Vesuvius will be the larger company in terms of revenues (£1,818 million with £191 million in adj trading profit in 2011) while Alent appears like it will have superior margins (£418 million sales, £96 million in adj trading profit for 2011). See our earlier article on the subject, this company presentation and the various documents found within the Investor Relation’s page for much more detailed information on the companies.
Cookson’s board believes the time is now right for a spinoff as both divisions are now ‘large enough to successfully pursue their strategies independently.’ Additionally the company was finally able to overcome other obstacles to the transaction such as various pension issues and treatment of US tax losses. The company thinks that as a result of the spin, both companies will be better off by:
1) Allowing Vesuvius and Alent to pursue their strategic objectives independently with greater control over resources and opportunities and avoiding competition for capital resources
2)Increasing management and board focus on the particular needs of each of Alent
and Vesuvius, and enabling each of the companies to better motivate, attract and
retain management and other key employees3) Providing shareholders with added flexibility in their investment decisions; and
4) Giving rise to a positive valuation re-rating for both entities through the potentially
improved performance of the businesses, improved investor understanding and
the elimination of any “conglomerate discount” in the current valuation of Cookson.
Nothing earth-shattering there, but even the current Chairman & CEO note that “there is very
limited operational or end-market overlap between the two [units], and both will be much better
placed to maximise their potential following the Demerger.” Makes sense.
Interestingly, the move will also bring a new management regime to both companies. Cookson’s current Chairman and CEO, Jeff Harris and Nick Salmon respectively, will both retire and not serve on the board at either company. I guess there is nothing like a spinoff for your swan song. Both companies looked internally to fill the void with Steve Corbett, currently CEO of Cookson’s Performance Materials division, becoming CEO of Alent and François Wanecq, currently CEO of Cookson’s Engineered Ceramics division, becoming CEO of Vesuvius. Both executives obviously have strong familiarity with the businesses and that should result in a smooth transition.
Cookson’s current dividend of 15 pence will be divided amongst the new companies with Vesuvius intending to pay out 9.5 pence per share and Alent covering the balance. Both companies are expected to trade on the LSE and the spinoff is expected to be completed on December 19th assuming approval from regulatory authorities and shareholders (at the November 26th meeting) is obtained.
Disclosure: Author holds no position in any stock mentioned.