Business hates uncertainty. Or does it? Switzerland’s longest-running corporate takeover battle – possibly the world’s longest – is turning on its head the idea that companies need ownership stability to prosper.This content was published on April 18, 2018 - 08:57
The lessons could be relevant in other takeover battles, showing how the underdogs can fight back at times of adversity.
Back in December 2014, the future of Sika, a 104-year-old chemicals group based in canton Zug, was thrown into doubt by an unwanted takeover approach by Saint-Gobain, its much larger French rival.
Rather than make an offer for all the shares, Saint-Gobain proposed simply to buy the controlling stake of Sika’s family owners – comprising just 16% of the share capital but 52% of voting rights. Its dual-share structure is similar to much younger tech companies such as Facebook and Alibaba.
Saint-Gobain’s plan quickly hit a snag, however. An angry Sika board, backed by managers and other shareholders, used a “restriction of voting rights” clause to block the CHF2.75 billion ($2.84 billion) stake sale. The takeover has been tied up in Swiss courts ever since. On Tuesday, the animosities re-erupted at a stormy and emotional Sika annual meeting in a sports hall in the small Swiss town of Baar. Investors such as the Bill and Melinda Gates Foundation, which have accused Saint-Gobain of flouting corporate governance standards, reiterated their opposition.
Urs Burkard, representing Sika’s Burkard family owners, spoke only briefly because “everything has been said before”, but signalled no softening in their determination to sell out. While restrictions on their votes prevented major upsets, the family again blocked the approval of directors’ compensation – leading Paul Hälg, chairman, to accuse them of trying to “starve” the board into submission.
Amid the corporate battling, however, Sika has gone from strength to strength. Initially, staff warned of the damaging effects from the uncertainty. In fact, last year’s sales, at CHF6.2 billion, were 12% higher than in 2014; operating profits were up 42% at CHF633 million. More strikingly, the share price has risen 90% – Saint-Gobain’s stock price is just 16% higher.
Turn the tables?
Global economic growth has boosted demand for Sika’s high-end construction materials (the company was founded in 1910 by Kaspar Winkler, an Austrian who developed concrete waterproofing for the St Gotthard tunnel in the Alps). But company insiders say the threat of a takeover created a greater sense of purpose.
“Before, there were many little fights. But, over the past three-and-a-half years, people have realised what is really important in life,” says one.
“They have all come together against a common enemy,” adds one major shareholder.
Sika’s outperformance has cast the 2014 takeover in a different light. Its high share price means the Burkard family would book a bigger profit (their agreement with Saint-Gobain expires at the end of the year). More interesting is a suggestion that Sika could turn the tables on its putative French suitor. In October 2016, a Zug court ruled that directors were entitled to block the company’s family owners from selling. The outcome of an appeal is expected imminently. A final verdict at the Swiss federal level could take another year.
But a recent report by AlphaValue said Sika could use the time to prepare a counterbid for Saint-Gobain. Félix Brunotte, an analyst, argues that the French group is badly managed and inefficient, and its acquisition by Sika “could deliver significant top-line synergies”. If Sika lost the legal cases, this so-called “Pac Man” defence would be one way of fighting back. But it would also make economic sense if the Swiss group won its court battles, Brunotte reckons.
Is it plausible? The Burkard family would almost certainly oppose such a move. Sika’s corporate culture is conservative. Managers take pride in its decentralised, efficient structure – just 50 people work at its Zug headquarters. Its largest acquisition was the 2005 takeover of Sarnafil, a roofing business, for CHF410 million. Saint-Gobain is a grand French company with sales almost eight times greater.
What is more, a Sika bid for Saint-Gobain would threaten considerable upheaval and uncertainty for both groups. Then again, maybe that wouldn’t matter.
Copyright The Financial Times Limited 2018
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