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Paint and chips fly as war breaks out

A war of words has erupted between paint producer DuluxGroup Limited (ASX: DLX) and garage doors maker Alesco Corporation (ASX: ALS) with both companies making submissions to the Takeovers Panel alleging improper conduct of the other.

Dulux made an initial takeover offer for Alesco in May 2012, offering $2.00 in cash for each Alesco share. At the same time, Dulux acquired 20% of the Alesco’s shares from large shareholders.

On 23rd July, Dulux upped its bid to $2.05 in cash and said it would allow Alesco shareholders to receive 18 cents in franking credits per share, if Alesco declared and paid a 42 cent fully franked dividend. Alesco reported a loss of $13.9m for the financial year, didn’t declare a 42 cent dividend, but instead declared dividends of 18 cents for the full year, including a final dividend of 5 cents and a special dividend of 10 cents, both fully franked.

Dulux is incensed that Alesco sent shareholders a letter stating that DuluxGroup will be paying shareholders $1.90 in cash, and upset that Alesco’s management have made statements to the media that Dulux had decreased its offer to $1.90. Now, the company has applied to the Takeovers Panel to prevent Alesco making any further comment without panel approval, and final orders that Alesco announce and clarify that Dulux had increased its offer to $2.05 plus franking credits.

Alesco’s issue is that Dulux’s second offer document appears to suggest that the $2.05 bid includes the final 5 cent dividend and the 10 cent special dividend – which is cash paid to shareholders by Alesco, not Dulux. This suggests that the theoretical price Dulux is offering shareholders is $1.90 in cash – plus 15 cents in dividends already paid by Alesco.

Alesco’s submission to the Takeovers Panel states that Dulux’s bid was misleading and deceptive and overstated the amount of dividends Alesco could pay. With just $3.1m in cash on its balance sheet, $69m of debt, and net cash flow of negative $3.8m for the year, it appears that Alesco would have had some trouble trying to find the funds to pay out a 42 cent dividend.

Dulux’s bid for Alesco comes at a time as the building materials and construction sector faces the toughest conditions in 20 years, according to cement and construction materials manufacturer Boral Limited’s (ASX: BLD) chief, Ross Batstone. Both Boral and fellow materials company CSR Limited (ASX: CSR) have pressed the government to provide further stimulus for the weak building industry.

The Foolish bottom line

A higher bid is unlikely as Dulux has declared the latest bid as its “best and final” offer, and there don’t appear to be any other suitors for Alesco hiding in the wings, but it appears this game is far from over and we can likely expect more sabre rattling from both companies.

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Motley Fool writer/analyst Mike King doesn’t own shares in any company mentioned.  The Motley Fool ‘s purpose is to help the world invest, better.  Take Stock  is The Motley Fool’s free investing newsletter. Packed with stock ideas and investing advice, it is essential reading for anyone looking to build and grow their wealth in the years ahead.  Click here now  to request your free subscription, whilst it’s still available. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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