Eight days after British engineering and manufacturing group Tomkins announced that it had been approached by Onex and the Canada Pension Plan Investment Board, the two sides have reached an official deal despite complaints from some shareholders who have already said that the Canadian investors' offer isn't sufficient.
The offer from Onex and CPPIB values Tomkins at about 2.89-billion pounds and represents a premium of about 41 per cent to the share price prior to Tomkins' announcement that the Canadian suitors were circling.
In a statement, Tomkins chairman David Newlands said that the company's independent directors believe the transaction is fair, reasonable, and in the best interests of shareholders. Those directors will unanimously recommend the deal at an upcoming shareholder vote.
In filings with British regulators Tuesday, the company, which makes auto parts and other products, suggests 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 UK 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," it says. As a consequence, the company says its value has been held back in comparison to its UK peers.
The company also is of the belief that, despite a good showing in the first half of the year, the outlook for the remainder of 2010 has deteriorated.
For instance, "having peaked at 60.4 in April 2010, the Global Purchasing Managers Indexes (PMIs) have softened, illustrated by the decline in the U.S. reading to 56.2 in June 2010 and in Europe to 55.8 in May 2010," it says.
"The global automotive original equipment market in the second half of 2010 is now expected to be flat compared to the second half of 2009 and down by a mid single-digit percentage compared to the first half of 2010. Sales rates in the U.S. have weakened in the last few months, and in Europe, where sales in the first half of 2010 were positively impacted by scrappage schemes, production volumes are currently expected to decline by around 15 per cent in the second half of 2010 relative to the first half as these scrappage schemes conclude."
It's in this light that the independent directors say they think the Onex/CPPIB offer gives shareholders a chance to realize their investments, at a premium, in cash.
Onex and CPPIB, which are hopeful that the deal will close in late September, have jointly created a new company, called Pinafore, that will make the purchase, which will be financed through a combination of debt and equity.
About $3-billion (U.S.) in debt financing has been arranged and underwritten by Bank of America Merrill Lynch, Citigroup, Barclays Capital, RBC Capital Markets 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.