Paint and Chips Fly as War Breaks Out

A war of words has erupted between paint producer DuluxGroup (ASX: DLX.AX) and garage door maker Alesco (ASX: ALS.AX), with both companies making submissions to the Takeovers Panel alleging improper conduct by the other.

Dulux made an initial takeover offer for Alesco in May 2012, offering AU$2 in cash for each Alesco share. At the same time, Dulux acquired 20% of the Alesco's shares from large shareholders.

On July 23, Dulux upped its bid to AU$2.05 in cash and said it would allow Alesco shareholders to receive AU$0.18 in franking credits per share if Alesco declared and paid a AU$0.42 fully franked dividend. Alesco reported a loss of AU$13.9 million for the financial year and didn't declare a AU$0.42 dividend, but instead declared dividends of AU$0.18 for the full year, including a final dividend of AU$0.05 and a special dividend of AU$0.10, both fully franked.

Dulux is incensed that Alesco sent shareholders a letter stating that DuluxGroup will pay shareholders AU$1.90 in cash, while Alesco's management made statements to the media that Dulux had decreased its offer to AU$1.90. Now the company has asked the Takeovers Panel to prevent Alesco from making any further comment without panel approval and to order Alesco to announce that Dulux had increased its offer to AU$2.05 plus franking credits.

Alesco's issue is that Dulux's second offer document appears to suggest that the AU$2.05 bid includes the final AU$0.05 dividend and the AU$0.10 special dividend -- which is cash paid to shareholders by Alesco, not Dulux. This suggests that the theoretical price Dulux is offering shareholders is AU$1.90 in cash -- plus AU$0.15 in dividends already paid by Alesco.

Alesco's submission to the Takeovers Panel states that Dulux's bid was misleading and overstated the amount of dividends Alesco could pay. With just AU$3.1 million in cash on its balance sheet, AU$69 million of debt, and a net cash outflow of AU$3.8 million for the year, it appears that Alesco would have had trouble producing the funds to pay out a AU$0.42 dividend.

Dulux's bid for Alesco comes at a time when the building-materials and construction sector faces the toughest conditions in 20 years, according to the chief of cement and construction materials manufacturer Boral (ASX: BLD.AX), Ross Batstone. Both Boral and fellow materials company CSR (ASX: CSR.AX) have pressed the government to provide further stimulus for the weak building industry.

The Foolish bottom line
A higher bid is unlikely, as Dulux has declared the latest bid as its "best and final" offer, and there don't appear to be any other suitors for Alesco hiding in the wings. Yet it appears this game is far from over, and we can likely expect more saber-rattling from both companies.

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Motley Fool writer/analyst Mike King doesn't own shares in any company mentioned. The Motley Fool has a disclosure policy. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. Try any of our Foolish newsletter services free for 30 days.

The Motley Fool's purpose is to help the world invest, better. Take Stock is The Motley Fool'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, while it's still available. This article contains general investment advice only (under AFSL 400691). Authorized by Bruce Jackson.


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