GUD Wants Breville To Say Yes

An initial negative reaction from the market to GUD’s $289 million bid for rival small appliance marketer, Breville group.

GUD’s offer is valued at $2.20 a share for the 80.6% in Breville it doesn’t own.

It has established a solid beachhead in Breville and looks on the verge of grabbing control.

Perhaps that was why GUD shares closed down 14 cents at $8.48 on Friday.

Breville is dominated by Solomon Lew’s 30.5% combined stake through himself and his listed group, Premier Investments.

But GUD, which holds 19.4% picked up in May from New York hedge fund Harbinger (which has a stake in Fortescue Metals and Murchison Metals), also has commitments from other holders of 28% of Breville.

They are institutions and have indicated they will accept GUD’s offer of one of its shares for every four Breville.

Breville shares, which have been in the doldrums, naturally jumped on Friday, finishing up 39% at $2.09, indicating the punters see the deal as almost done.

With the 19.4% it holds and the 28% committed, GUD has just over 47%: its minimum acceptance condition is 50.1%, so Mr Lew’s big stake is irrelevant unless he pulls out a much bigger cash offer.

He won’t want to make a paper offer as that would dilute his 45% stake in Premier, not unless he can come up with a form of paper that would convince the institutions to accept it rather than the GUD shares. 

Including Breville’s net debt of $33 million, GUD says it’s offering one share for every four Breville shares and values Breville at $322 million on an enterprise basis.

GUD said in a statement that it is  an "attractive premium" of 206% to the Breville closing price of 72 cents on May 28, this year, the day before GUD announced it had acquired 19.4% of Breville.

More realistically it is a 47% premium on Breville’s closing price of $1.50 on October 8.

GUD said in a statement that the board believed the offer represented "an extremely attractive opportunity" for Breville shareholders to gain a premium on their shares, while retaining an investment in a larger company with a stronger shareholder return and dividend track record".

GUD said it believed the businesses were complementary and would create a company with combined sales of an estimated $900 million.

The company said there was the "potential to create a leading consumer products business in Australasia with a portfolio of highly regarded brands".

"If we were successful in combining the highly complementary businesses of Sunbeam and Breville, the merged group will be a leading small domestic appliance business in Australasia and will provide a strong platform for expansion in international markets, particularly North America," GUD managing director Ian Campbell said in Friday’s statement.

The combined company would have much more clout with retailers like Woolworths, Coles Group, David Jones and Myer.

They have been sourcing more of their domestic appliance products direct from Chinese groups.

They will have no option now but to deal with a combined GUD/Breville Group if the takeover is successful.

In many respects it is also a play on the Aussie dollar.

Both companies are big importers of their appliance products, mostly from China.

With the dollar rising against the US dollar (which is the favoured international pricing mechanism), the cost of importing these products will get cheaper in coming months.

China is also cutting prices to try and drive exports which remain depressed because of the global slowdown.

The company said there was the "potential to co-ordinate product development functions with a view to enhancing the product offering of the Merged Group.

"Depending on the extent to which GUD controls Breville, there may be opportunities to combine certain back-office functions which may provide cost reduction opportunities to the Merged Group."

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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