Paper company and wide format supplier Spicers, formerly PaperlinX, has signed a $A147.6 million 'Scheme of Implementation' agreement, leading to a 'Scheme of Arrangement' to sell its entire Australia and New Zealand operations to Japan-based global paper company Kokusai Pulp & Paper Co (KPP). The sorry history of PaperlinX/Spicers has seen the company reduced to a pale shadow of its former self, with shares that once traded above $6 ending Thursday 17th Jan at 5.3 cents.
In a statement to the ASX on Thursday night, Spicers said it began confidential discussions with KPP last year “as part of a commitment to maximise value and deliver the most optimal outcome for Spicers shareholders,” before receiving an offer from KPP during the second-half of 2018.
Due diligence and further discussions between the parties and their advisors subsequently proceeded in late 2018. This has now resulted in a binding Implementation Agreement being concluded between the parties for KPP to acquire the Spicers business, consisting of operations in Australia and New Zealand, in its entirety.
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| "Many advantages": Spicers CEO David Martin |
Spicers’ directors have unanimously recommended that shareholders vote in favour of the deal at a meeting expected to take place in June.
“Our business is in an excellent position and our strategic focus over the past two years has delivered improved value for our current shareholders,” said Spicers CEO David Martin. “I see many advantages for the Spicers business in taking this step to become part of a successful, global, business with a willingness to invest for growth in our key revenue streams of Print & Packaging, Sign & Display and Architecture & Interior Design.
“KPP has been a key business partner of Spicers for many years, and I believe having access to their global resources will provide opportunities for Spicers in many new markets and product categories.”
Spicers said the transaction comprises:
- • Base Scheme Consideration of A$90 million (4.3 cents per share) from KPP for the purchase of Spicers.
- • Estimated Capital Returns to shareholders of approximately A$57.6 million (2.7 cents per share1), to be payable on implementation of the Scheme, comprising distributions in relation to…sale proceeds from Asian operations, expected proceeds from the sale of properties in Singapore and Tasmania, and surplus ‘net cash’ amounts as at 30 June 2019.
Spicers chairman, Jonathan Trollip said: “Whist the Board remains confident in management’s plans for the Spicers business, and current results are showing positive momentum, the proposed Transaction would provide considerable value for Spicers shareholders. The Transaction Consideration represents a significant premium to Spicers’ recent share price and would be paid as 100% cash. The Scheme is also subject to limited conditionality, with due diligence already completed by KPP. For these reasons, the Board considers the proposed Transaction to be very attractive to Spicers shareholders.”
Shareholders will vote on the proposed transaction at a meeting expected to be held in early June 2019. Subject to shareholder approval and the other conditions being satisfied, the deal is expected to be implemented in July 2019.
Former paper merchant PaperlinX changed its name to Spicers in 2015 to refocus on its Australasian businesses and continue to expand into signage, display and packaging as it recovered from the collapse of the PaperlinX business in Europe, which resulted in the loss of more than $300 million.
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| KPP headquarters, Tokyo. |
In September 2018, Spicers sold its Asian paper businesses to Japan Pulp & Paper company (JPP) for SGD 15 million ($A15.2m). JPP also owns Australasian paper, packaging and print media distributors, Ball & Doggett.
KPP is listed on the Tokyo Stock Exchange and has significant Japanese and overseas business operations focused on paper, packaging and other peripheral products.
Group sales are JPY377.7 billion ($A4.8 billion), with 956 staff employed across 26 sites globally, including Melbourne-based subsidiary, Daiei Australia.
Having rearranged its business portfolio and strengthened business foundations, KPP says its objective for the next 3 financial years is to “accelerate business expansion and advance an M&A strategy in the Asia-Pacific region.”
Commentary by Andy McCourt: It had to happen at some time and if this deal is not exactly 'cheap' - it does seem a good bargain for KPP. While 7 cents a share for stock trading at 5.3 cents may seem reasonable, The KPP offer would pay 4.3 cents for each share with the rest made up from asset sales and cash 'surplus' under the Scheme of Arrangement. This is why it's called a 'Scheme' and not a takeover offer. Such schemes are not unheard of and are often described as 'asset re-structuring' but nonetheless are not the same as a straight on or off-market takeover bid. Also, the directors control 26.6% of the voting shares. They 'unanimously' have recommended all shareholders accept the offer.
CEO David Martin told wideformatonine.com that: "The fact that asset sales and cash is being re-distributed to shareholders makes no difference to the KPP offer. No one buys excess land and cash when they buy a company - they typically want the operating company and the prospect for growth. KPP is buying a great asset and brand, but are paying an acceptable multiple for a paper merchant in this market."
Martin estimates that there would be 'very few' smaller shareholders left who paid pre-2011 prices for shares. After the vexed issue of the hybrid step-up shares was resolved 3 years ago, Spicers became effectively a new local company and most shareholders would have bought in at around 4.5 cents per share, and most shareholders in the top 20 are relatively new holders, unlike Coastal Capital (who have directors on the board and are part of the 'unanimity'). Ironically, Spicers has been performing well and has a good cash position under David Martin. Sign & Display is a good performer, but still only around 25% of revenues compared to printing & packaging. It would be expected for the shares to rise in value.
If this were a straight off-market takeover, KPP - a very fine paper company with excellent environmental credentials - would be looking at the close price and adding 35-40% to it to acquire Spicers. That's 7.15 to 7.42 cents a share. Having acquired Spicers and then paid shareholders, they could then sell the assets and properties and use the cash if they so wish, but they don't want land in Singapore and Tasmania - they want an operating company. Shareholders, will receive an explanatory booklet in May and vote on the Scheme in June. At least 75% of votes cast must be in favour of the Scheme and at least 50% of members need to vote, in person or by proxy. Martin feels they have these numbers: "We used to have 36,500 names on the share register; today it is around 5,500. Of these, there would be few who could sell or are willing to sell on or off-market, enough to trigger a take-over based on statutory acceptances. This is why the KPP Scheme is a great deal for shareholders, they are receiving about $147 million for a company with market cap of $125 million at 5.5 cents a share. Otherwise, Spicers could be waiting 2.5 to 3 years for shares to reach 7 cents."
And the goodwill for the iconic Spicers name and distribution network? "There is some allowance for goodwill in the offer, they are getting a great brand and restructured company no doubt. Also, especially in wide format hardware which will be new to KPP, we will be introducing them to new suppliers and technologies that they can spread to their Asian operations. They are prepared to invest and grow the Spicers business," says Martin.
It will be interesting to see how the shares trade in the lead-up to June's vote. The rise might be attributed to some shareholders wanting 'jam today' at 6.3 or 6.5 cents instead of waiting 5 or 6 months for 7 cents. Also interesting will be to see if David Martin stays on as CEO to continue the great turn-around work he has thus far accomplished.
This could be the happy ending of the tale of woe that became the post-Amcor PaperlinX, then Spicers. Someone should write a book about it.
