9th Nov 2005 15:29
Compagnie de Saint-Gobain09 November 2005 Not for release, publication or distribution, in whole or in part, in, into orfrom Australia, Canada or Japan 9 November 2005 Compagnie de Saint-Gobain ("Saint-Gobain") Cash Offer for BPB plc ("BPB") Clearance from European Commission BPB is exaggerating its prospects Saint-Gobain's Offer represents full and fair value Saint-Gobain is pleased to note that the European Commission has cleared itsproposed acquisition of BPB. As a result, the Offer timetable has restarted.Day 39 of the Offer timetable, which is the last day on which BPB can announcematerial new information, will be Friday 11 November 2005. Except with theconsent of the Panel, the last date on which the Offer can become or be declaredunconditional as to acceptances will be Friday 2 December 2005. Saint-Gobain will today post a document to BPB Shareholders that rejects BPB'sexaggerated claims that Saint-Gobain's offer is inadequate. The document setsout why Saint-Gobain continues to believe its Offer represents full and fairvalue for BPB. The following is the text of the letter from the Chairman and Chief Executive ofSaint-Gobain, which is set out in the document: "Dear Shareholder, As you will be aware, Saint-Gobain has made an offer to acquire BPB for 720p pershare in cash. We believe this offer represents full and fair value and allowsyou to realise a substantial premium for your shares now. We have sought, on a number of occasions, to discuss our offer with BPB.Unfortunately, BPB has refused to negotiate with us and has instead chosen toargue the merits of our offer in public. Over the last two months, BPB has madea number of exaggerated claims to substantiate its argument that our offer isinadequate. In doing so, BPB has used questionable data to support its argumentsand we believe has committed the company to a strategy that puts the company'sgrowth prospects at real risk. Now that the bid timetable has restarted, we feel it is appropriate to write toyou to set out why we believe BPB's defence claims are exaggerated and in somecases are simply without substance. Claim 1: 720p "massively" undervalues BPB To claim our offer "massively" undervalues BPB is patently not true. Our offerrepresents a very substantial premium of 40.5 per cent. to the BPB share pricebefore we made our approach. It also offers a premium valuation when compared torecent transactions in the sector. BPB has stated that we should be offering a superior multiple to the price paidby Holcim for Aggregate Industries. We are. Whether looked at from a priceearnings multiple, or using the industry's preferred benchmark of enterprisevalue multiples, our offer is superior. Claim 2: BPB should be rated at a premium to its European peers BPB is trying to argue that it deserves a re-rating and that this re-rating bythe market will enable it to trade, in the absence of our offer, at a highershare price than before we made our approach. The question is - what haschanged? Why should BPB suddenly be trading on higher multiples when it hastraded in line with its European peers for ten years? BPB does not help its caseby trying to align itself with an international, rather than European, peergroup in an attempt to be rated as a US stock. The fact is, BPB is fundamentally a European business and there is nothing tosuggest it should trade other than in line with its European peers. On thisbasis, BPB's trading range would be around 565p, which is still well above thelevel it traded at before our approach. Claim 3: Financial engineering creates value BPB has also tried to claim it can create value by returning cash toshareholders and hiking the dividends by 88 per cent. But the facts do notsupport this. Empirical evidence from recent share buybacks shows that financialengineering simply does not create value. Claim 4: Financial engineering will not affect BPB's ability to grow BPB's ambitious growth "targets" will not only require that all of its planswork out successfully, it will also require very substantial capital investment.Can BPB really claim that its financial engineering defence will not impact itsability to grow? Following BPB's proposed cash return to shareholders, it willbe the most heavily indebted company in its sector, with gearing of over 300 percent. We believe that BPB's ability to grow must be affected by such heavyborrowing. With BPB facing heavy capital investment to achieve its growth "targets", is nowreally the time to be mortgaging the future of the company in an effort topersuade you to decline our offer? Claim 5: BPB can achieve double-digit growth BPB has stated that it is "targeting" double-digit earnings per share growth,but has not made this "target" a formal profit forecast. There are considerablerisks that this "target" will be missed, not least due to the cyclical nature ofthe business. BPB's strong growth in recent years has been driven by acquisitions and byfavourable market conditions in the US. But this will not drive future growth -even BPB has admitted that the US will not grow at the same rate as in the lastfew years. BPB's future growth is therefore significantly reliant on emerging markets inEurope and Asia. However, achieving emerging market growth is more challengingthan in developed countries. Our experience shows that emerging market growthrequires proportionately more capital investment to achieve incremental sales.And this will be exacerbated by the fact that BPB's emerging market business issmall and is starting from a weak position compared with its competitors, whichwill place pressure on margins. This document addresses each of BPB's claims in detail and sets out ourarguments as to why we are convinced BPB has exaggerated its prospects in aneffort to persuade you to reject our offer. Our offer represents excellent valuefor shareholders and offers certainty of value now. I strongly urge you toaccept our offer as soon as possible and in any event by no later than 13November 2005. Yours faithfully Jean-Louis Beffa Chairman & CEO" Enquiries Saint-Gobain (for analysts and investors)Florence Triou-Teixeira, Head of IR Tel: +33 1 47 62 45 19Alexandre Etuy, Deputy Head of IR Tel: +33 1 47 62 37 15 BNP Paribas (joint financial adviser to Saint-Gobain)Thierry Dormeuil Tel: +33 1 42 98 12 34Oliver Ellingham Tel: +44 20 7595 2000 UBS Investment Bank (joint financial adviser and broker to Saint-Gobain)Charles-Henri Le Bret Tel: +33 1 48 88 30 30Liam Beere Tel: +44 20 7567 8000 Brunswick (PR adviser to Saint-Gobain)John Sunnucks Tel: +44 20 7404 5959Sophie Fitton Tel: +44 20 7404 5959 Notes Copies of the Offer Document and the Form of Acceptance are available forcollection (during normal business hours) from Capita Registrars at PO Box 166,The Registry, 34 Beckenham Road, Beckenham, Kent BR3 4TH. Further information on Saint-Gobain is available on Saint-Gobain's websitewww.saint-gobain.com Terms used in this announcement shall have the meaning given to them in theOffer Document. The Offer in the United States is made solely by the Offeror and neither BNPParibas, UBS nor any of their respective affiliates is making the Offer into theUnited States. The Saint-Gobain Directors and the Offeror Directors accept responsibility forthe information contained in this announcement. To the best of the knowledge andbelief of the Saint-Gobain Directors and the Offeror Directors (who have takenall reasonable care to ensure that such is the case), the information containedin this announcement for which they are responsible is in accordance with thefacts and does not omit anything likely to affect the import of suchinformation. BNP Paribas and UBS are acting exclusively for Saint-Gobain and the Offeror inconnection with the Offer and no one else, and will not be responsible to anyoneother than Saint-Gobain and the Offeror for providing the protections affordedto respective clients of BNP Paribas and UBS nor for providing advice inrelation to the Offer or any other matter referred to herein. This announcement, including information included or incorporated by referencein this announcement, contains "forward-looking statements" concerningSaint-Gobain and BPB. Information in this announcement relating to BPB has beencompiled from published sources. Generally, the words "will", "may", "should","continue", "believes", "expects", "intends", "anticipates" or similarexpressions identify forward-looking statements. These forward-lookingstatements involve risks and uncertainties that could cause actual results todiffer materially from those expressed in the forward-looking statements. Manyof these risks and uncertainties relate to factors that are beyond thecompanies' ability to control or estimate precisely, such as future marketconditions and the behaviour of other market participants. Although we believethat the expectations reflected in such forward-looking statements arereasonable, we can give no assurance that such expectations will prove to havebeen correct. We caution you not to place undue reliance on theseforward-looking statements, which speak only as of the date of this announcementand, except as otherwise required by law, Saint-Gobain does not undertake toupdate any of the forward-looking statements set out herein. This announcement does not constitute an offer to sell or an invitation topurchase any securities or the solicitation of an offer to buy any securities. APPENDIX: Sources and bases of information Unless otherwise stated, financial and other information relating to the BPBGroup is derived from BPB's circular to BPB Shareholders dated 14 September 2005(the "First Defence Document"), BPB's circular to BPB Shareholders dated 3November 2005 (the "Second Defence Document"), the Annual Report, otherpublished annual reports and accounts of BPB for the relevant periods and otherinformation made publicly available by the BPB Group. Unless otherwise stated, reference to BPB's European peer group comprisesSaint-Gobain, CRH plc, Hanson plc, HeidelbergCement AG, Holcim Ltd, ItalcementiSpA, Kingspan Group plc, Lafarge SA, Pilkington plc, Societe Ciments Francais SAand Wienerberger AG. P/E multiples are calculated by dividing the share price by the earnings pershare. The reference to BPB's claim that Saint-Gobain's offer "massively" undervaluingBPB is sourced from a quote in the Financial Times (UK edition) of 15 September2005. The reference to the Offer representing a premium of 40.5% is based onSaint-Gobain's offer of 720p per share and BPB's share price of 512.5p on 20July 2005, the last trading day prior to commencement of the Offer Period. The reference to a premium valuation when compared to recent transactions in thesector relates to Cemex's acquisition of RMC and Holcim's acquisition ofAggregate Industries, which are compared in the Offer Document. The reference to BPB stating that Saint-Gobain should be offering a superiormultiple to the price paid by Holcim for Aggregate Industries is sourced frompage ten of the Second Defence Document. The reference to BPB's claim that it deserves a re-rating and that thisre-rating by the market will enable it to trade, in the absence of our offer, ata higher share price than before we made our approach is based on the 715pimplied trading value that BPB attributes to each share on page 21 of the FirstDefence Document. The reference to BPB having traded in line with its European peers for the lastten years is based on the average one-year forward P/E multiple over the 10years to 20 July 2005, the last day prior to commencement of the Offer Period,for BPB of 11.7x for BPB's European peer group of 12.0x, both sourced fromDatastream. The reference to BPB suggesting that its shares should be rated in line with aninternational peer group that includes highly-rated US stocks is based on page20 of the First Defence Document which states that BPB should trade at a premiumto the current year average P/E multiple for its peer group, which includes USstocks. The reference to BPB's shares being likely to trade at around 565p is based on adiluted EPS for BPB for the year ending 30 March 2006 and a one-year forward P/Emultiple based on BPB's European peer group of 12.0x, calculated as follows: (a) the diluted EPS for BPB of 47p is calculated based on a pre-return ofcapital underlying earnings of £240 million and pre-return of capital dilutednumber of shares of 508 million, sourced from page 26 and 25 of the FirstDefence Document, respectively. (b) the one-year forward P/E multiple of 12.0x is the average of the one-yearforward P/E multiples of BPB's European peer group, based on consensus analystestimates for EPS sourced from Reuters as at 7 November 2005 and closing shareprices sourced from Datastream as at 7 November 2005 for each company.HeidelbergCement AG has been excluded from BPB's European peer group followingthe announcement by Spohn Cement GmbH on 10 June 2005 of its intention to submitan offer to the shareholders of HeidelbergCement AG. Pilkington plc has beenexcluded from BPB's European peer group following the announcement by NipponSheet Glass Company Limited on 31 October that it has made an approach to theboard of Pilkington plc which may or may not lead to a cash offer for thePilkington plc shares it does not already own. The increase in dividend payments of 88% over the next three years is sourcedfrom page one of the Second Defence Document. The reference to BPB (following its proposed cash return to shareholders) beingthe most heavily borrowed company in its sector, with gearing of over 300% iscalculated by dividing net debt of £422 million as at 31 March 2005 adjusted forthe £600 million cash return to shareholders by shareholders' funds of £936million as at 31 March 2005 adjusted for the cash return to shareholders. The reference to BPB stating that it is "targeting" double-digit earning pershare growth is sourced from page one of the Second Defence Document. The reference to BPB admitting that the US will not grow at the same rate as inthe last few years is based on underlying operating profit/(loss) from NorthAmerica resulting in a profit in 2005 compared to a loss in 2002, as sourcedfrom page 14 of the First Defence Document, compared to future market growthexpectations of 3-4% per annum as sourced from page 15 of the First DefenceDocument. The reference to BPB's weak position in emerging markets compared with itscompetitors is explained on page eleven of Saint-Gobain circular posted to BPBshareholders today. This information is provided by RNS The company news service from the London Stock ExchangeRelated Shares:
Saint Gobain Or