Saint-Gobain Passes Up Hedging Gain to Prolong Battle for Sika

  • CFO says cost of extending currency hedge is `non material'
  • CEO reiterates he has `no doubt' that the deal will do through

Cie. de Saint-Gobain SA has paid to extend a currency hedge for its planned takeover of Sika AG in a sign of resolve by Europe’s biggest supplier of building materials to win a legal battle for control of the Swiss adhesives maker.

Saint-Gobain could have booked a profit on the currency agreement that was due to expire at the end of this year. Instead, the Courbevoie, France-based company extended the derivative as a dispute over the year-old deal remains mired in Swiss courts.

The currency agreement now runs to June 2016 with the option of making further changes to the expiry date "if necessary,” Saint-Gobain Chief Financial Officer Laurent Guillot said in an interview. “The cost of this extension is not material compared to the value of the transaction.”

Guillot declined to provide figures on how much the extension will cost and what the company would have gained by pulling it. A spokesman for Sika declined to comment.

In December 2014, Saint-Gobain unveiled an offer of 2.75 billion Swiss francs ($2.7 billion) to buy a 16 percent stake with majority voting rights in Sika from the Burkard family holding. The future of the deal has been clouded ever since by a legal dispute stemming from a claim by Sika management that the combination makes no strategic sense and hands the family an 80 percent premium while other shareholders get nothing.

Key Court Ruling

At the end of June, Saint-Gobain’s potential pre-tax profit from its currency hedging was worth 317 million euros, mostly stemming from Swiss franc-euro hedging for the Sika acquisition, the French company said in its semi-annual report on accounts. Switzerland removed a cap on its franc exchange rate shortly after Saint-Gobain announced the deal and this would have handed the French company a gain as the franc strengthened.

“I have no doubt that this deal will go ahead,” Saint-Gobain Chief Executive Officer Pierre-Andre de Chalendar said Friday at a shareholders meeting in Paris. “It will take a bit of time, but I have no doubt on the legal outcome, because it’s totally abiding by Swiss law.”

A Swiss court has confirmed the Sika rules that let Saint-Gobain buy the family’s stake without making a similar offer to other shareholders. Sika’s board blocked the deal by passing a motion to restrict the Burkard family’s voting share to 5 percent in major decisions about the company, effectively stripping them of their ability to conclude the transaction.

A key ruling is expected in the first half of 2016, when a court in the canton of Zug is scheduled to decide whether restricting the family’s voting rights was legal. If not, then the re-election of directors who oppose the sale could be deemed invalid, removing a major hurdle to the deal.

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