Onex Chairman of the Board, President, and Chief Executive Officer Gerald Schwartz gets up after their annual general meeting for shareholders in Toronto, May 6, 2010.MARK BLINCH
A Canadian consortium's attempt to pull off the biggest leveraged buyout globally of the year, a $4.5-billion (U.S.) takeover of British manufacturer Tomkins leapt forward Tuesday with a green light from the company's independent directors.
But the bid from Onex and the Canada Pension Plan Investment Board is also facing fierce opposition from Standard Life Investments, which is publicly decrying the deal as inadequate and suggesting it won't succeed.
"We do not expect the majority of Tomkins' shareholders to support a deal whose valuation of the company is, without a shadow of a doubt, too low, and also provides massive incentives to the outgoing management team to deliver returns to private equity rather than to current shareholders," said David Cumming, head of U.K. equities at Standard Life Investments, which owns 2.97 per cent of Tomkins.
The deal will require approval from 75 per cent of Tomkins' shareholders at a vote that will likely be held in September.
Tomkins, which makes a range of products from car parts to bathtubs, has not received an approach from any other potential suitor since it announced on July 19 that Onex and CPPIB were taking a look, a company spokeswoman said. The Canadian investors first approached Tomkins in March.
Tomkins was once one of Britain's biggest industrial groups. In the 1990s it was referred to as the "buns to guns" conglomerate because it owned baking ingredients maker Rank Hovis McDougall and handgun maker Smith & Wesson. Tomkins has since streamlined and now has two main businesses: its core industrial and automotive operations, which feature 95 manufacturing plants in 20 countries, and its building products division, which makes products such as showers and doors.
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In response to the statement from Standard Life, Tomkins pointed out that 9.18 per cent of its shareholders - including Schroder Investment Management Ltd. and JPMorgan Asset Management - have agreed to vote in favour of the deal.
"They're entitled to an opinion, it's an opinion that's clearly not shared by many other people," said Neil Bennett, a spokesman for the Canadian consortium.
Standard Life said that the compensation agreements that Tomkins' executives will receive as a part of the deal will effectively provide them with full value for their outstanding performance share plan awards, as well as better terms for bonus and termination payments. "They will also potentially receive significant retention awards," Mr. Cumming said.
Tomkins' chief executive officer Jim Nicol, 56, is well known and highly respected in Canada. He left his job as president and chief operating officer of Magna International Inc. and joined Tomkins in 2002.
A spokeswoman for Tomkins said Tuesday that Mr. Nicol did not have a relationship with either Onex or CPPIB when he lived and worked in Canada.
Their offer values Tomkins at about £2.89-billion, and is roughly 41 per cent higher than the company's share price prior to Tomkins' disclosure that the Canadian suitors were circling.
Onex and CPPIB, which are hopeful that the deal will close in late September, have jointly created a new company called Pinafore that would make the purchase, which would be financed through a combination of debt and equity. About $3-billion in debt financing has been arranged and underwritten by Merrill Lynch, Citigroup, Barclays Capital, Royal Bank of Canada and UBS. Pinafore will fund the balance with about $2.2-billion of equity financing that will come in equal measure from Onex and CPPIB.
In filings with British regulators, Tomkins suggested Tuesday that it has suffered from decisions that increased its reliance on U.S. consumers.
In 1996 it bought U.S.-based Gates Corporation (which, it notes, dramatically increased the revenue, product range and reach of Tomkins). More recently, "following the disposal of U.K. activities such as the Rank Hovis McDougall business, Tomkins has become increasingly U.S.-focused and exposed to cyclical end markets that are heavily linked to the U.S. consumer," the company said. As a consequence, it said its value has been held back when compared with its U.K. peers.
With files from Reuters