DuluxGroup says a move to enlarge its market footprint makes sense as it launches a $188.4 million takeover proposal for garage door, construction products and cabinet and window products supplier, Alesco Corporation.
News of the surprise takeover bid sent Alesco shares soaring by more than 40 per cent.
The paint and garden care products supplier, which already holds a 20 per cent stake in Alesco, intends to offer $2.00 for each remaining share in Alesco.
The offer from DuluxGroup comes at a 43 per cent premium to Alesco’s closing share price of $1.40 on April 30.
At 1423 AEST on Tuesday, Alesco shares were 60 cents, or 42.86 per cent, higher at $2.00.
DuluxGroup was 15 cents lower at $2.95.
DuluxGroup managing director Patrick Houlihan described the proposed acquisition of Alesco as “strategically compelling”, saying it would provide DuluxGroup with new platforms for future growth.
While DuluxGroup would remain predominantly an Australasian paints company, the acquisition, if successful, would increase earnings diversification across end markets and products.
“When we first started thinking about this well over a year ago, you might say: ‘Well, gee, what’s a metal garage doors business got to do with a wet paints business?'” Mr Houlihan told reporters.
He said 80 per cent of the respective businesses revolved around homes and involved similar marketing and distributing channels to consumers and trades people.
“There’s a high degree of commonality in the go-to-market model,” Mr Houlihan said.
Alesco’s construction products business would gain from DuluxGroup exposure to the higher-growth infrastructure and commercial sectors.
Alesco’s third division, cabinet and window products, would be reviewed following the acquisition, then DuluxGroup would decide whether to keep or sell the operation.
DuluxGroup said it expected that the acquisition of Alesco would add to earnings per share in the first full year of ownership under DuluxGroup.
Mr Houlihan said DuluxGroup already had strong support for its offer from the largest Alesco shareholders.
He said DuluxGroup had not engaged directly yet with the Alesco board, at the time of announcing the takeover proposal.
Alesco advised its shareholders to take no action in relation to the surprise offer.
“The directors will review the offer documents and provide further advice in due course,” Alesco said in a statement.
Morningstar Equities analyst Nathan Zaia said the offer price looked generous but was “reasonable at best”.
He said Alesco’s earnings could double within the next five to 10 years as the housing sector started to recover.
“Do shareholders risk holding out for the recovery which could be years away, or remove themselves from that risk and take the cash now? Mr Zaia said.
“We would lean towards accepting.”
Alesco manufactures garage doors under brands including B&D Doors, supplies hardware and components to the furniture-making industry, makes chemicals and decorative concrete, and supplies kitchen and laundry appliances.
DuluxGroup, which was demerged from explosives supplier Orica two years ago, owns brands such as Dulux, Selleys and British Paints, and the Selleys Yates garden care business.