Gluing an Adhesives Deal Back Together

French buyer can make an offer to all Sika's shareholders.
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Cie de Saint-Gobain SA's hostile attempt to take control of Swiss sealants-and-adhesives maker Sika AG is coming unstuck.

A court in Zug on Friday ruled that efforts by Sika's board to stop the French industrial giant buying a controlling stake were legal. This isn't the end for Saint-Gobain -- but the Courbevoie-based company would be wise to get working on a plan B.

Saint-Gobain Stagnating

Shares of the French building materials giant are up less than 2 percent this year

The battle for Sika has been bitter. Back in December 2014, Saint-Gobain agreed to buy a 16 percent stake in Sika from the founding Burkard family for 2.75 billion Swiss francs ($2.78 billion). Those shares carry super-voting rights that would give Saint-Gobain control without it having to buy the whole group.

Sika's board has convincingly argued that handing control to a competitor in this way isn't in the best interests of the company or other shareholders. So the directors invoked a clause in Sika's statutes limiting the Burkards' voting rights to just 5 percent because of the planned change of ownership to Saint-Gobain. The Burkards have failed to get this move reversed by a Swiss regional court.

It looks like a win for Sika -- but the reality is that the hostilities are no nearer to ending. The Burkards are appealing. Having signed a deal with Saint-Gobain, they are probably legally obliged to do all they can to make it happen. That could keep this in the courts for another two years.

The only protagonist who can break the deadlock is Saint-Gobain. It would be wise to try doing so right now. Its leverage to renegotiate a deal that all sides can back will diminish if the Burkards suffer further setbacks in court. The risk is that in 2018 all appeals have failed and the deal for the Burkard stake dies, leaving Saint-Gobain with nothing.

Sika's Growth

The Swiss company's earnings have grown for the past five years

Source: Bloomberg

The simple option would be to walk away and extract a break fee. But that would do zilch for Saint-Gobain strategically.

If Saint-Gobain is so confident in the value of the partnership and wants control, it would be better to make a bid for the whole of Sika and buy out the independent shareholders as well as the Burkards. The savings and revenue benefits of a combination ought to able to fund a takeover premium.

Rising Stock

Sika's shares have advanced by more than a third this year

Source: Bloomberg

True, Saint-Gobain wouldn't get control on the cheap, the thrust of the Burkard deal. And this would be a big transaction -- after its stock rose by more than a third this year, Sika is valued at 12 billion francs against Saint Gobain's 22.5 billion euros ($25 billion).

But, right now, the French company has power to negotiate a deal that might at least enable it to avoid overpaying. And Saint-Gobain's hand is only going to weaken from here.

This column does not necessarily reflect the opinion of Bloomberg LP and its owners.

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    Chris Hughes in London at

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