Bank upgrades ZAP stock recommendation in view of ZAT takeover

28 August 2012 12:35  [Source: ICIS news]

LONDON (ICIS)--Investment bank WOOD & Company has upgraded its recommendation on the stock of Zaklady Azotowe Pulawy (ZAP) to 'Hold' from 'Reduce' in anticipation of a successful merger and acquisition to be carried out by fellow Polish chemical group Zaklady Azoty Tarnow (ZAT), the bank said on Tuesday.

Analyst Piotr Drozd at the Prague-based bank said that ZAT was last week only able to pick up 10.3% of ZAP in a cash offer, priced at zlotych (Zl) 110/share (€26.89/share), to investors holding 32% of the company.

Most ZAP shareholders were clearly convinced that there was more value in holding on to their shares until ZAT completes its takeover move with a share swap conducted at a rate of 2.5 ZAT shares per one ZAP share, he added.

The Polish treasury, which holds 50.7% of ZAP, has already signalled its agreement to this share swap.

“The result of ZAT's tender signals confidence in the merger and acquisition,” Drozd said in a note to investors on the deal, which the treasury says will create Europe's second largest fertilizer producer.

“Despite the uncertainty regarding the final outcome of the merger and the scale synergies involved, ZAP's shareholders chose the potential upside stemming from the proposed share swap versus accepting the Zl 110/share cash tender," he said.

"We believe that the lack of response from the minority shareholders underlines not only the market’s confidence in the M&A process but also the expectations regarding the post-merger synergies ... and the political motivation to see the deal go through remains high,” Drozd added.

A potential stumbling block to the deal may stem from those lobbying for the treasury ministry to reshape the merger and acquisition so that it becomes a “merger of equals” rather than a ZAT takeover of ZAP.

On Monday, ZAP's management followed ZAP's unions and the company's Workers' Council in lobbying for this change of approach.

The unions and Workers' Council have also suggested that ministers should consider making the transaction a ZAP takeover of ZAT, rather than vice versa, given ZAP's superior profits and operational performance in recent years.

(€1 = Zl 4.09)


By: Will Conroy
+44 20 8652 3214



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