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Mergers & Acquisitions

Grace rejects unsolicited takeover offer

The nearly $4 billion offer comes from its largest shareholder, 40 North

by Alexander H. Tullo
November 11, 2020 | APPEARED IN VOLUME 98, ISSUE 44

W. R. Grace has rejected an unsolicited takeover offer worth nearly $4 billion from its largest shareholder, the investment firm 40 North Management.

W. R. Grace at a glance

Headquarters: Columbia, Maryland

Revenues: $1,958 million

Earnings: $126 million

Major businesses: Refining, polyolefin, and chemical catalysts (76% of revenues); Silica and specialty chemicals (24% of revenues)

Employees: 4,000

Note: Figures are for 2019

The offer of $60 per share, 40 North wrote in a letter to Grace’s board, represents a 50% premium over the catalyst and specialty chemical company’s share price on the eve of the offer and a 42% markup from Grace’s average share price over the prior 30 days.

“We strongly believe that our proposal represents compelling value and certainty to shareholders, especially given the company’s significant underperformance,” the letter said, noting that Grace could enter a “go shop” period in which it solicits bids from other companies.

Grace responded that 40 North’s offer “significantly undervalues the company and is not a basis for further discussion.” Grace has been trying to grow its specialty catalyst business because its large refining catalyst business is threatened by an anticipated long-term decline in fuel consumption.

40 North’s principals, David Winter and David Millstone, said in a statement that they are disappointed with Grace’s rejection. “Ultimately, this is a decision for Grace shareholders, who have been consistently underserved,” they wrote. 40 North’s last big move in the chemical industry was helping to scuttle Huntsman’s attempted merger with Clariant in 2017.

40 North, with a nearly 15% stake in Grace, has been agitating for change at the chemical company. The two firms signed a standstill agreement in February 2019 that put two 40 North nominees on Grace’s board in exchange for not letting their differences blow up in public.

One of those directors, Kathleen Reiland, resigned last month, setting the stage for 40 North’s hostile bid.

“It has become clear during my time serving as a director that my views on how to address Grace’s performance are not shared by this board, in particular my views with regard to the company’s current strategic direction,” Reiland wrote in her letter of resignation. “I have no confidence that my continued service would result in the significant meaningful change I have advocated for at Grace.”

Kevin W. McCarthy, a stock analyst with Vertical Research Partners, wrote in a note to clients that the resignation “increased speculation about a possible proxy battle and/or eventual takeout of the company.”

“Now it seems that 40 North is ‘cutting to the chase,’ ” he added, noting that the bid could push Grace’s stock price closer to his own assessment of its fair value of $77 per share.

CORRECTION:

The "at a glance" box in this story was updated on Nov. 12, 2020, to correct Grace's revenue and earnings figures.



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