01—Abstract
Summary
Summary of the 8-K filed April 28, 2003. Cited figures are marked; the original filing is the authoritative source.
On April 28, 2003, Procter & Gamble, through its wholly owned German subsidiary Procter & Gamble Germany Management GmbH, launched a voluntary public cash tender offer for all outstanding ordinary and preference shares of Wella AG, a Darmstadt-based cosmetics company.
The offer price is EUR 92.25 per ordinary (voting) share and EUR 65.00 per preference share, valuing the total equity at roughly EUR 5.5 billion (the filing elsewhere cites up to EUR 5.6 billion purchase price plus about EUR 0.1 billion of acquisition costs, or about EUR 5.7 billion in total). The deal is anchored by a March 17, 2003 share purchase agreement to acquire about 77.6%a of Wella's voting stock from family shareholders, and the offer is conditioned on P&G reaching at least 75% of voting capital, which depends on antitrust clearance from the EU, US, Canada, Mexico and Japan. For investors, the key points are the scale and structure of the deal and its premium.
The preference price is about 55%b above the pre-speculation level of around EUR 42 in October 2002 and about 14% above the three-month average before the March 18 announcement. P&G states the EUR 65 price is final and will not be raised. Management also points to roughly EUR 3.4 billion of annual sales being added to P&G's beauty business and about EUR 300 million per year of medium-term synergies.
P&G plans to fund the purchase through its commercial paper, existing cash, and debt, supported by an AA-/Aa3 credit rating and a guarantee from the parent to fund the bidder. The filing estimates Wella's first-year earnings plus synergies at USD 200 to 250 million, largely offset by financing costs, incremental depreciation and amortization, and one-time charges. Key risks include regulatory timing, since antitrust clearance could take many months and possibly extend into spring 2004, and the possibility that the offer lapses if conditions are not met by March 18, 2004.
Minority holders who do not tender may face reduced liquidity and possible delisting or exclusion from the MDAX index, and P&G may later pursue a squeeze-out. The offer also includes a price-protection feature that improves consideration for early tenders if a later squeeze-out or domination agreement pays more within one year. The acceptance period runs until May 28, 2003, with an additional period expected in June.
02—Key points
Key Highlights
- Tender offer for all Wella shares: EUR 92.25 per ordinary share and EUR 65.00 per preference share, valuing total equity at roughly EUR 5.5 to 5.7 billion including acquisition costs.
- Preference price premium: about 55% above the October 11, 2002 pre-speculation level of about EUR 42, and about 14% above the three-month average before the March 18, 2003 announcement; P&G says the price is final and will not be increased.
- Control acquisition: a March 17, 2003 share purchase agreement covers about 77.6% of Wella's voting stock from family shareholders, with the offer conditioned on P&G holding at least 75% of voting capital.
- Strategic fit: Wella contributes roughly EUR 3.4 billion in annual sales (about EUR 1.6 billion professional hair care, EUR 1.0 billion retail hair care and EUR 800 million fragrances), strengthening P&G's beauty business in Europe and Latin America.
- Synergies: management targets about EUR 300 million per year in medium-term synergies from knowledge transfer, purchasing, administration and production.
- Financing and earnings impact: P&G guarantees funding through its commercial paper program, cash and committed credit lines, with the mix of debt and equity not yet set; first-year Wella earnings and synergies of USD 200 to 250 million are expected to be largely offset by financing costs, depreciation and one-time charges.
- Timing and risks: acceptance period ends May 28, 2003; antitrust clearance may take until late 2003 or spring 2004, and the offer lapses if conditions are not met by March 18, 2004.
03—Questions
Frequently Asked Questions
What is P&G offering to pay for Wella shares, and how does that compare to market prices?
P&G is offering EUR 92.25 per ordinary voting share and EUR 65.00 per preference share. The ordinary price is about 44% above the three-month average before the March 18, 2003 announcement, and the preference price is about 14% above that average. Against the October 2002 pre-speculation level, the preference shares were up about 55% at the offer price.
Is the offer price likely to increase?
P&G has stated that the EUR 65 preference price is final and will not change during the tender period, and that it has no intention of raising the price regardless of how many shares are tendered. The offer does include a price-protection clause: if a later profit-transfer agreement or squeeze-out within one year pays more in cash, tendering shareholders receive the difference.
What conditions must be met for the deal to close?
The offer requires P&G to acquire enough family-held voting shares to reach at least 75% of Wella's voting capital. That acquisition depends on antitrust approvals from the EU, US, Canada, Mexico and Japan, with clearance expected by late 2003 and possibly as late as spring 2004. If the condition is not met by March 18, 2004, the offer lapses.
How will the acquisition affect P&G's financials?
P&G plans to fund the roughly EUR 5.7 billion cost through a mix of debt, existing cash and equity, with the final mix not yet decided. The filing estimates annual interest costs of about EUR 215 million in a fully debt-funded scenario. P&G expects Wella's first-year earnings and synergies of USD 200 to 250 million to be largely offset by financing costs, incremental depreciation and amortization, and one-time charges, so near-term earnings accretion appears limited.
What happens to Wella shareholders who do not tender?
Shareholders who do not tender remain Wella shareholders but may face lower trading liquidity and wider price swings. Wella preference shares are likely to be removed from the MDAX index, which could lead index funds to sell and pressure the price. P&G may later seek a domination agreement, a profit transfer agreement, or a squeeze-out at 95% ownership, and any compensation could be above or below the offer price.
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