CMC Rejects Icahn Enterprises Unsolicited Offer
After Carl Icahn and Icahn Enterprises sent an unsolicited acquisition proposal to Commercial Metals Company, CMC has been deciding how to handle the unwanted offer. Finally, the company has decided unanimously that the offer of $15.00 per share “substantially undervalues the Company and its future prospects, is opportunistic and is not in the best interests of CMC's stockholders,” according to CMC’s press release. CMC businesses include being a long products producer, scrap processor and supplier, and steel trading company.
CMC Lead Director Anthony A. Massaro said, "It's important that our stockholders understand that Mr. Icahn is making an aggressive push to acquire the Company at this time in an attempt to achieve a bargain basement price for CMC."
Mr. Massaro continued, "Mr. Icahn also fails to take into account the substantial anticipated benefits of the strategic plan being implemented at the Company. Led by our new CEO, Joe Alvarado, and our new CFO, Barbara Smith - both highly experienced industry veterans who assumed these positions just earlier this year - CMC has taken meaningful steps to improve long-term financial and operational performance, and the Board firmly believes that the continued pursuit of our strategy will deliver greater value for our stockholders than Mr. Icahn's proposal."
As the offer was not formally aimed at the stockholders, stockholders do not need to take any action.
CMC sent a letter to Mr. Icahn on December 5, 2011, which is below:
December 5, 2011
Dear Mr. Icahn,
The CMC Board of Directors is writing to you in response to the open letters you disseminated to the media on Monday, November 28, 2011 and received by the company on Friday, December 2, 2011.
We continually evaluate alternatives to enhance stockholder value. We have made a thorough review over the course of several Board meetings within the past week, with the assistance of independent financial and legal advisers. It is the unanimous view of the Board of Directors that your unsolicited proposal of $15.00 per share to acquire all outstanding common shares of Commercial Metals Company (CMC) substantially undervalues CMC and its prospects. Accordingly, the Board rejects your proposal as not in the best interests of all CMC stockholders.
Furthermore, the Board believes the proposal is an opportunistic attempt to acquire the Company at a low point in the economic and industry cycle and when the stock price is relatively depressed, thereby depriving stockholders of potentially significant future value that can be realized through the successful execution of the Company's plan, as economic and market conditions improve. As you are certainly aware, CMC's stock price, like many of its steel industry peers, has been trading at some of the lowest levels since the global financial crisis in late 2008/early 2009, reflecting, among other things, the impact of weak demand, significantly decreased construction activity and an environment characterized by constrained credit and uncertainty.
Moreover, the "premium" that your proposal purports to offer is lacking even when compared to our relatively depressed stock price. Your $15.00 per share proposal represents:
A small premium of only 11.4% to the Company's stock price of $13.47 as recently as November 15;
A premium of only 17.7% to the 20-day Volume Weighted Average Price (based on 20 trading days prior to the proposal) of $12.75;
A significant discount of 17.1% to CMC's 52-week high of $18.09 on February 17, 2011; and No premium to CMC's stock price of $15.03 as recently as May 19, 2011.
In addition, your proposal fails to take into account the fact that CMC - under new leadership - is effectively executing on a strategic plan, which the Board believes will drive substantial value creation. Just this September, Joe Alvarado assumed the position of CEO, which followed the appointment of Barbara Smith as CFO earlier in the year. Both Joe and Barbara are highly experienced industry veterans, who along with the rest of the management team, have the support of a strong and independent Board that itself has seen substantial change with the appointment of five new independent directors and a new chairman since 2010. This team is highly focused and, in just the past few months, has taken important steps to strengthen CMC's operations and position the Company for enhanced performance when economic conditions improve.
These actions are substantial and include streamlining operations, shedding non-core assets, and importantly, reducing the Company's overall cost structure. Specifically, as we announced in October, CMC made the decision to exit operations in Croatia, restructure the fabrication business, with plans to close five rebar fabricating locations, implement further global headcount reductions and rationalize eight construction services locations. And, while cost and efficiency have been key priorities, our new team is also building out capacity in our Recycling business and expanding our Poland operations to capture the market for higher margin value-added merchant and wire rod products.
Our Board is committed to serving the interests of all stockholders and, consistent with its fiduciary responsibilities, will evaluate any legitimate offer it receives. However, the Board strongly and unanimously believes that your proposal substantially undervalues CMC, and that our current plan is the right path to enhance value for our stockholders.
Source: Commercial Metals Company