore correct to state that Braas Monier is in a strong position to generate significant future shareholder value as an independent company.
In November 2016 Braas Monier will update the market on its current trading and outlook.
Recommendation to REJECT the Offer
The Board therefore continues unanimously to recommend that shareholders reject the takeover 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 will not recommend the acceptance of a takeover 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.
Braas Monier: Achim Schreck
Rothschild: John Deans Scott Harris: Alice Squires
Sources and Bases
2. Specific references
|Company:||Braas Monier Building Group S.A.|
|4, rue Lou Hemmer|
|Grand Duchy of Luxembourg|
|Listed:||Regulated Market in Frankfurt (Prime Standard); Regulated Unofficial Market in Berlin, Dusseldorf, Munich, Stuttgart, Tradegate Exchange|
|End of News||DGAP News Service|