Zurich, Switzerland, November 11--Struggling floor coverings and adhesives maker Forbo Holding AG said it had received a tentative takeover proposal from U.K.-based private equity firm CVC Capital Partners (CVC.YY), raising hopes for an early bailout and bidding its shares up sharply.
Forbo was quick to point out it would prefer to stay independent and push ahead with its planned revamp and capital increase. But some investors hoped the board might nevertheless accept CVC's tentative proposal and start takeover talks soon.
CVC said it had sent a letter to Forbo's board a few days ago, expressing interest in acquiring Forbo shares at CHF330 each. The private equity firm underlined its offer is only tentative and far from final since its request to start due diligence on Forbo was denied by the company.
The tentative offer values Forbo at CHF448 million - an almost 60% premium above Thursday's closing share price of CHF207.50. Though the offer is described as generous by some analysts, it values the company at less than a third of Forbo's 2003 revenue of CHF1.5 billion.
Forbo said it has asked Credit Suisse First Boston to examine the offer and provide an estimate of the company's fair value, but added that it reckons shareholders would profit more if it stayed independent.
"CSFB is now evaluating the proposal and we will inform the market about our decision later," said Rolf Watter, designated chairman of Forbo. He declined to give a more specific timeline. He also refused to provide the board's own fair value estimate of Forbo.
"The takeover interest and the tentative takeover price is a real surprise given Forbo's own difficulties," said Martin Huesler, who is reviewing his underperform rating.
Forbo recently sparked investor concerns when it said it was abandoning plans to sell its floorcovering business. It revealed, instead, plans to revamp the whole company and asked for CHF200 million in fresh funds.
The strategic U-turn raised concerns about the future of the company. It also undermined trust in management which could be further dented due to concerns about the role of Forbo Chairman Willy Kissling in CVC's takeover offer. Kissling sits on CVC's advisory board.
Forbo said Kissling, who earlier this month said he would step down as chairman, wasn't informed by CVC about the letter of interest. CVC also confirmed this.
Kissling will step aside during the due diligence period.
Analysts expect Forbo shares to decline further until there is clarification on whether Forbo will start closer talks with CVC which could result in a takeover.
Forbo, meanwhile, is pushing ahead with plans to issue new shares. It will likely double the number of its outstanding shares to 2.6 million on Dec. 15, if shareholders accept the terms of the capital increaseat the extraordinary shareholder meeting on Dec. 2.
The funds will be used to sponsor external growth and streamline its low-margin business.
Although the company has so far failed to provide the market with a clear-cut outline of its plans, it said the restructuring is aimed at increasing operating margins and reducing debt. It will also include job cuts, it said.
"After the revamp we expect the operating-profit margin to stand between 6% and 8%," Forbo Chief Financial Officer Gerold Zenger told Dow Jones Newswires in a recent interview. The company's operating margin slipped to 4.7% in 2003.
