Never mind.
A. Schulman Inc. says it is no longer looking to buy struggling specialty chemical maker Ferro Corp. in what it said would have been a “transformative” acquisition, nearly doubling the size of the $2.1 billion Fairlawn polymer company.
“On May 30, Ferro formed a strategic committee and we have given Ferro’s board ample time to come back to us to initiate a discussion. At this time, this did not happen,” Joseph Gingo, Schulman’s chairman, president and chief executive officer, said Tuesday. “So we have decided to look elsewhere for acquisition opportunities.”
The board and senior management of Mayfield Heights-based Ferro earlier this year rejected Schulman’s offer to buy Ferro for $855 million, or $6.50 a share in stock and cash plus assumption of debt.
Shares of Schulman and Ferro fell Tuesday following Gingo’s announcement, made during a conference call with industry analysts. Schulman on Monday reported third-quarter earnings down from a year ago. It also reduced earnings guidance for the year to $1.70 to $1.80 a share from previous guidance of $2.08 to $2.13.
Schulman still has a strong balance sheet and ample cash flow and will look elsewhere to expand and transform the company, Gingo and other executives said.
“We believe we are in a strong financial position to continue to pursue our acquisition and organic growth strategy,” said Joe Levanduski, chief financial officer.
Schulman executives told analysts that they thought their offer of $6.50 a share for Ferro was “extremely reasonable” and that they were not going to overpay.
“We would never put ourselves in a position where we overstress our balance sheet,” Gingo said.
Schulman pulling its offer means Ferro’s stock price will be based on the company’s fundamentals and not as an acquisition target, said Dmitry Silversteyn, an analyst with Cleveland-based Longbow Research, who follows both companies. That suggests Ferro’s stock price will drop.
While Schulman’s offer was sitting for seven or eight months, there have been no other bidders and that is telling, Silversteyn said. Still, Schulman’s offer bought Ferro’s board and management enough time to come up with a strategy intended to turn around the company internally, he said.
“From Ferro’s view, [Schulman] was probably the best offer they could hope for,” Silversteyn said.
Schulman’s initial offer sounded opportunistic as Schulman executives were feeling good about the company’s performance at that time, he said. “There was no strong strategic imperative to getting the deal done,” Silversteyn said.
Since making the offer, though, Schulman has had disappointing back-to-back quarters that at least in part reflect internal management execution as well as external events, Silversteyn said.
And that can make an argument that Schulman needs to “get back to knitting” rather than look outside the company, he said.
It is still possible that Schulman will re-engage Ferro’s board in talks, Silversteyn said. And there are other chemical companies that may be on Schulman’s list.
“There is no shortage of fixer-uppers in this industry,” Silversteyn said. He declined to name any potential targets.
Schulman is continuing with its $50 million acquisition of Akron-based Network Polymers, which provides thermoplastic resins and alloys. The deal, announced in late May, is expected to close in Schulman’s fiscal 2014 first quarter, Gingo said.
“This acquisition will be another step in our continued efforts to transform our U.S. business from what used to be a commodity engineered plastics producer to a supplier of custom performance colors, masterbatch solutions, niche engineered plastics and specialty polymers,” Gingo said.
Shares of Schulman fell $1.23, or 4.4 percent, to $26.61. Shares are down 7.3 percent, including dividends, since Jan. 1 and are up 37.4 percent from a year ago.
Shares of Ferro fell 10.3 percent, or 72 cents, to $6.29.
Jim Mackinnon can be reached at 330-996-3544 or jmackinnon@thebeaconjournal.com.