Pfleiderer Polish Unit Plummets on Plans to Buy Stake in Parent

Polish hardboard producer Pfleiderer Grajewo SA dropped the most since 2008 after announcing plans to purchase a stake in its German parent and fund the deal with what may be the biggest public share sale in Warsaw this year.

Grajewo shares tumbled 14.8 percent to an 11-month low of 24.35 zloty on Tuesday after saying it was in talks with Atlantik SA, the owner of Pfleiderer GmbH, on acquiring a stake in its owner and merging operations. Grajewo, with 49.6 million shares outstanding, plans to fund the transaction by selling as much as 40 million new shares in a public offering in the fourth quarter at the earliest, a company presentation showed.

The deal, worth up to 974 million zloty ($259 million) at Tuesday’s market price, seeks to boost the combined entity’s operations and reduce debt, Grajewo said. The Polish company said the issue will boost its free float and save as much as 30 million euros ($33.6 million) a year from the end of 2018.

“Grajewo’s plan may create a large European producer able to face competition from the East and expand,” Adam Aniol, an analyst at Bank BGZ BNP Paribas SA, said by phone from Warsaw. “The big question is what is the fair valuation of the German business and whether Poland’s market is deep enough to provide funding on this scale.”

The planned transaction would reduce Atlantik’s stake in Grajewo to under under 50 percent from an indirect 65 percent holding now. At present market valuations, it would be the largest public offering on the Warsaw Stock Exchange since oil refiner Grupa Lotos SA increased capital in November.

Debt Ratios

Grajewo, which produces laminated boards and fiberboards used in furniture making, was acquired by Pfleiderer in 1999. The Polish company’s net debt amounted to 0.3 times its earnings before interest, taxes, depreciation and amortization on March 31, according to data compiled by Bloomberg. Grajewo’s presentation said this ratio for the combined business of the two companies will fall below 2 after the deal. It values Pfleiderer’s business at 58 percent of the combined entity.

Deutsche Bank AG and Lazard Ltd. will advise the companies in the transaction, Pfleiderer Chief Executive Michael Wolff said at a conference call with investors and analysts on Tuesday. The combined entity plans to pay a dividend of 25 percent to 50 percent of profit, he said.

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