Ways to growth, profitability and competitiveness
Affiliate Chemrez Technologies, Inc. (COAT) is the subject of a tender offer by D&L Industries, Inc. (DNL), the listed holding company also organized by the Lao family.
The tender offer started last Thursday, Sept. 4, and will end on Oct. 3, Friday. D&L offered to buy the Chemrez shares at P6.00 a share, slightly above the closing price last Friday of P5.90.
If successful, the cross transaction to effectively transfer full control of the company to DNL will happen on Oct. 6, and settlement or payment of the proceeds will be on Oct. 9. 2014.
In a notice dated Sept. 1, DNL expressed its intent to acquire 850,389,068 shares equivalent to 65.3 percent of the issued and outstanding shares of COAT.
Simply, a tender offer is an offer to purchase part or all of the shares held by shareholders in a corporation. And whether the tender offer is friendly or unfriendly, the price in a tender offer is usually at a premium to the market price.
Section 19 of the Securities Regulation Code requires that when a party intends to acquire at least 35 percent of the issued and outstanding shares of a company, it is mandated to undertake the tender offer.
COAT was the result of the spin-off of the powder coating division of DNL. It was then known as Corro-Coat, Inc. and listed on Dec. 8, 2000.
In 2006, the company decided to expand its manufacturing business and production line. From powder coating, it branched out into the “production of biodiesel and other oleochemicals, resins and other specialty products.”
The expansion was made by way of the 100-percent acquisition of Chemrez Inc., via a share exchange transaction along with the procurement of its biodiesel facility and oleochemical plant assets.
The company retained COAT as its listing symbol but changed its corporate name to Chemrez Technologies Inc. as a branding strategy to its product diversification.
As a result of this move, the company’s operation is now divided into four segments. These are: Powder coating, oleochemicals, resin and color dispersion.
The powder coating division “manufactures powder coatings, which are protective materials applied to metal and other surfaces through an electrostatic coating process to provide resistance against heat, weather and UV light, and chemicals, principally used in home appliances, metal furniture, fixtures and fittings, mechanical parts, tools and equipment, and the construction industries.”
The oleochemical division “produces and distributes biodiesel under the Bioactiv brand name, as well, as glycerine and coconut methyl ester derivatives used primarily as surfactants or foaming agents for soaps and detergents.”
The resin division “offers polystyrene resins for the plastics industry and polymer emulsions for the paint industry, as well as polyester resins for the construction, shipping, and furniture industries” along with “specialty resin-based chemicals, such as additives, colorants and solvents.”
The color dispersion division “produces dispersed color pigments and color master batches used in plastic films and tapes, moldings, wire and cables and high-end fiber applications.”
Compared to the same period of the previous year, the unaudited consolidated report of COAT on its earnings for the second quarter reads as follows: Increase in sales of 42.24 percent, increase of 46.45 percent in operating profit, increase in profit before income tax of 41.35 percent and increase in net profit or income—read it slowly and carefully—of 50.51 percent, equivalent to “P0.08 per basic diluted share” representing a return on equity of 4.9 percent or 40 percent higher than the 3.5 percent realized in the same period last year.
To top it all, the company ended with net cash from operation of P162.92 million compared to P55.28 million a year ago.
As summarized in the tender offer, too, the consolidated six-month performance of COAT is as follows: Sales grew to P2.72 billion, up 29.5 percent with export sales up 38.1 percent due to higher sales of specialty oleochemicals, resulting as well in making export sales equivalent to 21.0 percent of total assets; operating profit rose to P370 million, up 43.4 percent driven by the improvement of margins in most of the business lines with the oleochemicals and color dispersant segments bringing in the bigger bucks. Gross profit also rose by 13.6 percent.
Profit after income tax or net profit grew to P207 million or 45.1 percent more than the level recorded the previous year, improving net profit margin to 7.6 percent.
Bottom line spin
With improved technology and operating processes, COAT is now a leading manufacturer of oleochemicals, resin and specialty chemical products.
DNL thus wants to regain 100 percent control of COAT. DNL considers this its strategy for further growth, profitability and competitiveness, especially with the integration of the member-economies of the Association of Southeast Asian Nations (Asean) starting next year.
The tender offer propelled the market cap of DNL to the $1-billion mark as of the end of last week. To quote news reports, this is happening “two years ahead of schedule,” according to Alvin Lao, DNL’s EVP, CFO, Treasurer and Compliance Officer.
Investors are very edgy about the recent policy of the Bureau of Internal Revenue (BIR) requiring stock brokerage firms to submit the breakdown of dividends received by clients.
The BIR says this is in step with its drive to shore up tax collections but investors consider it a witch hunt.
Now, some investors are said to be thinking about bringing out their money. In fact, some dumped their San Miguel Corp. (SMC) and Semirara Mining and Power Corp. (SCC) shares just before ex-dividend date to avoid being reported and subsequently made to explain their huge holdings.
Thus, while the policy has its own good purpose, it might instead cause funds to flow out of the capital market.
(The writer is a licensed stockbroker of Eagle Equities, Inc.. You may reach the Market Rider at email@example.com , firstname.lastname@example.org or at www.kapitaltek.com
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