CLERMONT-FERRAND, France—Michelin said it will see benefits in its polymer portfolio and offerings to the mining industry if its $1.7 billion offer to purchase Fenner P.L.C. is successful.
Michelin offered $8.56 per share on March 19 for all of Fenner, which is a 30.7 percent premium to Hessle, England-based Fenner's share price at the close of business March 16, according to a Michelin release. The planned acquisition is to be implemented by means of a court-sanctioned scheme of arrangement.
The offer is an all-cash acquisition with full committed financing, and has received unanimous recommendation by Fenner's board of directors.
The acquisition is subject to customary closing conditions and regulatory approval, and a Fenner shareholder meeting to be convened in May, according to a Michelin presentation on the proposed deal. The scheme of arrangement document will be posted at the meeting to Fenner shareholders.
A court sanctions hearing validating the scheme and expected closing are anticipated by the end of the second quarter of 2018, according to Michelin.
Fenner provides conveyor belts and reinforced polymer products for the mining and general industrial markets. It operates two divisions: Engineered Conveyor Solutions and Advanced Engineered Products. ECS is a producer of heavy conveyor belts, and AEP is a producer of diversified polymer-engineered products.
It posted revenues of more than $900 million for its most recent fiscal year, with an EBITDA margin of 13 percent.
"Fenner is a very strong company with high values that are very similar to ours, and there is an obvious fit between the two companies," Michelin CEO Jean-Dominique Senard said during a March 20 analyst and investor conference call to discuss the proposed deal.
A central point to the planned acquisition is that Fenner's product line complements Michelin's offerings in the mining industry, he said.
"The acquisition will provide a comprehensive offering to mining customers, which is absolutely key," Senard said. "We understand that by combining Michelin's mining tire and Fenner's conveyor belt product and services, we will be better positioned vis-a-vis our major customers in the world."
Michelin said the planned acquisition will allow the group to provide mining industry customers with products ranging from tires to conveyor belts along with related services and solutions, and also enhance both companies' geographic reach.
The overlap in mining customers provides opportunities for efficiency and growth, said Marc Henry, Michelin chief financial officer.
"Our customers are the same. We do sell our products to the same companies. We know them very well, (Fenner) knows them very well," he said. "What is interesting is that we both have a product offering and a service offering, and all those offerings will combine very nicely. On some geographies, they might be better exposed, in some of those, we might be better exposed."
The companies have some overlap in footprint, but the gaps can offer significant potential, he said.
"For example, we are very strong in South America," Henry said. "Fenner is not so strong in South America, so we definitely see a large opportunity there."
The addition of Fenner's polymer portfolio also helps Michelin with offerings in high-tech materials, breaking into the reinforced rubber polymer markets, notably in consumer goods, industrial services and medical segments, according to the release.
"The deal will also help to expand our engineered material divisions with a very complementary polymer portfolio," Senard said. "Michelin is a strong player in that field, and Fenner is obviously one also. It will help us create a platform to further expand on polymer activities."
Michelin will benefit from new materials expertise with high-tech non-rubber polymers, thermoplastic elastomers and complex textile reinforcements, according to the presentation. It will leverage its expertise into polymer research and compound design; performance understanding, modeling and testing; product performance enhancement through raw material expertise; and metal 3D printing and innovation in manufacturing.
Another point where Fenner overlapped with Michelin was a focus on services in its ECS portfolio, Henry said. Of Fenner's returns for fiscal year ended Aug. 31, 2017, services made up 22 percent of the whole, compared to 78 percent in products.
"This is very important, because it matches very well with the Michelin strategy to increase its position into the servicing part of the tire industry in general," he said.
Within the AEP division, Fenner saw net sales growth of 24 percent in Advanced Sealing Technologies, 18 in Precision Polymers and 4 percent in Solesis Medical for fiscal year 2017 compared to fiscal year 2016.
Fenner has picked up positive financial momentum in the past two years, with efficiency plans and gains achieved during a low point in the mining industry, Henry said.
"There were also multiple expansions with diversified industrials and health care markets, and as you know, many trading guidance upgrades in the last two years," Henry said. "This is paving the way for an ambitious strategy in the coming years."
After analysis and discussions with Fenner, Michelin identified opportunities to achieve material cost savings—of which $42.1 million are immediate annual synergies—unlock processing efficiencies and leverage research and development skills, Michelin said.
Those synergies are expected to reach full effect within two years, with limited implementation cost, Michelin said. Those include efficiencies in procurement, with Fenner benefiting from Michelin's purchasing expertise, industrial processing, cross-fertilization between Fenner and Michelin on processes, leverage in customer service organization, and Fenner's access to Latin America and Asia.
The planned acquisition is a logical development of Michelin's strategy, driving growth in development of high-technology materials, Senard said.
"At the same time, we increase significantly our presence in the mining center, which is one of our major legs in our global strategy," he said.
The activities of both companies are "complementary, and we don't expect any significant or even small restructuring charges if the deal is completed," Senard said. "When it comes to the assets, today, we are more than happy with the assets that Fenner is growing as we speak."
Fenner's revenue by region for its 2017 fiscal year included 47 percent in the Americas, 21 percent in Europe, the Middle East and Africa, and 32 percent in Asia-Pacific. By division, its ECS division accounted for about 55 percent of Fenner's overall revenues, with 36 percent of its business in the Americas, 21 percent in EMEA and 43 percent in Asia-Pacific. The AEP division, likewise, made up 45 percent of sales, with 61 percent of the unit's revenues from the Americas, 21 percent in EMEA and 18 percent in Asia-Pacific.
Between ECS and AEP, Fenner has 37 facilities globally, with 4,330 employees as of August 2017, according to the presentation.