Allied Colloids 

HERCULES BID FOR ALLIED COLLOIDS REBUFFED
Agence France Presse Intl. (AFM) ; 23-Nov-1997 11:00:00 pm ; 289 words 

US group Hercules Inc. made a 1.068 billion pound (1.8 billion dollar) offer Monday for AlliedColloids Group PLC, but the bid was rejected by the British chemicals maker. 

In a statement, Hercules said it had failed in talks over the weekend with Allied Colloids to strike a price - thus prompting the unsolicited takeover bid. The offer price valued the target at 155 pence per share, a premium of 35 percent on the closing price on November 18 and up 53 percent from October 31. 

Hercules already holds 500,000 shares in Allied Colloids, or 0.07 percent of all shares. 

"This merger will create a world class company, if not the best specialty chemicals company in the world," Hercules chairman Keith Elliott told reporters in London. 

But AlliedColloids said "the offer fundamentally undervalues Allied Colloids' long-term record, the achievements of the group's management team and the company's excellent growth prospects." 

Financial analysts were inclined to agree. 

"The deal especially at this price is unlikely to win approval from NatWest and Schroders, the company's two major shareholders," one sales trader said. "It's just not enough." 

AlliedColloids is a specialist in soluble polymers. Its biggest customers are in the mining, paper-making and waste-water treatment industries. 

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FINANCE: ALLIED COLLOIDS VOWS TO FIGHT HOSTILE US BID
99% match; The Guardian - United Kingdom ; 24-Nov-1997 11:00:00 pm ; 457 words 

SPECIALITY chemicals firm Allied Colloids yesterday urged its shareholders to turn down an unwelcome pounds 1 billion bid from its US rival, Hercules, saying it 'fundamentally undervalued' the company. 

The surprise 155p-a-share US bid - 23 per cent ahead of Allied's Friday closing price - came only days after talks between AlliedColloids and another suitor broke down. Hercules said that the timing of the bid was a coincidence and that it had been working on its proposal for several months. Bradford-based AlliedColloids is a major exporter and has been hit this year by the strength of the pound. It produces pollution-control chemicals which help traditionally 'dirty' industries meet higher environmental standards. These include water-soluble polymers used by water and sewerage companies. 

The firm also makes chemicals used to enable paper-making machines to run faster. It employs 3,400 workers worldwide, including 1,900 in the UK, mainly in Bradford. 

Shares in Allied raced ahead of the Hercules offer price as details of the bid were announced. City analysts decided the price was not high enough and may flush out other bidders. 

Only last week some analysts had suggested the company was worth 160p-180p per share - or up to pounds 1.25 billion - in the event of a bid. Last night they closed up 41.5p at 167.5p. 

AlliedColloids is viewed as an attractive niche operator in a high-margin business. Multinational giants such as Dow Chemical, BASF, Elf Atochem and Ciba have all been tipped as potential bidders. 

Chief executive David Farrar said he had received an approach from Hercules on Sunday and was asked to name his price. He refused to co-operate and yesterday vowed to fight the bid. 

'This is a sound business in a high-growth market,' he said. 'We are not up for sale and we are not looking for bids.' 

Hercules is a Delaware-based multinational, with half of its business based in the US. It is valued at nearly pounds 3 billion on the New York stock exchange and, like Allied Colloids, its core businesses include water-soluble polymers and paper technology. 

It employs 6,300 people, half of them in the US. Its only UK plant is a small paper-technology factory at Pendlebury, near Manchester. 

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London Stock Exchange: Colloids battle brewing
98% match; Financial Times ; 24-Nov-1997 11:00:00 pm ; 276 words 

The on-off bid story surrounding Allied Colloids was back on with a vengeance yesterday. 

Having announced at the end of last week that friendly talks were off, the speciality chemicals company said yesterday that a new and more aggressive predator had emerged. Hercules, a Dollars 4.5bn US company, launched a 155p-a-share bid which valued the UK group at Pounds 1.07bn. Allied rejected the offer, arguing it 'fundamentally undervalued' its long-term record, management performance and growth prospects. 

There had been speculation on Friday that a US group was sizing up Allied. The rumours had focused on Rohm & Haas of the US, which said yesterday it had made no approach to Allied and had no involvement with the company. 

Allied shares closed up 41 1/2 at 167 1/2p yesterday, well above the offer price. Turnover of 15m shares suggested Hercules had been buying in the market. Dealers remained convinced that either Hercules' formal offer, expected over the next few days, would be more generous or a rival bidder would emerge. 

Sutherlands said: 'If shareholders apply a US speciality chemical rating of 20 times to prospective earnings, a cash flow multiple of 15 times and a market capitalisation to sales ratio of three times, a generous valuation suggests just under 200p.' 

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Lex Column: Allied Colloids
99% match; Financial Times ; 24-Nov-1997 11:00:00 pm ; 335 words 

AlliedColloids 

With an opening shot for Allied Colloids 53 per cent above the pre- speculation price, Hercules is certainly flexing its muscles. But is it all brawn and no brain? Admittedly the offer does look rapidly earnings- enhancing for Hercules. Much less clear, however, is whether it would create value for shareholders. Including debt of Pounds 120m and advisers' fees of around Pounds 15m, the acquisition will cost at least Pounds 1.2bn in all. With Allied expected to have post-tax 1998 earnings of Pounds 61m, the deal would earn Hercules a measly 5 per cent return on investment in its first year. Set against a sector cost of capital of between 10 per cent and 12 per cent, this will not set pulses racing unless huge savings can be found. This is doubtful. Although they do sell to the same customers, there is no real product overlap between the two companies. At most Hercules may scrimp Pounds 10m annually from central costs and sales and marketing. But this alone does not make the deal stack up. 

This will almost certainly not be a knock-out bid, not least because Allied sees a bright future as an independent company. And other bidders, such as cash-rich US firms like Rohm & Haas or Dow Chemical, may join the fray - hence Allied's shares are trading some 11p above the 155p offer. The other potential bidders would have greater fire-power than Hercules if it came to a bidding war. And, because of their larger overlaps, they could pay significantly more and not destroy shareholder value. Additional Lex on Banca di Roma, Page 34 

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S&P PLACES HERCULES' RATINGS ON WATCH, NEGATIVE AFTER BID ANNOUNCEMENT
100% match; PR Newswire - USA ; 25-Nov-1997 11:00:00 pm ; 322 words 

NEW YORK, Standard & Poor's today placed its ratings on Hercules Inc. on CreditWatch with negative implications. This action effects Hercules' single- 'A' senior unsecured debt and corporate credit ratings, its single-'A'-minus subordinated debt rating, and its 'A-1' commercial paper rating. 

The CreditWatch action follows the announcement of a UK1.1 billion (US$1.8 billion) unsolicited cash offer by Hercules for AlliedColloids Group P.L.C., a U.K.-based specialty chemicals group. The total cost of this transaction, including debt of Allied Colloids, would exceed US$2 billion. If the acquisition is successful, it is expected that Allied Colloids' products would complement Hercules' above-average specialty chemicals portfolio, including its paper technology, water soluble polymers, and resins businesses, and would also provide a new water management chemicals platform. 

However, on a pro forma basis, assuming this proposed transaction is fully financed with debt, Standard & Poor's estimates funds from operations to adjusted total debt would decline to around 20% from the mid-40% area currently. In addition, adjusted debt leverage would rise to near 75% from around 50% currently. 

In addition, management of Allied Colloids has apparently rejected the offer made by Hercules. If a competitive bidding situation should emerge, then the pro forma financial profile of Hercules could potentially deteriorate further. 

If this acquisition is unsuccessful, ratings on Hercules would most likely be affirmed, with a negative ratings outlook. 

Standard & Poor's will meet with management to review the acquisition and the company's business and financial strategies. -- CreditWire. 

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BUSINESS: ALLIED COLLOIDS BIDS TO REPEL US OFFER
99% match; The Independent - United Kingdom ; 10-Dec-1997 11:00:00 pm ; 340 words 

AlliedColloids, the chemicals group, yesterday pledged to cut costs dramatically and raise operating margins in its bid to repel a pounds 1.1bn hostile takeover approach from Hercules, a US rival. 

In its defence document Allied predicted that it could wipe pounds 5m off its raw material bill next year. The group also plans to cut costs by revamping its manufacturing facilities and introducing new technology and IT systems. However, this is likely to lead to job cuts among Allied's 3,900 strong work force, including some of the 1,900 people it employs in Bradford. Allied insisted that the 155p-a-share offer drastically undervalued the group given its consistent improvement in sales and an increase in margins in the last six months. John Harnett, AlliedColloids' finance director, said: 'We have repositioned ourselves for the battle to come. It is a poke in the eye to Hercules, we just haven't knocked them out yet.' 

Hercules slammed Allied's defence, claiming it had made flattering comparisons and pointing out that operating profits fell 17 per cent in the last six months compared with the first half of the financial year. 

Keith Elliott, chairman and chief executive of Hercules, said: 'The Allied Colloids document is uninspiring. Our cash offer continues to look very generous for a stock that has destroyed shareholder value and has consistently underperformed the FTSE All Share and FTSE Chemicals Indices.' 

Allied refused to comment on whether the group was looking for another bidder to act as a white knight. But sources suggest several rivals have already registered an interest in Allied. 

Allied's shares were unmoved at 167p. 

. Source: World Reporter (Trade Mark) - FT McCarthy. 

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1998

BUSINESS: HERCULES STEPS UP ATTACK
100% match; The Independent - United Kingdom ; 14-Jan-1998 11:00:00 pm ; 132 words 

Hercules yesterday stepped up its attack on AlliedColloids after its hostile pounds 1.1bn bid for the UK speciality chemicals business was cleared to proceed by the Government. Allied Colloids has until Friday to release its final defence document but could do so as early as today. Hercules has launched a personal assault on David Farrar, Allied Colloids' chief executive, and his record in charge of the group. 

. Source: World Reporter (Trade Mark) - FT McCarthy. 

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Front page - first section: Ciba may fight Hercules for control of Allied Colloids
98% match; Financial Times ; 19-Jan-1998 11:00:00 pm ; 485 words 

The battle for Allied Colloids, the UK group that makes chemicals for pollution control and paper-making, turned into an extraordinary Pounds 1.35bn auction yesterday. Hercules of the US had to raise its bid twice in seven hours after Ciba Speciality Chemicals of Switzerland revealed it was considering a 'white knight' recommended bid. 

Hercules lifted its offer from Pounds 1.1bn to Pounds 1.21bn yesterday morning, only for Ciba to announce 12 minutes later that it was discussing a possible Pounds 1.26bn bid with Allied. Yesterday afternoon, Hercules raised the stakes again to Pounds 1.35bn. Ciba, said it was considering increasing its possible offer. It will examine Hercules' share price today to gauge shareholder reaction before deciding whether to raise the terms further. 

The New York market was closed yesterday, but Allied Colloids' shares shot up 28p to 196 1/2p-anew high for the company and a fraction above the 195p per share riposte tabled by Hercules yesterday afternoon. 

Hercules' new price compares to its original offer of 155p, which it initially raised to 175p yesterday. Ciba's offer plan centres around a cash offer of 182.725p, including interim and final dividends worth 3.65. 

Although Ciba made no firm offer, it signalled its seriousness by instructing advisers at Credit Suisse First Boston to spend nearly Pounds 57m buying 4.57 per cent of Allied Colloids' shares at up to 182p per share. 

Hercules, advised by Deutsche Morgan Grenfell and Cazenove, bought a similar stake. It is not believed to have sought a recommendation from Allied's directors. 

The 26 per cent rise in Hercules' offer surprised many analysts. Hercules dismissed Allied's last defence document as 'uninspiring' and said some of the cost savings identified by the bid target would be lost to price competition. 

Ciba approached Allied on Friday and analysts were divided over whether it would return with a higher offer. 

Ciba, whose shares have risen strongly since it was spun off from Novartis last March, has ample scope for acquisitions, with a market capitalisation of SFr12.4bn (Pounds 5.1bn), and net debt of SFr1bn. Its shares closed SFr3.75 higher at SFr172.50 yesterday. 

Analysts predicted that Hercules would fight hard to win AlliedColloids, having failed to pull off two bids last year. They saw slightly less overlap between Allied and Ciba, whose UK operations include pigments businesses, but said competition authorities may still examine any Ciba bid. Lex, Page 20 

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FINANCE: FRANTIC BIDDING FOR ALLIED COLLOIDS: MIKE YUILLE REPORTS ON RIVALS' ESCALATING CHEMICALS WARFARE
98% match; The Guardian - United Kingdom ; 19-Jan-1998 11:00:00 pm ; 421 words 

THERE was drama in the race for chemicals group Allied Colloids yesterday after the Swiss company Ciba Speciality Chemicals tried to pre-empt a hostile bid from Hercules, of the US. 

Hercules started the day by raising its old offer by pounds 138 million to pounds 1.2 billion - after cool shareholder response. But the higher bid was immediately trumped when Allied Colloids, of Bradford, revealed that it was in secret talks about a friendly takeover with Ciba, which was planning to bid pounds 1.26 billion. 

Then, in a surprise mid-afternoon intervention, Hercules slapped more money on the table, raising its earlier hostile bid to pounds 1.35 billion. 

R Keith Elliott, Hercules' chairman and chief executive, said that the offer was 'more than generous, and we are confident that shareholders will see it as such'. 

An Allied spokesman said that the latest bid 'clearly showed its previous offers undervalued the business'. 

Hercules' original bid in November valued Allied shares at 155p, whereas its latest final offer last night values the company's shares at 195p. Allied's share price rose 28p on the day to 192 1/2 p. 

Ciba said that its plans guaranteed a 'senior role' for Allied chief executive David Farrer, the former laboratory technician who now stands to make about pounds 600,000 on shares and options. 

Ciba later announced it had taken a 4.57 per cent stake, costing some pounds 47 million. 

Hercules already commands 1 per cent of its British target company's shares, including some acceptances. 

Hercules' battle for Allied has become increasingly bitter since it launched its assault in November with an attack on Allied's investment record and management. 

Allied spent pounds 233 million in 1997 to acquire the CPS Chemical Company in the US, which is of interest to Hercules. 

Ciba, a pounds 5 billion Swiss-based corporation spun out of pharmaceuticals corporation Novartis last year, is interested in Allied's speciality pollution and water treatment businesses. 

Ciba, which is closer to Allied's markets and already employs 2,000 people in UK businesses, may be able to extract higher cost-savings. 

. Source: World Reporter (Trade Mark) - FT McCarthy. 

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Front page - Companies & markets: Ciba outbids Hercules in battle to take over Allied Colloids
96% match; Financial Times ; 21-Jan-1998 11:00:00 pm ; 580 words Ciba Speciality Chemicals of Switzerland yesterday outbid Hercules of the US in the auction for Allied Colloids, forcing its rival to withdraw and putting a price of Pounds 1.42bn on the Bradford-based producer of water-treatment chemicals. 

Ciba's shares fell by SFr7 to SFr162 (Pounds 67.20) as some analysts questioned whether it had overpaid. Rolf Meyer, Ciba's chairman, said the deal would dilute the group's profits in 1998, but would boost earnings from 1999. Ciba's recommended 205p per share cash bid, made just four days after it opened talks with Allied, is twice Allied's share price in October. It compares with a hostile bid from Hercules which went up from 155p to 175p and then 195p on Monday. 

Keith Elliott, Hercules' chairman, pulled out yesterday, saying any offer above 205p 'would be at a level where the risk of delivering meaningful value to Hercules' shareholders from the purchase of Allied Colloids becomes intolerable'. He returned to the US after calling to congratulate Allied and Ciba. 

Shares in Hercules rallied from Dollars 46 3/16 to Dollars 47 3/8 while Allied's rose 1 1/2p to 201p as Ciba bought heavily to increase its 4.5 per cent stake to more than 17.5 per cent. 

Mr Meyer, for whom this is the first sizeable acquisition since Ciba's spin-off from Novartis last March, said the group analysed the entire Dollars 100bn (Pounds 61bn) speciality chemicals market before settling on Allied. 

He said Allied offered high-growth potential, a reputation for innovation and technological leadership, and better profit margins than Ciba's current average. Allied's projected 19 per cent margins in 1998 compare to about 10 per cent at Ciba. 

Mr Meyer added: 'This makes sense strategically and financially. It will take a moment for the market to fully assess the attractions and prospects of this business.' 

Analysts said Allied had attracted bid interest because of its strong market share in a niche industry. Four-fifths of its business is in water treatment additives, which have benefited from increasingly stringent environmental requirements. 

David Farrar, Allied's chief executive, will join Ciba's executive committee, and become president of its new sixth division, which will be based in Bradford. 

He said the talks with Ciba had been 'like meeting kindred spirits', and he foresaw benefits from using Ciba's 117-country distribution network for Allied's products. 

Ciba has said it will not close or sell any of Allied's businesses, and is expected to stick largely within the cost-saving plans already outlined in Allied's final defence document last Friday, which are expected to benefit profits by Pounds 11.5m in 1998-99. 

Simon Marshall-Lockyer, of NatWest Markets in Zurich, said Ciba was paying 'top dollar' for Allied Colloids, but predicted that water treatment could eventually turn out to be Ciba's fastest growing division. 

Analysts estimated that Ciba's gearing would rise from 18 per cent to about 80 per cent. 

Ciba was advised by Credit Suisse First Boston, Allied by Schroders, and Hercules by Deutsche Morgan Grenfell. Lex, Page 28 

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BUSINESS: HERCULES KNOCKED OUT BY POUNDS 1.4BN BID FOR ALLIED COLLOIDS
97% match; The Independent - United Kingdom ; 21-Jan-1998 11:00:00 pm ; 649 words 

The battle for Allied Colloids, the speciality chemicals business, came to an exciting climax yesterday when Ciba, the Swiss giant, weighed in with a pounds 1.4bn knock-out bid to thwart Hercules, its US rival. Andrew Yates reports on a deal that should safeguard 1,850 jobs at the UK group's Bradford headquarters. 

David Farrar, the chief executive of Allied Colloids, said: 'I believe we have saved the jobs in Bradford and the jobs of the 3,400 people who work for us around the world. Ciba have said they want to grow our business and a reduction in the workforce is not a factor.' Allied had feared large job losses if it succumbed to an unsolicited bid from Hercules. Mr Farrar will keep his position as head of Allied's businesses, which will become a separate division of Ciba. The Swiss group also hinted it would retain John Harnett, Allied's finance director. However, the rest of Allied's board could be casualties of the deal. Mr Farrar stands to make pounds 271,000 from his share options and will receive another pounds 144,000 for selling his stake in the group. 

Ciba has won the battle to take over Allied's pioneering technology which separates particles from liquids and is used in water treatment and the paper and textile industries. 

The group rejected analysts claims that it had overpaid for Allied and had little in common with its UK rival. 

Rolf Meyer, chairman of Ciba, said: 'This deal will enhance shareholder value by the end of 1999. This is a complementary business and will provide a platform for growth.' 

This is Ciba's first big purchase since demerging from Novartis, the Swiss drugs giant, last spring, and will account for 14 per cent of the group's business. Mr Meyer predicted that it would not be the group's last deal as the Dollars 100bn (pounds 61.3bn) a year speciality chemicals business continues to consolidate. 

The agreed offer marks the end of an increasingly bitter bid battle which burst into life over the last few days. Allied approached Ciba in an effort to find a white knight soon after Hercules had made a 155p a share, pounds 1.1bn, bid for the group at the end of November. Ciba only initiated detailed talks last weekend after Allied published its final defence document. Then on Monday the drama escalated after Hercules upped its offer to pounds 1.2bn. Ciba indicated it could come in with a higher bid, only for Hercules to increase its bid for the second time that day to pounds 1.34bn or 195p a share. 

Yesterday Ciba showed it had deeper pockets than Hercules when it unveiled a 205p a share bid. The US group promptly withdrew its offer. Ciba, which already owns 4.6 per cent of Allied, was building up its stake in Allied yesterday. 

Analysts were predicting that Hercules would now consider other targets and could still be eyeing up UK chemicals groups. 'Hercules has been thwarted more times now than it would care to remember and it wants to do a deal.' 

Mr Farrar admitted he had mixed emotions: 'I have been with this company for 17 years . . . and I am tinged by sadness. However, I have been delighted by the outcome which is tremendous result for shareholders and AlliedColloids.' Allied's shares rose 1.5p to 201p. 

. Source: World Reporter (Trade Mark) - FT McCarthy. 

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Lex Column: Cost of capital
97% match; Financial Times ; 21-Jan-1998 11:00:00 pm ; 322 words

Cost of capital  :  Switzerland's Ciba Speciality Chemicals has a low cost of capital so it is able to pay a price for Britain's Allied Colloids other bidders would find ruinous. Right? Well, not quite. To see why, consider that Ciba has a low cost of capital because it is based in a country with low inflation and interest rates. Ten-year Swiss government bonds yield 3 per cent while UK gilts yield 6 per cent. Add in a risk premium of, say, 4 per cent and it is true that a typical Swiss investment should earn a 7 per cent return. But 7 per cent is not the right figure a Swiss company should apply to investments in the UK. In making a cross-border investment, it runs the risk that sterling will fall. Indeed, the UK has higher long-term interest rates precisely because the market's best guess is that sterling will depreciate against the Swiss franc. 

Look at the matter from another angle. Anybody wishing to buy Allied Colloids could finance the acquisition by borrowing in Swiss francs or in even cheaper yen. But would the cost of capital have fallen? Far from it. Unhedged foreign borrowing can have calamitous consequences as many east Asian companies are now discovering. In short, in determining the appropriate return for a particular investment or acquisition, companies should choose a figure appropriate to where they are investing not where they are borrowing. As a result, no bidders have an advantage simply because of where they are based. 

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22nd January - Huge offer wins the day for Europe