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Wattyl Formally Rejects AEP Bid

Published on 2006-01-24. Author : SpecialChem

Wattyl Limited's Directors formally recommend rejection of the AEP Financial Investments Pty Ltd unsolicited bid for the company. Detailed reasons for the recommendation are included in Wattyl's Target's Statement which will be mailed to shareholders.

The directors' three key reasons for recommending rejection of AEP's bid are:

  • Forecast earnings improvement

    The detailed review and restructuring of Wattyl's operations which began in May 2005 is expected to lead to annual cost savings of $22 million which underpins the forecast increase in Wattyl's FY2007 earnings before interest and tax (EBIT) to $36.6 million, nearly double FY2005's underlying EBIT (EBIT from continuing business excluding non-recurring items).


  • Inadequate offer price

    AEP's bid has been opportunistically timed before the results of Wattyl's restructuring become apparent and to take advantage of a cyclical low in Australian residential building activity.


  • Fully franked special dividend

    Shareholders will receive a fully franked special dividend of 40 cents per share if the AEP bid is unsuccessful, in addition to ordinary dividends of 80-100 per cent of after-tax earnings.

Wattyl shareholders should be aware that a decision to accept the opportunistic and inadequate AEP offer could result in you foregoing the benefits of:

  • Wattyl's forecast earnings turnaround;
  • anticipated strengthening in Australian building activity; and
  • a fully franked special dividend of 40 cents per Wattyl share if the AEP offer closes unsuccessfully.

In his introduction to the Target's Statement, Mr John Ingram, Wattyl chairman, writes: 'With the restructuring programme on track to be finalised by June 2006 and under the energetic leadership of Dr Nolan and his team, the Board is confident of a bright future for your Company with substantially improved performance.'

The Target's Statement includes extensive details of the company's restructuring programme and the consequent cost savings. Annualised cost savings that have been identified and are expected to benefit the FY2007 result have been estimated at $22 million.

In addition, the Target's Statement says, 'management is committed to continuing to find ways to improve the productivity of the Wattyl business.' Work is already being undertaken on a number of additional initiatives, but no benefits from these have been included in the company's FY2007 forecast.

Wattyl's forecasts and the methodology and assumptions on which they are based have been reviewed by PricewaterhouseCoopers as investigating accountant.

Wattyl's directors confirm that the company intends to continue its current dividend policy of returning 80-100 per cent of after-tax earnings to shareholders as ordinary dividends, in addition to the 40 cent fully franked special dividend which will be paid if AEP's bid is unsuccessful. These dividends will be underpinned by expected future cash flows as well as a group legal structure, which will increase the parent company's retained earnings to in excess of $75 million by June 2006.

The Target's Statement confirms that the directors are also exploring alternatives to the AEP bid to maximise value for Wattyl's shareholders, and several parties have expressed interest in the company.

Wattyl Shareholders need to decide whether Wattyl Shareholders or AEP will benefit from Wattyl’s forecast earnings improvement.

To reject the AEP offer, shareholders need to do nothing, simply ignore all documents sent by AEP.

Source: Wattyl Limited


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