From the land down under…

Posted by on Jun 18, 2012 in ArbMaker News! | No Comments

An interesting situation from Australia affecting the pair DuluxGroup Limited (DLX), a A$1bn company selling paints, coatings and garden supplies; and James Hardie Industries (JHX) a A$4bn firm specialising in internal and external cladding products made from fibre cement.

At the end of April Dulux made a A$188m bid for Alesco  – a supplier of garage doors, windows & cabinets and specialist “concrete solutions”.  Not an obvious bolt-on despite some overlap in their respective markets. But Dulux is trying to buy potential growth– Alesco’s top line has shrunk in each of the last 4 years – cheap.

Since the bid the volatility and pattern of the relationship between DLX and JHX has been noticeable sharper. The chart below uses 30 minute ticks and dates back to September last year:

That volatility is set to continue for, predictably, the Dulux A$2/share offer has been rejected by an “independent” assessor (hired by Alesco) as possibly 25% too light.

Alesco’s institutions disagree: they have already sold nearly 19.9% of their holdings to Dulux. Alesco will fight its corner but shareholders, with a pre-bid price of A$1.40 fresh in their minds, will want to be wooed.

Through it all the DLX/JHX pairing remains strong. The Alesco bid raises company risk for Dulux. But, with Dulux worth five times the market cap of its target, perhaps that risk is smaller than the reward of potential entry opportunities stemming from increased volatility associated with the bid.

The offer closes on 26 June.

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