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Idle hands hard at work in Dulux bid

The devil has plenty of idle hands to choose from in the building and home renovation sector at the moment and he seems to be putting them to work planning and executing a number of acquisitions throughout the industry, not all of which have been well received.

The most recent acquisition attempt was dreamed up not by the devil, but by the directors of paint producer DuluxGroup (ASX: DLX) who continue to steam towards their goal to acquire 90% ownership of construction supply company Alesco Corporation Limited (ASX: ALS). Despite still not having the support of Alesco’s board, DuluxGroup have gained the blessing of several key institutional investors, most recently Argo Investments, and now stake claim to 42.3% of the target.

Alesco claims the bid price of $2.05 per share undervalues the company, which has been given an individual ‘sum-of-the-parts’ valuation of between $2.23 and $2.52.  With no other offers on the table it is now up to retail investors to decide if the price is right, or if they reject the offer and risk a potentially sharp share price drop if Dulux walk away.

However it looks likely to succeed, in part because it bears close resemblance to the raid by Fletcher Building Limited (ASX: FBU) on plumbing supply company Crane Group completed last year.  Like the Dulux bid, Crane Group initially refused to support the bid, claiming the offer price of one Fletcher share and $3.43 cash undervalued the company.  This forced not one but two revisions of the offer before scoring the board’s support.  Both deals have also required several extensions of the offer period to gain the necessary level of acceptance and get the bid across the line.  The Dulux offer is currently set to close on August 28 (unless, of course, it’s extended further).

Success is not assured, however.  The June bid by building fixtures and fittings company GWA Group Limited (ASX: GWA) for small cap security firm Q Technology Group (ASX: QTG) was ‘mutually terminated’ according to the company’s ASX filing, after failing to achieve conditions placed on the deal.

Foolish takeaway

The Dulux bid is an opportunistic one, taking advantage of the cyclical slump in Australia’s construction and home renovation industry and an underperforming Alesco.  Despite not having the backing of Alesco’s board, if successful Dulux should find themselves keenly positioned to take advantage of an eventual recovery.  Most devilish.

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Motley Fool contributor Regan Pearson owns shares in Fletcher Building. 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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