Rejection of Minerals Technologies' proposal
NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART, DIRECTLY OR INDIRECTLY IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION.
THIS ANNOUNCEMENT CONTAINS INSIDE INFORMATION
FOR IMMEDIATE RELEASE
6 December 2020
Rejection of the revised conditional proposal from Minerals Technologies
The Board of Elementis plc ("Elementis" or the "Company") announces that at the end of the day on 4 December 2020 it received a revised conditional proposal from Minerals Technologies Inc. ("Minerals Technologies") in relation to a possible cash offer for Elementis at 130 pence per Elementis share (the "Proposal"). In its letter, Minerals Technologies stated that "it is the best proposal that Minerals Technologies is able to make absent meaningful engagement from the Elementis Board and access to non-public information" and requested a response by 5 p.m. GMT on Sunday, 6 December 2020.
The Board has now received three conditional proposals from Mineral Technologies. On receipt of the first proposal on 5 November 2020, the Board of Elementis, together with its management and advisers, conducted a thorough review to assess the fundamental value of Elementis as well as the likely value to be created by the continued delivery of its strategy. In addition, the Board evaluated the share price levels at which it believed its shareholders would consider a proposal to be attractive. This valuation framework has continued to be tested and revised at every stage by the Board and its advisers, including taking into account shareholder feedback since the approach from Minerals Technologies became public.
Having concluded its evaluation, on 10 November 2020 the Board rejected the first proposal from Minerals Technologies at 107 pence per Elementis share. The second proposal at 117 pence per Elementis share on 24 November 2020 was, as a result of this process, also swiftly rejected.
The Board promptly convened and considered this latest proposal in detail, taking into account the established valuation framework. The Board concluded that the Proposal falls significantly short of value that would merit engagement and access to the Company's non-public information, despite the continued opportunistic bidding tactics of Minerals Technologies. The Board would like to emphasise that it is focused on maximising value for shareholders and would always consider engagement at a level that appropriately reflects the fair value of Elementis. Given that the Proposal continues to significantly undervalue Elementis and its future prospects, the Board unanimously rejected the Proposal.
In the Board's assessment, the Proposal:
1. Fails to recognise Elementis' differentiated, high quality assets that merit a premium multiple
2. Is highly opportunistic, coming at a low point of earnings and value
3. Ignores Elementis' clear strategy to create value for its shareholders
4. Significantly undervalues Elementis and its future prospects
Andrew Duff, Chairman of Elementis, said:
"Elementis has refocused its business and built strong market positions in three high margin specialist sectors with strong underlying growth. We have a clear strategy to capture this growth and profitability and we are confident that this will deliver significant value for our shareholders. It is the quality of these businesses that has attracted Minerals Technologies. As a Board, we are fully aware of our responsibility to create and capture value for our shareholders, but this 'best offer' falls well short of that threshold for us to engage."
1. The proposal fails to recognise Elementis' high quality assets that merit a premium multiple
· Elementis is the owner of differentiated resources with high scarcity value, including the world's only commercially viable high quality rheology grade hectorite mine
· Over 80%1 of earnings are now from the premium performance additives businesses of Personal Care, Coatings and Talc as a result of significant refocusing of the group
‒ These businesses benefit from fundamentally attractive high margins and GDP+ growth
2. The proposal is highly opportunistic, coming at a low point of earnings and value
· Comes at a low point for the share price due to the impact of COVID-19 and the industrial cycle
‒ Significantly below the 2019 year end closing share price of Elementis of 179 pence 2
· Adjusted operating profit achieved over the last twelve months is impacted by short-term COVID-19 headwinds and the industrial cycle and is not reflective of the business fundamentals
‒ c. 20% below the 2018 level for the Personal Care, Coatings and Talc businesses 3
‒ c. 70% below the 2018 level for the Chromium business 4
3. The proposal ignores Elementis' clear strategy to create value for its shareholders
· Growth - attractive end markets enhanced by over $100m5 of further identified revenue growth opportunities and improving overall business mix from new product and innovation pipeline
· Innovation - enriching product mix with significantly improved distinctiveness, materiality and speed
· Efficiency - $10m of supply chain benefits in 2021 underpinned by Charleston closure and new India plant on track for ramp up in 2021 and fully qualified by 2022
· Medium term objectives unchanged
‒ 17% adjusted operating profit margin: driven by COVID-19 recovery, growth and efficiency
‒ 90% plus operating cash conversion: consistent with 5 year average track record
‒ Reduce leverage to <1.5x net debt / EBITDA in the mid term: significant debt reduction expected by year end
· High level of confidence in these objectives which are expected to drive equity value for Elementis' shareholders
4. The proposal significantly undervalues Elementis and its future prospects
· Personal Care, Coatings and Talc businesses have achieved an average adjusted operating profit margin of c. 15% over the last three years6. Our medium term Group adjusted operating profit margin objective is 17%
· Specialty chemicals companies in the approximately 14%-17% margin range currently trade at c.17-19x EV/EBITA 2021E7
· Applying this range to average operating profit for Elementis' Personal Care, Coatings and Talc businesses over the last three years implies a valuation of 163 to 190 pence per Elementis share8
‒ This excludes Chromium which could be valued at an additional c.35 pence per Elementis share9
· In total, including Chromium, this illustratively implies a valuation of c. 200+pence per Elementis share as Elementis delivers on its medium term objectives
Reject the Minerals Technologies' proposal and take absolutely no action. The Board believes:
· The timing of the proposal to be highly opportunistic, the proposal comes at a low point due to the impact of COVID-19 and the industrial cycle and fails to reflect expected earnings growth based on investments made
· Elementis has a bright future as an independent company. The Company has a clear and compelling strategy to create value and the Board has a high level of confidence that Elementis will achieve its medium term performance objectives
· The proposal significantly undervalues Elementis and its future prospects and is at a significant discount to a fair valuation
· The proposal is not in the interests of Elementis' shareholders and other stakeholders
Trading update
Trading in Q4 continues to be resilient and in line with our expectations. Whilst demand continues to be impacted by COVID-19, sales in October and November have shown sequential progress versus Q3. The recently announced closure of the Charleston plant further underpins delivery of $10m annual supply chain savings in 2021. The Group remains on track to deliver a significant reduction in net debt by year end 2020, as announced previously.
A presentation for analysts and investors will be made available on Elementis' website at: www.elementis.com/possible-offer-minerals-technologies-inc
The presentation has also been made available via RNS. Click on, or paste the following link into your web browser, to view the associated PDF document:
http://www.rns-pdf.londonstockexchange.com/rns/6790H_1-2020-12-6.pdf
Enquiries
|
Elementis plc Investor Contact James Curran |
|
|
Rothschild & Co Ravi Gupta / Yuri Shakhmin |
+44 (0)207 280 5000 |
|
J.P. Morgan Cazenove Richard Perelman / Celia Murray |
+44 (0)207 742 4000 |
|
Numis Securities Limited Mark Lander / George Price |
+44(0)207 260 1000 |
|
Tulchan Communications Martin Robinson / Olivia Peters |
+44(0)20 7353 4200 |
Important notes
There can be no certainty either that an offer will be made nor as to the terms of any offer, if made. A further announcement will be made when appropriate.
For the purposes of Rule 2.5(a) of the Code, this announcement has not been made with the consent of Minerals Technologies.
In accordance with Rule 2.6(a) of the Code, Minerals Technologies is required, by not later than 5.00 p.m. on 10 December 2020, to either announce a firm intention to make an offer for the Company in accordance with Rule 2.7 of the Code or announce that it does not intend to make an offer for the Company, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline can be extended with the consent of the Panel on Takeovers and Mergers in accordance with Rule 2.6(c) of the Code.
Disclosure requirements of the Code
Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.
Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror, save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.
If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.
Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4). Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.
Rule 26.1 disclosure
In accordance with Rule 26.1 of the Code, a copy of this announcement will be available (subject to certain restrictions relating to persons resident in restricted jurisdictions) at www.elementis.com/possible-offer-minerals-technologies-inc by no later than 12 noon (London time) on the business day following the date of this announcement. The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.
Important notices
N.M. Rothschild & Sons Limited ("Rothschild & Co"), which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting exclusively for Elementis and for no one else in connection with the subject matter of this announcement and will not be responsible to anyone other than Elementis for providing the protections afforded to its clients or for providing advice in connection with the subject matter of this announcement.
J.P. Morgan Securities plc (which conducts its UK investment banking business as J.P. Morgan Cazenove) ("J.P. Morgan Cazenove") which is authorised in the United Kingdom by the PRA and regulated in the United Kingdom by the PRA and the FCA, is acting exclusively for Elementis and no one else in connection with the matters set out in this announcement and will not regard any other person as its client in relation to the matters set out in this announcement and will not be responsible to anyone other than Elementis for providing the protections afforded to clients of J.P. Morgan Cazenove or its affiliates, nor for providing advice in relation to any matter referred to herein.
Numis Securities Limited ("Numis"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as Corporate Broker exclusively for Elementis and no one else in connection with the matters set out in this announcement and will not regard any other person as its client in relation to the matters in this announcement and will not be responsible to anyone other than Elementis for providing the protections afforded to clients of Numis, nor for providing advice in relation to any matter referred to herein.
Forward-looking statements
This announcements contains statements about Elementis that are or may be forward looking statements. All statements other than statements of historical facts included in this announcement may be forward looking statements. Without limitation, any statements preceded or followed by or that include the words "targets", "plans" "believes", "expects", "aims"," intends", "will", "may", "anticipates", "estimates", "projects" or words or terms of similar substance or the negative thereof, are forward looking statements. Forward looking statements include statements relating to future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects or discussions of strategy which involve risks and uncertainties. Such forward looking statements involve risks and uncertainties that could significantly affect expected results and are based on certain key assumptions. No assurance can be given that such future results will be achieved. Actual events or results may differ materially as a result of risks and uncertainties facing Elementis. Such risks and uncertainties could cause actual results to vary materially from the future results indicated, expressed or implied in such forward looking statements. The forward looking statements contained in this announcement speak only as at the date of this announcement. Except to the extent required by applicable law, Elementis will not necessarily update any of them in light of new information or future events and undertakes no duty to do so. By their nature, forward looking statements involve risk and uncertainty because they relate to events and depend on circumstances that shall occur in the future. These events and circumstances include changes in the global, political, economic, business, competitive, market and regulatory forces, future exchange and interest rates, changes in tax rates, future business combinations or disposals, and any epidemic, pandemic or disease outbreak. If any one or more of these risks or uncertainties materialises or if any one or more of the assumptions proves incorrect, actual results may differ materially from those expected, estimated or projected. Such forward looking statements should therefore be construed in the light of such factors.
APPENDIX I
SOURCES OF INFORMATION AND BASES OF CALCULATION
1 Adjusted operating profit for the twelve months ended 30 June 2020 of $92.5m for Personal Care, Coatings and Talc, less central costs (see note 3) divided by total adjusted operating profit for the Group for the twelve months ended 30 June 2020 of $100.9m (calculated as $92.5m plus $10.1m for Chromium (see note 4) plus Energy of negative $1.7m (being adjusted operating profit for the twelve months ended 31 December 2019 of $3.8m less adjusted operating profit for the six months ended 30 June 2019 of $3.1m plus adjusted operating profit for the six months ended 30 June 2020 of negative $2.4m)).
2 Closing share price of 179.0 pence at 31 December 2019 per FactSet Europe Limited.
3 Calculated as the percentage change between adjusted operating profit for the twelve months ended 31 December 2018 of $115.6m and for the twelve months ended 30 June 2020 of $92.5m for Personal Care, Coatings and Talc, less central costs.
Adjusted operating profit for the twelve months ended 31 December 2018 of $115.6m is calculated as the sum of i) Personal Care operating profit of $52.1m (being $52.2m reported operating profit less $0.1m impact of M&A related to the portfolio elimination following the Delden asset sales); ii) Coatings operating profit of $55.0m (being $52.5m reported operating profit plus $2.5m impact of M&A related to the portfolio elimination following the Delden asset sales); iii) Talc operating profit of $24.6m (being $3.9m reported operating profit plus $20.7m pro forma adjustment as if Elementis had owned Talc for the full twelve months); and iv) $16.1m deduction for central costs.
Adjusted operating profit for Personal Care, Coatings and Talc segment for the twelve months ended 30 June 2020 of $92.5m is calculated as adjusted operating profit for the six months ended 31 December 2019 of $51.2m (being adjusted operating profit for the twelve months ended 31 December 2019 of $101.0m less adjusted operating profit for the six months ended 30 June 2019 of $49.8m) plus adjusted operating profit for the six months ended 30 June 2020 of $41.3m.
Adjusted operating profit for the twelve months ended 31 December 2019 of $101.0m is calculated as the sum of i) Personal Care adjusted operating profit of $42.7m; ii) Coatings adjusted operating profit of $48.3m; iii) Talc adjusted operating profit of $25.7m; and iv) $15.7m deduction for central costs.
Adjusted operating profit for the six months ended 30 June 2019 of $49.8m is calculated as the sum of i) Personal Care adjusted operating profit of $23.2m; ii) Coatings adjusted operating profit of $23.9m; iii) Talc adjusted operating profit of $10.4m; and iv) $7.7m deduction for central costs.
Adjusted operating profit for the six months ended 30 June 2020 of $41.3m is calculated as the sum of i) Personal Care adjusted operating profit of $20.1m; ii) Coatings adjusted operating profit of $23.0m; iii) Talc adjusted operating profit of $6.2m; and iv) $8.0m deduction for central costs.
4 Calculated as the percentage change between adjusted operating profit for the twelve months ended 31 December 2018 of $33.0m and for the twelve months ended 30 June 2020 of $10.1m (being adjusted operating profit for the twelve months ended 31 December 2019 of $18.2m less adjusted operating profit for the six months ended 30 June 2019 of $11.2m plus adjusted operating profit for the six months ended 30 June 2020 of $3.1m).
5 Over $100m of identified growth opportunities identified by the Company (as announced at the Capital Markets Day (19 November 2019)) and calculated from Company internal reporting and sources as follows:
Specified
· Personal Care: incremental sales in hectorite clay skin care: $10m; and identified Talc revenue synergies of $10m by 2023
· Coatings: new business pipeline in waterborne industrial additives of $40m; and identified Talc revenue synergies of $10 to $15m by 2023
Other identified
· Personal care: doubling of cosmetics sales in Asia; c. $90m emerging market, 6% growth p.a.
· Coatings: $400m addressable market, 15%-20% aim; growth in hybrid adhesives & sealants through advantaged technology
· Talc: global expansion; growth in market share of $600m addressable market in Talc for long life plastics; growth in technical ceramics; and growth in barrier coatings
6 Calculated as total adjusted operating profit for the Personal Care, Coatings and Talc businesses for the three years ended 2019 (2017: $115.4m, 2018: $131.7m, 2019: $116.7m) less total corporate costs (2017: $16.4m, 2018: $16.1m, 2019: $15.7m), divided by total revenue (2017: $690.7m, 2018: $726.2m, 2019: $665.8m) less total inter-segment revenues (2017: $15.0m, 2018: $11.0m, 2019: $9.8m).
For 2017, total adjusted operating profit of $115.4m is calculated as the sum of i) Personal Care adjusted operating profit of $47.1m (calculated as reported adjusted operating profit of $44.6m plus $2.5m impact of M&A (being negative $0.1m plus $2.6m sourced from the Annual Accounts and Reports 2018 and 2019) related to the acquisition of SummitReheis and portfolio elimination following the Delden asset sales); ii) Coatings adjusted operating profit of $49.6m (calculated as reported operating profit of $54.7m less $5.1m impact of M&A (being negative $7.6m plus $2.5m sourced from the Annual Accounts and Reports 2018 and 2019) related to portfolio elimination following the Delden asset sales); and iii) Talc adjusted operating profit of $18.7m (representing the pro forma impact as if Elementis had owned Talc for the full twelve months).
For 2017, total revenue of $690.7m is calculated as the sum of i) Personal Care revenue of $203.0m (calculated as reported revenue of $179.3m plus $23.7m impact of M&A (being $24.4m less $0.7m sourced from the Annual Accounts and Reports 2018 and 2019) related to the acquisition of SummitReheis and the portfolio elimination following the Delden asset sales); ii) Coatings revenue of $349.6m (calculated as reported revenue of $372.9m less $23.3m (being negative $19.3m plus negative $4.0m sourced from the Annual Accounts and Reports 2018 and 2019) related to the portfolio elimination following the Delden asset sales); and iii) Talc revenue of $138.1m (representing the pro forma impact as if Elementis had owned Talc for the full twelve months).
For 2018, total adjusted operating profit of $131.7m is calculated as the sum of i) Personal Care adjusted operating profit of $52.1m (calculated as reported adjusted operating profit of $52.2m less $0.1m impact of M&A related to the portfolio elimination following the Delden asset sales sourced from the Annual Accounts and Reports 2019); ii) Coatings adjusted operating profit of $55.0m (calculated as reported operating profit of $52.5m plus $2.5m impact of M&A related to the portfolio elimination following the Delden asset sales sourced from the Annual Accounts and Reports 2019 ); and iii) Talc adjusted operating profit of $24.6m (calculated as reported operating profit of $3.9m plus $20.7m pro forma adjustment as if Elementis had owned Talc for the full twelve months).
For 2018, total revenue of $726.2m is calculated as the sum of i) Personal Care revenue of $209.6m (calculated as reported revenue of $210.3m less $0.7m impact of M&A related to the portfolio elimination following the Delden asset sales); ii) Coatings revenue of $358.2m (calculated as reported revenue of $362.2m less $4.0m impact of M&A related to the portfolio elimination following the Delden asset sales); and iii) Talc revenue of $158.4m (calculated as reported revenue of $21.5m plus $136.9m pro forma adjustment as if Elementis had owned Talc for the full twelve months).
For 2019, total adjusted operating profit of $116.7m is calculated as the sum of i) Personal Care adjusted operating profit of $42.7m; ii) Coatings adjusted operating profit of $48.3m; and iii) Talc adjusted operating profit of $25.7m.
For 2019, total revenue of $665.8m is calculated as the sum of i) Personal Care revenue of $195.0m; ii) Coatings revenue of $320.1m; and iii) Talc revenue of $150.7m.
7 Based on regression analysis from FactSet Europe Limited of the following specialty chemical companies: Ashland, BASF, Croda, Evonik, Lanxess, PPG, RPM, Sherwin Williams, Solvay and Synthomer.
8 Illustrative valuation of Personal Care, Coatings and Talc businesses calculated as average adjusted operating profit for the businesses over the three years to 2019, less corporate costs of $105.2m, multiplied by a 17x or 19x valuation multiple, less pre-IFRS 16 net debt of $453.2m, tax adjusted pension liabilities of $12.9m and lease liabilities of $44.3m (each as at 30 June 2020) and divided by 580.8m shares outstanding as at close of business on 10 November 2020. Converted to GBP at GBP/USD exchange rate of 1.3473.
Average adjusted operating profit of $105.2m calculated as the total adjusted operating profit for the Personal Care, Coatings and Talc businesses for the three years ended 2019 (2017: $115.4m, 2018: $131.7m, 2019: $116.7m) less total corporate costs (2017: $16.4m, 2018: $16.1m, 2019: $15.7m), divided by three.
9 Illustrative valuation of Chromium business calculated as average adjusted operating profit for Chromium over the three years to 2019 of $27.1m (being the average of $30.1m, $33.0m and $18.2m for 2017, 2018 and 2019 respectively) multiplied by a 10x valuation multiple (based on current EV/EBITA 2021 trading range for Imerys and Sisecam) and divided by 580.8m shares. Converted to GBP at GBP/USD exchange rate of 1.3473.
Exchange rates as at 4 December 2020, source: FactSet Europe Limited
Certain figures included in this announcement have been subjected to rounding adjustments.
References throughout this announcement to margin objectives or GDP, GDP+ or GDP++ growth rates are aspirational targets which should not be construed as a profit forecast under the Takeover Code or interpreted as such.
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