July 27, 2010 / 6:54 AM / in 7 years

Tomkins backs $4.5 billion Canadian bid

LONDON (Reuters) - Tomkins Plc, the British maker of car parts, industrial hoses and bath tubs, backed a 2.9 billion pound ($4.5 billion) takeover offer from Canadian investors that would be the year’s largest leveraged buyout.

Tomkins said a trio of investors owning more than 9 percent had also formally backed the $4.5 billion offer from Onex, Canada’s largest private equity firm, and the C$127 billion Canada Pension Plan, the country’s second-biggest pension fund.

But the board’s recommendation, eight days after Tomkins revealed takeover talks, sparked anger from 2.97 percent shareholder Standard Life Investments, which had already urged investors to reject the approach as too cheap.

SLI Head of UK Equities David Cumming said the deal’s pay and bonus agreements gave management “massive incentives” to “deliver returns to private equity rather than to current shareholders.” A share scheme could allow Tomkins managers to own up to 15 percent of the new company.

Tomkins Chairman David Newlands said despite the opposition of SLI and a “very small institutional shareholder,” he expected wide backing for the deal, which is structured as a scheme of arrangement that requires 75 percent backing.

“The feeling I get from the rest of the shareholders is that we will get a substantial amount of backing,” Newlands, told Reuters in a telephone interview, adding that he was first approached by Onex about a deal in late March.

Another top-ten shareholder told Reuters the offer was a reasonable price for a “bog-standard manufacturer” whose Chief Executive, Jim Nicol, had already wrung out possible cost cuts. “It feels fair and it might be more than fair if the economic environment gets worse,” this investor said.

Tomkins shares leapt nearly 5.3 percent to trade at their highest since May 2006, and just below the 325 pence-a-share offer price.

“BUNS TO GUNS”

The deal would be 2010’s largest buyout globally, according to Thomson Reuters data, and the largest in Europe since Terra Firma bought EMI Group in May 2007 for $6 billion.

It could also mark the end of what was once one of Britain’s biggest industrial groups, dubbed the “buns to guns” conglomerate in its 1990s heyday because it owned both food group Rank Hovis McDougall and .357 Magnum maker Smith & Wesson.

In a string of other deals, North American buyers have snapped up UK engineers, lured by reasonable valuations, strong market positions, a weaker pound, and the relative ease of buying into Britain.

Collins Stewart analyst Mark Wilson said the bid did not reflect “any kind of premium for the fair value” of Tomkins but was likely to succeed barring a “very unlikely” counterbid.

Wilson said the offer places an enterprise value (EV) of 12 times estimated 2010 earnings before interest and tax (EBIT), against a UK capital-goods average of 13 times, and the buyers could enjoy a 20 percent internal rate of return (IRR).

NEGATIVE FORECAST

Tomkins said Pinafore -- Onex and CPP’s acquisition vehicle -- had received irrevocable undertakings from Schroders and JP Morgan Asset Management to vote in favor of the deal. Arrowgrass, a hedge fund spun out of Deutsche Bank, also intends to use its 0.28 percent position to back the deal.

Tomkins said the recommendation reflected its negative forecast for the company’s second-half performance and that its shares were trading at 230 pence before news of the approach.

“If you look at the economic indicators, it’s unlikely the second half will be as a strong as the first,” Newlands said.

Asked if Onex and CPP were likely to break up Tomkins, whose stable of companies includes Gates, the U.S. maker of belts and hoses for cars and machines, Newlands said the consortium were very supportive of the firm’s management team.

Onex and CPP will contribute $1.1 billion each of equity funding and have raised $3 billion of debt finance from Bank of America Merrill Lynch, Citigroup, Barclays Capital, RBC and UBS. Tomkins had net debt of about $260 million on July 3.

JPMorgan Cazenove advised Tomkins, while Citi advised the bidders.

Additional reporting by Joel Dimmock; Editing by Mike Nesbit and Erica Billingham

0 : 0
  • narrow-browser-and-phone
  • medium-browser-and-portrait-tablet
  • landscape-tablet
  • medium-wide-browser
  • wide-browser-and-larger
  • medium-browser-and-landscape-tablet
  • medium-wide-browser-and-larger
  • above-phone
  • portrait-tablet-and-above
  • above-portrait-tablet
  • landscape-tablet-and-above
  • landscape-tablet-and-medium-wide-browser
  • portrait-tablet-and-below
  • landscape-tablet-and-below