re: counter offer rumoured @ $3.35
Thinning of the ranks at Wattyl By Scott Rochfort December 28, 2005
WATTYL'S chances of finding a white knight to help fend off a $274.8 million takeover offer from Allco Equity Partners have diminished, with two rumoured counter-bidders ruling themselves out of the race.
GUD Holdings has signalled it has no interest in the Blacktown-headquartered paint maker.
GUD's chief executive, Ian Campbell, declined to comment. But rumours the company was preparing a counter-bid were ill-founded, said sources close to the maker of Sunbeam appliances, Victa mowers and Davey water pumps.
Hills Industries was another company to quash suggestions it may have an interest in Wattyl.
"I think we won't be moving into that race," said Hills's managing director, David Simmons.
Referring to the rumours, Mr Simmons said: "Those who don't know mention our name."
The maker of Rover mowers and Caroma toilets, GWA International, was unavailable to respond to speculation it could also be running the rule over Wattyl.
Neither was CSR nor New Zealand's Fletcher Building, which has spent more than $1.2 billion on Australian acquisitions since 2002.
In a recent note, ABN Amro analyst Lachlan Cooper said: "Wesfarmers and Fletcher Building could potentially achieve some synergies with their existing operations. However, Wattyl does not appear to fit strategically with either of these players in our view and may fail the return hurdles."
The South African paint maker and car dealer, Barloworld, is yet to indicate whether it could make a counter-bid for Wattyl. Barlo's Australian coatings business lost 29 million rand ($6.2 million) in the 12 months to September 30.
Because of massive writedowns associated with its recent exit from the US and Asian markets, Wattyl has reported three full-year losses in the past five years.
Barloworld, which owns Taubmans and Bristol, and Wattyl have for years been subject to merger speculation.
Talk of consolidation in the paint industry has increased in recent months with Wattyl, Orica (the maker of Dulux and Berger paint) and Barlo all being hit by a softening housing market and rising raw material costs, especially for oil-based paints.
The Australian Competition and Consumer Commission blocked Wattyl's takeover bid for Taubmans in 1995. But there is a growing school of thought that the ACCC would now be more willing to allow a merger given the recent shift in market power towards "big box" retailers such as Bunnings.
A Credit Suisse First Boston report said the ACCC may have concerns about Orica making a bid, as it would control 72 per cent of Australia's paint market as a consequence. Barlo would control 56 per cent of the market if it took Wattyl, but CSFB said the South African company might be "reluctant to further invest in the Australian paint industry given its historical poor returns". Barlo was unavailable for comment.
Allco Equity Partners' managing director, Peter Yates, said last week his $3.25-a-share bid would "provide Wattyl shareholders with an opportunity to exit an underperforming investment at an attractive price".
He cited Wattyl's "difficulties in its relationship with a key customer [Bunnings]", rising costs and an uncertain outlook because of the weak housing sector.
The bid is conditional on Allco picking up 50.1 per cent of Wattyl shares, Wattyl's business "being conducted in the ordinary course" and the ASX 200 not falling below 4200 points.
Wattyl's managing director, John Nolan, did not return the Herald's calls to discuss the bid. Shares in Wattyl fell 3c to $3.33 last Friday with no signs of a counter-bid appearing.
Wattyl's board is yet to decide whether it will reject Allco's bid. But it has already hinted that its defence could hinge on the restructure initiated by Dr Nolan.
The company says it is already well positioned to slash $10 million from its annual cost base and has signalled plans to cut another $10 million.
WYL Price at posting:
0.0¢ Sentiment: None Disclosure: Not Held
