The Philippine Stock Exchange suspended Friday the trading of shares of Chemrez Technologies Inc., following the completion of a tender offer made by food and plastic input manufacturer D&L Industries, which made the former a 99-percent owned subsidiary.
This developed as D&L acquired an additional 65.3-percent stake in the company through a tender offer at P6 a share.
The PSE thus suspended trading of Chemrez shares starting Friday, without saying when trading would resume.
Given that Chemrez’ public ownership has gone below the 10 percent minimum level required by the PSE for continuing listing, D&L has indicated that it would most likely cause the voluntary delisting of Chemrez.
Based on the P6 tender paid in cash for every share tendered by minority investors, this exercise cost D&L around P5.078 billion, which will be financed mainly through short-term borrowings.
“Pre-acquisition, we were [in] net cash [position]. Further, short-term borrowing costs are currently very low—much lower than the overnight or SDA (special deposit account) rates —and there are no indications of interest rates going up anytime soon. Hence, there does not seem to be any urgency to refinance and it is possible to just live with debt as short-term,” D&L executive vice president and chief finance officer Alvin Lao said in a statement.
As of end-June, D&L had a net cash position of P1.45 billion.
The consolidation of Chemrez into D&L is intended to maximize shareholder value.
Both companies have similar controlling shareholders, managed by the same people and governed by shared values.
The controlling shareholder, the Lao family, believes that Chemrez’ size in terms of revenues and market capitalization is not large enough to attract sufficient attention from investors, resulting in the “mispricing” of shares.
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.
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.