Sulzer sees no Incentive

InCentive Capital insists it is offering a good deal for Sulzer. But the Swiss engineering business says the offer is considerably below its worth.

The hostile takeover battle between Swiss engineering group Sulzer and its main shareholder InCentive Capital is hotting up.

Earlier this week, Sulzer presented its reaction to a hostile takeover bid from InCentive Capital, saying that the investment firm’s offer values the company significantly below its true worth. InCentive has rebuffed these claims.

Leo Vannotti, chairman of Sulzer said: “The trouble with InCentive’s bid is that its numbers just don’t add up. Why should our shareholders hand over Sulzer for so much less than it is worth? In addition, InCentive still gives no ideas about what it would do with Sulzer’s businesses other than what we are already proposing to do”. Both Sulzer's board and InCentive have plans to sell Sulzer Medica, the group's most valuable asset, back to shareholders.

Fred Kindle, Sulzer’s chief executive, added: “We’ve got good businesses and a good strategy which will ensure Sulzer grows in value. Shareholders should not allow InCentive to capture all that at the low price that it is proposing.”

Incentive, a recently floated investment company led by entrepreneur Rene Braginsky has a 15 per cent direct and indirect stake in Sulzer. It is offering CHF 430 in cash per share. However Sulzer argues that this will in fact be CHF 410 per share after a CHF 20 per share dividend proposed by the board has been taken out. An Incentive spokesperson’s reaction to this was: “It is clear that when the current owner takes money out that the price has to be reduced by this amount. The offer was always cash amount minus dividend which was not known at the time of the announcement of the original offer.”

According to the Financial Times, independent observers value Sulzer's core business including the fuel cell technology business Hexis at just under twice Incentive's offer price.

Sulzer says that InCentive is not attributing any value to Hexis. An InCentive spokesperson commented on the Hexis product saying: “Perhaps it could be an interesting product but it’s a project that’s been going more than ten years, will need CHF20 – CHF30m of investment per year and is not predicted to break even till 2006. If it’s such a good project the management could go and get money for a management buyout but I don’t see this happening.”

As an alternative to its cash offer, InCentive is proposing a share swap of one InCentive share for each Sulzer share. InCentive’s shares currently stand at CHF450, and the firm has introduced a contingent value right (CVR), which proposes protection for shareholders if its share price falls below CHF 400 at the end of 2002. “This” says Sulzer “reflects, among other things, the low liquidity and, as identified by InCentive in its own offer documentation, the risky nature of the InCentive share.” InCentive’s spokesperson said that “in the capital markets, the introduction of options and security tools is standard. It doesn’t mean that we don’t believe in our share, it means that we are capable of offering attractive, innovative capital market solutions.”

InCentive’s offer commences on April 17, two days before Sulzer’s AGM, and its first closing date is May 22. InCentive has also proposed that the Sulzer Board be removed at its April 19 AGM and be replaced entirely by InCentive directors and InCentive nominees.

Investment banks UBS Warburg and Morgan Stanley are advising Sulzer on the takeover offer.