Investors lapped up news of an unsolicited offer for textile rental company Berendsen (BRSN) from rival European textile giant Elis. The shares were up 23 per cent in early trading. Elis has offered £4.40 in cash and 0.426 new Elis shares for each share in Berendsen, which reflected a 41 per cent premium to the group's trading price the day prior to the offer being made. This was an increase from an offer made at the end of April of £4.40 in cash and 0.411 new shares per Berendsen share. The board rejected this offer and declined to enter discussions.
Berendsen management labelled the offer an “opportunistic attempt to acquire Berendsen whilst it is implementing its capital investment programme, without reflecting the value upside inherent in this strategy”. Chairman Iain Ferguson advised shareholders to do nothing, warning a merger would dilute the value upside of the company's current strategy, while increasing execution and integration risk. Formal offer documents have yet to be released.
Elis outlined the rationale for combining the two companies via a presentation, arguing it would create a pan-European leader in textile and facility services, delivering pre-tax operating and capital expenditure synergies of at least €40m (£34.5m) annually following the third year after completion of the deal. It also argued the two companies have complementary geographic footprints - Elis has a large business in France and presence in Spain, Portugal, Italy and Latin America, while Berendsen has a large UK business and a much larger German operation.
Elis has 28 days following the announcement to make a firm offer or back out, unless both Berendsen and the takeover panel agree to an extension. The company said it is "willing to move quickly and cooperatively to engage with Berendsen with a view to achieving a transaction for the benefit of Berendsen and Elis shareholders".
It's not hard to see why shareholders might be tempted by the prospect of an acquisition. In October the group issued a profit warning stating that operational instability in its hospitality and healthcare and workwear businesses the prior summer had resulted in higher than expected costs being incurred. These were necessary to maintain customer service levels, management said. Berendsen is in the process of trying to turn around its UK business, following operational problems stemming from underinvestment in plant, people and machinery. The group plans to invest around £200m in plant and machinery in the UK over the next three years, but the shares fell more than 10 per cent following the group's most recent results.
