Polymer Maker A. Schulman Makes Hostile Bid For Faltering Ferro

Plastics compounder A. Schulman has made a hostile bid to acquire ailing specialty chemical maker Ferro Corp. for $855 million, including debt. Ferro’s board, which turned down an unpublicized bid from Schulman in mid-February, says shareholders will do better if they let the company carry out its current turnaround strategy.

News of the $6.50-per-share offer pushed Ferro’s stock price up 34% from its previous close to a high of $6.95 on March 4, the day Schulman went public with its offer. However, Ferro’s shares dropped to $6.57 the next day, when it became clear the company would put up a fight. Schulman said it could adjust its offer if it got a look at Ferro’s accounting books.

Akron, Ohio-based Schulman first contacted Cleveland-based Ferro about a merger in November 2012. On Feb. 13, it sent Ferro’s board a letter expressing its “strong intent” to pursue a business combination. Rejected, Schulman then decided to go public with its intentions.

“Ferro’s business units align with A. Schulman’s core competencies, with the exception of pharmaceuticals, which is not strategic to us,” says Schulman CEO Joseph M. Gingo. Both firms, each of which log annual sales of around $2 billion, have plastics additives and colorants businesses, but Ferro also sells porcelain frit and colorants for tile and glass markets that Schulman does not now serve.

Ferro urged shareholders to give it a chance to do right by them. “This is a time of significant opportunity at Ferro,” Peter T. Thomas, Ferro’s interim CEO, told investors during a conference call.

David Begleiter, a stock analyst with Deutsche Bank, doesn’t see many options for Ferro. “Other strategic buyers are unlikely to bid owing to the lack of business overlap with Ferro,” he told clients. Begleiter expects that Ferro will be acquired “at or near the current share price.”

Separately, Ferro is also under attack from hedge fund FrontFour Capital Group and allies, which are seeking three seats on the firm’s board of directors. FrontFour has expressed doubt that Ferro’s management can turn the company around without its help.