Fairlawn polymer company A. Schulman Inc. wants to buy a reluctant Ferro Corp., a Mayfield Heights electronics materials and coatings maker, for about $855 million in cash, stock and debt.
The acquisition, if successful, would in many respects about double the size of $2.1 billion Schulman.
Ferro’s board of directors rejected an initial, unsolicited buyout offer last month by Schulman, the companies disclosed Monday. Ferro issued a statement Monday afternoon urging its shareholders to take no action regarding Schulman’s latest offer.
So now Schulman is making its pitch directly to Ferro’s shareholders.
Schulman is proposing to buy Ferro for $6.50 a share — half in cash and half in Schulman stock — for a total of $563 million plus the assumption of Ferro debt. Industry analysts on Monday projected that Schulman will have to increase its per-share offer, perhaps to at least $7.50, to complete the deal. And there is a possibility that other companies might look at buying Ferro, too.
About 84 percent of Ferro shares are owned by institutions such as mutual funds and pension plans. Ferro’s largest shareholder with nearly 14.2 percent of outstanding shares is GAMCO Inc., a large Rye, N.Y-based financial management and mutual fund company run by well-known investor Mario Gabelli. GAMCO owned nearly 12.25 million Ferro shares according to the latest available filings and often takes large positions in companies it considers takeover targets. Gabelli could not be reached for comment.
“We’re planning on having discussions with Mario and the other large institutional shareholders,” Schulman spokeswoman Jennifer Beeman said. “We hate to bypass their [Ferro] board and go this route. But we felt it prudent to take the next step.”
The idea is to encourage the large shareholders to communicate with Ferro’s board of directors and encourage the board to renew discussions with Schulman, she said.
There is little overlap in the complementary products that each company manufactures, analysts said. Ferro makes so-called “performance materials” used in industry, while Schulman is known for plastic compounds and resins.
Stock prices rise
Shares of Ferro rose 30.8 percent, or $1.60, to close Monday at $6.80 — higher than Schulman’s offer — giving the company a market cap value of $588.5 million.
At $7.50 per share, Ferro would be valued at about $649 million. Schulman shares rose 7 cents to $31.19, valuing the company at $914.9 million.
The higher-than-$6.50 stock price indicates that Ferro shareholders expect to get a better offer from Schulman or perhaps another company.
“Either one way or the other, Schulman will have to pay more,” said Kevin Hocevar, analyst with Cleveland-based Northcoast Research, who covers both companies. He said he does not own shares in either business. Ferro and Schulman should complement each other if the sale takes place, he said.
“I think it’s a good move on Schulman’s part,” Hocevar said. “I think it’s a positive for Schulman.”
Hocevar said he would not be surprised if other coatings companies take a look at buying Ferro.
It would be a major move for Schulman if it succeeds in buying Ferro, he said.
Schulman in recent years has a proven track record of successful acquisitions, he said. “They’ve really done a great job.”
KeyBanc Capital Markets analyst Michael Sison wrote in a note to clients Monday that Schulman “has ample balance sheet flexibility to acquire [Ferro] and to raise the price.” Sison covers both companies; Cleveland-based KeyBanc owns shares in Schulman and disclosed that both companies are investment banking clients.
Credit Suisse analyst John McNulty wrote that if Schulman increased its bid to $7.50 or higher, that move likely would get Ferro more interested, Bloomberg News reported.
Schulman said it could adjust its offer if it was allowed to look at Ferro’s internal finances instead of using publicly available information. Schulman said it first approached Ferro in November.
Ferro releasing results
Ferro was to release 2012 fourth-quarter and fiscal year results after the stock market closed Monday. It had about $2.2 billion in sales in 2011 and employs about 4,900 people globally.
Ferro scheduled a conference call at 10 a.m. today with industry analysts to review its fourth quarter and fiscal year results. To listen in on the call, dial 800-734-8582 by 9:50 a.m. To listen via webcast, go to the investor information link at the company’s website, www.ferro.com.
Schulman reported $2.1 billion in sales for fiscal 2012 and has about 3,300 employees.
Ferro is operating with an interim chief executive officer. The company also is in a proxy fight with a Stamford, Conn., shareholders group that in January announced it intended to nominate three people to Ferro’s board of directors this year.
Joe Gingo, Schulman’s chairman, president and chief executive officer, said in a statement that Schulman and Ferro complement each other and that Schulman has proven that it can successfully integrate acquired businesses.
“Ferro’s business units align with A. Schulman’s core competencies with the exception of pharmaceuticals, which is not strategic to us,” Gingo said.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.