NOVEMBER 22, 2010 By Stephen Hardy -- Prysmian (MSE: PRY.MI) has publicized details of its proposed public offer for the shares of fellow cable-supplier Draka (NYSE EURONEXT: DRAKA). The Italian cable giant plans to offer €8.60 in cash per Draka ordinary share as well as 0.6595 Prysmian shares for each Draka ordinary share. This implies a total value of €17.20 per ordinary share of Draka, based on Prysmian’s closing price of €13.04 on November 19.
However, a competitor offering a higher bid has come forward.
The total transaction value would be €840 million for all of Draka’s issued and outstanding ordinary shares, with a total cash consideration of €420 million and enterprise value of €1.3 billion. Draka shareholders would end up with a 15% stake in Prysmian. However, Prysmian still has to address Draka preference shareholders, who are expected to receive a separate proposal.
The proposed transaction has the unanimous approval of both boards of directors, Draka’s supervisory board, as well as Draka’s largest shareholder, Flint. The deal is thus expected to close smoothly by the second quarter of 2011.
Prysmian will fund the deal via a combination of existing cash, committed credit lines, and the issue of new ordinary Prysmian shares.
The combined company will see approximately €100 million in annual run-rate pre-tax synergies within 3 years, Prysmian predicts. These savings will come from manufacturing optimization, greater efficiency in buying raw materials, overhead savings, and unnamed improvements in operating efficiency. Integration costs over the same three years was tabbed at a total of €170 million.
Prysmian expects the deal to be earnings accretive from 2011, excluding one-off charges.
The two companies have been discussing the merger since at least the middle of last year (see “Draka, Prysmian confirm merger talks”). Since then, there were rumors that Nexans may also have interest in Draka. While the agreement with Prysmian does allow Draka to continue to entertain offers, it could only accept an offer that was at least 15% greater than Prysmian’s. In such a circumstance, Prysmian would have the opportunity to top that bid; if it failed to do so, Draka would also have to pay Prysmian €12.5 million to get out of the current deal.