Shares of Ferro Corporation (NYSE:FOE), a maker of enamels, glazes, stains, and other specialty coatings, shot up Friday on news that it may be for sale. Citing "people familiar with the matter," Bloomberg reported that Ferro is "exploring strategic options, including a sale."
By the time the closing bell struck on the NYSE, Ferro stock was up 13%.
Bloomberg noted that there is "heavy consolidation" ongoing in the chemicals industry today -- and coatings makers in particular -- citing similar strategic reviews underway at chemicals maker Celanese and car-paint manufacturer Axalta Coating Systems. This trend may have spurred Ferro to make inquiries as to whether anyone is interested in buying it.
And if Ferro can find a buyer, now might be a good time to strike a deal. Although still profitable, Ferro suffered a 20% drop in profits last quarter on a 7% decline in sales. Cash levels are constrained (about $50 million), while debt levels are high (nearly $890 million).
In short, the business environment doesn't seem to be great for Ferro, while the mergers and acquisitions market may be getting more accommodating -- a strong hint that that could be the right direction in which to head.
And yet, Ferro management is staying mum on the prospects for a deal. Contacted for comment, the company declined to respond, according to Bloomberg. Ferro hasn't made any official announcement that it's considering a sale, or any other "strategic options" either, for that matter.
Until we learn for sure that this is more than just a rumor, I'd say the possibility of a sale is no more than that -- and Ferro's valuation, a hefty 25 times earnings, looks speculative at best.