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updated: 3/7/2014 12:36 PM

Amcol becomes hot commodity as takeover war escalates

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Bloomberg News

Traders are betting the hottest bidding war of 2014 isn't over, even after Hoffman Estates-basaed Amcol International Corp. lured its sixth increased offer in three weeks.

Minerals Technologies Inc. yesterday boosted its bid to $45.75 a share for the maker of clay used in everything from kitty litter and anti-aging skin cream to oil drilling. That topped French mineral producer Imerys SA's latest proposal by 50 cents. No other U.S. takeover target valued at more than $1 billion has seen more public bidding activity this year, according to data compiled by Bloomberg. Amcol closed yesterday at $46.75, a sign some investors expect the battle to escalate.

Buying Amcol, the producer of bentonite, would give Imerys a stronger U.S. presence. The $7.1 billion company has room to sweeten its offer to about $48.70, according to Albert Fried & Co. For Minerals Technologies, Amcol would boost sales growth and help it expand into other materials, said CJS Securities Inc., which estimated the $1.9 billion company could bid about $50 if needed.

Imerys and Minerals Technologies are "nickeling and diming each other to try and be the last man standing," Todd Vencil, a Richmond, Virginia-based analyst at Sterne Agee Group Inc., said in a phone interview. "It's driven by these two companies' need to either find growth or be able to bring some of their own strengths to bear."

Representatives for Paris-based Imerys and New York-based Minerals Technologies declined to comment.

Sweetened Offers

Imerys said on Feb. 12 that it had agreed to buy Amcol for $41 a share, or about $1.6 billion including net debt. Minerals Technologies has since countered Imerys four times and removed financial contingencies. Imerys has raised its offer twice since the initial agreement and hasn't responded to the latest Minerals Technologies bid, which is 1.1 percent higher than the French company's March 4 proposal for $45.25.

While Amcol's board hasn't changed its recommendation to sell to Imerys, it said yesterday that Minerals Technologies' latest proposal is superior to the French company's. Under the terms of the merger agreement, Imerys has four business days to match Minerals Technologies' bid. A representative for Amcol declined to comment further.

Small Increases

"This is a unique situation where they're only raising by 25 or 50 cents at a time," Daniel Rizzo, a New York-based analyst at Sidoti & Co., said in a phone interview. "It's not like Minerals Technologies is blowing them away with this much higher offer. They're only up 50 cents. That's not going to make anybody walk away in my opinion."

The only other U.S. targets of similar or larger size to attract multiple bids this year were Time Warner Cable Inc. and Riverbed Technology Inc., according to data compiled by Bloomberg.

Imerys's stock has climbed 4.1 percent since the takeover agreement was announced, including a 1.8 percent rally on March 5, the day after its last increased bid. Shares of Minerals Technologies are up 2.3 percent since Feb. 13, the last trading day before it offered $42 for Amcol.

Today, Imerys fell 3.9 percent to 64.76 euros. Minerals Technologies advanced 0.4 percent to $54.28 at 11:40 a.m. New York time, while Amcol dropped 0.2 percent to $46.66.

Amcol would increase Imerys's revenue by about 20 percent and bolster its U.S. presence, according to Arnaud Palliez, a Paris-based analyst at Raymond James Financial Inc. He estimated total cost savings and revenue benefits of about $70 million.

"Amcol is present in a number of markets where Imerys is not present," Imerys Chief Executive Officer Gilles Michel said during a Feb. 12 conference call. "That offers a lot of opportunities for new developments on both sides."

"And it is probably, in my opinion, a good idea for a company like ours or whoever to invest in U.S.-based assets at this point in time of the economic cycle," he added.

U.S. Growth

Economists project U.S. gross domestic product will expand 2.9 percent this year, compared with 1.1 percent for the euro area, according to estimates compiled by Bloomberg. Imerys got about 23 percent of its revenue from North America in 2012, compared with 52 percent from Europe.

Assuming synergies of about $50 million, Imerys could offer up to about $48.70 a share before the deal starts becoming dilutive to shareholders, according to Sachin Shah, a special situations and merger-arbitrage strategist at New York-based Albert Fried.

Minerals Technologies

Acquiring Amcol will help Minerals Technologies diversify beyond products including precipitated calcium carbonate, limestone and talc, said Daniel Moore, a White Plains, New York- based analyst at CJS Securities. The company can also cut costs and streamline operations at Amcol to boost profitability, similar to what it's done with its own business over the last few years, Moore said.

Minerals Technologies forecast about $50 million in initial cost savings, with the chance to squeeze out more over time. With about $506 million in cash to put toward a bid, the company has the ability to boost its offer to about $50 a share, or 44 percent more than Amcol's average stock price in the 20 days before the bidding war began, according to Moore.

Strategic Fit

"It's a very good strategic fit for Minerals Technologies and in the hands of that management team, we're likely to see much better utilization of assets," the analyst said. "At least up to a point, to probably that $50 level, I think shareholders would be generally enthusiastic."

Imerys risks overpaying if it continues to compete with Minerals Technologies, said Palliez of Raymond James.

"We are now at kind of the limit in terms of the price they can offer," Palliez said in a phone interview. "I would not like to see them making a new bid."

With the stock already $1 higher than the latest offer price, investors may not have much to gain by wagering on a new bid, even if one materializes, said Keith Moore of Stamford, Connecticut-based MKM Partners LLC.

Even so, in bidding wars this hot, strategic needs can outweigh financial analysis, he said.

"Sometimes they're going to pay a price that doesn't necessarily relate to past deals -- they're willing to pay up for it," Moore, an event-driven strategist, said in a phone interview. "You recognize you might lose some here but who knows. You're taking a flier."

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