Metroglass acquisition bid linked to Vulcan Steel ambitions, market experts say

When you’ve recently bought an aluminium window and door maker, it makes perfect sense to acquire a glass company to fully capture the value chain.

That was the view of market watchers regarding news that Metroglass shareholders Takutai Ltd, the vehicle of Vulcan Steel founder Peter Wells, and Masfen Securities, the investment vehicle of veteran businessman Peter Masfen, had pooled their stakes to take a collective 25 per cent shareholding in the country’s biggest glass processor.

Vulcan Steel, dual-listed on the NZX and ASX, last year bought New Zealand family-owned Ullrich Aluminium for $149 million. Among other products, Ullrich fabricates and distributes window and door frames.

The two MetroGlass shareholders have signed a co-operation and process agreement forming a consortium, which on Tuesday revealed an attempted takeover proposal of 18c in cash for all Metroglass shares. Before a trading halt on Tuesday, the shares were trading at 15.7c.

The board of Metroglass rejected the proposal, which was subject to a number of conditions, saying it significantly undervalued the company and was not in the best interests of shareholders to take further.

While it’s not Vulcan Steel itself making the move on Metroglass, in investment market circles, the temptation to link the takeover bid to the Ullrich acquisition last year was strong.

Also to consider, observers said, was Metroglass’ share price - down to 15.7c before the trading halt. Trading resumed on Tuesday afternoon after Metroglass directors informed the market they had rejected the proposal.

Masfen emerged as a substantial shareholder in February 2020 when the share price was trading around 25 cents.

Takutai bought into the company in February last year when the shares were trading around 35 cents.

MetroGlass went public in 2014, selling 143.7m shares at $1.70 each.

The consortium’s unsolicited bid comes as the New Zealand construction sector and economic activity slows down, and Metroglass progresses with plans to sell its Australian business, the performance of which had disappointed, market observers said, although it was now profitable. Metroglass bought Australian Glass Group in 2016.

The Metroglass board said on Tuesday it was continuing with the divestment process.

The building products supplier told the Herald last month it faced a major challenge with 50 per cent more glass sitting in its warehouses, a significant rise in imported glass costs and a residential construction market that was slowing down.

Chief executive Simon Mander at the time said he’d seen a 10 per cent slowdown in demand in the past year and expected it to deepen to 20 per cent this year, with higher interest rates and fewer house building consents.

The company posted a $10m net loss in the year to March due to taking an impairment on assets, a decision it explained as financial preparation for a downturn.

Mander said it had increased its inventory to deal with supply chain issues, a measure that had pushed its debt to $60m, or 3.3x earnings.

Metroglass announced a restructure last year and took up to $9m of costs out of the business in the year to March.

For an example of value consolidation in the aluminium building products sector, Masfen and Wells had only to look at sector heavyweight Architectural Profiles Ltd, better known as APL, which three years ago started its own glass manufacturing operations at Hautapu in the Waikato.

Claiming 45 per cent of the New Zealand aluminium windows and doors market, APL is a former Metroglass customer. Its new glass division is called AGP, or Architectural Glass Products, and claims to be the only glass operation in the country that “efficiently runs on fully automated lines”.

Metroglass, in a market statement on Tuesday, said the Takutai-Mafsen consortium’s 18c per share cash proposal was via a scheme of arrangement.

The non-binding, indicative proposal was subject to conditions including due diligence on an exclusive basis, negotiation and execution of a scheme implementation agreement, and endorsement and support for the proposed transaction from Metroglass’ board of directors.

The company said the proposal followed confidential inquiries from Masfen Securities and affiliates during May and June about the potential acquisition of all shares in Metroglass.

The company had previously appointed Jarden as its financial adviser and lawyers Bell Gully to help it consider these inquiries, which had been on “substantially the same terms” as the formal proposal.

Metroglass’ annual shareholders’ meeting is on Tuesday, August 1.