DuluxGroup: Offers to takeover Alesco for $188m

DuluxGroup is on the acquisition trail, buying struggling Alesco for $188m. It looks like a good deal.

Mike King

Mike King is a Fool.com.au Investment Analyst and Writer. He caught the investing bug more than a decade ago, at a time when the U.S. had invaded Iraq and fear reigned in the markets. His initial success as the markets took off encouraged his passion and thirst for knowledge. With 13 years behind him at one of Australia's largest domestic banks, Mike's passion for stocks led him to join a boutique funds management firm, where he stayed for four years. A seven-year stint in equity research at one of the largest investment banks in the world followed that, giving Mike a thirst to pursue his passion further. Mike holds a Diploma in Applied Finance and Investment and a Graduate Certificate in Financial Planning. His passion is to help retail investors invest better, and that passion was one of his primary reasons for joining The Motley Fool Australia in late 2011. Mike has written thousands of articles since joining, including for Fairfax Media, Yahoo!7, Ninemsn and has also appeared on ABC's The Business. You can see all of Mikes' holdings here

Published May 1, 2012 12:44 pm AEST

DuluxGroup Limited (ASX: DLX) has today announced a takeover offer for the 80 per cent of Alesco Corporation Limited (ASX: ALS) that it doesn't already own. DuluxGroup has offered $2.00 per share, or $188.4m for the construction and building products, garage door and cabinet maker.

DuluxGroup Managing Director Patrick Houlihan said "The offer presented an attractive opportunity for Alesco shareholders to receive a substantial premium for their shares in cash, a stock that is relatively thinly traded, without incurring any brokerage fees. "

Mr Houlihan also stated that is a logical strategic step for DuluxGroup to grow its Australian and New Zealand position, provide new platforms for growth, and increase earnings diversification across end markets and products.

The company also said that the transaction is expected to be earnings accretive in the first full year of ownership – in other words, Alesco's business will increase DuluxGroup's earnings per share.

Alesco

Alesco's shares closed on 30th April 2012 at $1.40, and the shares have soared 43 per cent to $2.00. Alesco has been facing many headwinds over the last five years, with its share price falling from over $14 in 2007. The company reported a small profit of 13.6m in 2011, after two years of losses, and has been selling non-core businesses in recent years. The company had forecast a net profit after tax (before significant items) of around $10m for the 2012 financial year.

DuluxGroup

DuluxGroup was de-merged from Orica Limited (ASX: ORI) in 2010, and owns several notable brands such as British paints, Dulux, Selleys, Hortico, Berger, Yates and Feast Watson. The group has four segments, consisting of Paints Australia, Paints New Zealand, Selleys Yates and Offshore and other. The company reported a net profit after tax of $77.6m for the 2011 financial year, and expects 2012 financial year results to be higher than that (although they didn't state by how much).

The Foolish bottom line

This looks like a good acquisition for DuluxGroup, with some complementary businesses, and the likelihood of extracting some cost saving synergies. Alesco has been begging for someone to turnaround its businesses for a few years now, and that should accelerate under new management.

However, with little spare cash and net debt of $222m (compared to $138m of shareholders equity), DuluxGroup has been forced to establish new debt facilities of $270m, which will be used to fund the acquisition of Alesco. This significantly increases the risks for investors in DuluxGroup, and it's something to watch.

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Motley Fool contributor Mike King doesn't own shares in any companies mentioned. Take Stock is The Motley Fool Australia's free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead. Click here now to request your free subscription, whilst it's still available. This article contains general investment advice only (under AFSL 400691).

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