D&L, Chemrez union looms


Food and plastic input manufacturer D&L Industries seeks to consolidate with affiliate Chemrez Technologies by making a public tender offer to acquire all Chemrez shares it does not own yet at P6 per share.

The offer price represents a 24-percent premium over the 60-day average price of Chemrez Technologies shares as of end-August for a total valuation of P7.81 billion.

As D&L currently owns 34.7 percent of Chemrez, this transaction is seen costing the former P5.1 billion, assuming all other shareholders accept the tender offer.

The plan is to consolidate Chemrez into D&L by the fourth quarter of this year.

“After a careful assessment of how to maximize shareholder value, we believe this acquisition is the best move forward for D&L Industries, Chemrez Technologies and their respective shareholders. Apparently the reason why most acquisitions fail is it is very difficult to ensure the two companies don’t have a culture clash that jettisons the deal. In this case, no such issue as both companies are managed by the same people and governed by shared values,” D&L executive vice president and chief finance officer Alvin Lao said in a press statement.

Lao, who is also Chemrez’s treasurer and chief finance officer, added: “Chemrez’s size in terms of revenues and market cap is not large enough to attract sufficient attention from investors, which resulted in lackluster trading. This stock market mispricing of Chemrez presents an opportunity on which we can further our billion dollar market cap aspiration. Owning 100 percent of Chemrez broadens our portfolio, strengthens our capabilities, including cash generation, and bolsters growth as the specialty chemicals business continues to improve.”

Forbes Magazine ranks the Lao family, which controls both D&L and Chemrez, 26th among the Philippines’ 50 richest with an estimated net worth of $625 million.

The acquisition is expected to be financed with the remaining P2 billion in cash from proceeds of D&L Industries’ initial public offering in December 2012 and the rest with debt or equity.

Chemrez may consider delisting from the Philippine Stock Exchange if it no longer complies with the minimum public float after the tender offer, D&L said.

From a traditionally resin and powder coating-based company, Chemrez has transformed its portfolio through innovations based on “green” chemistry principles. Through its various lines of specialty products, it supplies environment-friendly and biodegradable products made from renewable and sustainable raw materials.

D&L said building on the same set of research and development (R&D) and innovation-driven values and with the increasing success of Chemrez’s specialty chemicals businesses, both the existing and emerging, it aimed to maximize its participation and profit in these fast-growing markets through full ownership.

The consolidation of Chemrez beginning the fourth quarter of 2014 is expected to be accretive to earnings in the same period. Full year consolidation will begin in 2015.

Critical to D&L Industries’ overall growth strategy are its efforts to continue expanding into the high-growth, high-value markets, which are largely enabled by R&D. With 20 percent of its staff dedicated in R&D activities, Chemrez Technologies has discovered new markets for established products like specialty oleochemicals.

Combined with Chemrez, D&L Industries will have 12 percent of the workforce—food technologists, chemists, and engineers—in R&D.

In 2013, Chemrez grew revenues and net income by 12 percent and 26 percent, respectively. As of the first six months of 2014, revenues were higher by 29 percent year-on-year at P2.72 billion while net income was up by 45 percent to P207 million.