Document 3MJ3kzKxZ7Oz4JE4M2DwMVK3
FILE NAME: CertainTeed (CERT)
DATE: 1962 Mar29
DOC#: CERT062
DOCUMENT DESCRIPTION: Memo - CERT Negotiations to Acquire Keasbey & Mattison
XEAS3KY it MATT ISON COMPANY AND
CEUTAP:-TEP-D PRODUCTS CORPORATION*
The present position of the negotiations fo r the acquisition by C ertain-teed of the pipe plants of X. u M. Co. Is a s follow s:-
1. C e rtain -teed will acquire the four A sbestos C em ent Pipe Plants operated by X. & i.i. Co. at A m bler, St. Louis, Santa Clara and Hillsboro, i.c . the land, buildings and machinery, for which they would be p rep ared to iss u e to T . N . (O) Ltd. (the owner of the X. & M. sh a re s ) 580, 000 s h a re s of common stock of Certain-teed.
2. C e rtaln -tccd would a lso pay fo r in ca sh th e in v en to rie s of raw m aterials and finished goods relating to the pipe plants.
Economics of the Proposal
(a) F ro m the point of view of C e rtain -teed
C e rta in -te e d have in issu e 2, 552, 600 com m on stock of the p a r value of $1. on which for the y ear to 31st D ecem ber, 1051, they earned approxim ately $5, 900,000 after taxes, which re p re se n ts approxim ately $ 2 .4 p e r s h a re . In re tu rn fo r the iss u e of a fu rth e r 530,000 s h a re s for the K. U M. pipe plants etc, (exclusive of inventories) we estim ate they would receive in net income, afte r taxes, $2 ,0 0 0 ,0 0 0 p e r annum, which represents approximately $ 3.3 p e r sh a re . C ertain-teed expect to ea rn $ 3 p e r share with th e ir own b u sin e ss in th e 1922 financial y e a r, and before long to be earning $4 per share.
(b) F ro m the point of view of K. L M. Co.
The booh value of the net a s s e ts of K. & M. C o . a t 30th S eptem ber 1051 (after including the shares held in C e rtain -teed P ro d u c ts C orporation and Bcstw all Gypsum Co. at approxim ate m ark et value) was $25,014, 900. We would re c e iv e 520, 000 C e rta in -te e d s h a re s , which a t to -d a y 's m arket p rice a r c w orth $29,000,000, and in addition, on liquidation of K. 5c h i ., we would receiv e the funds derived from tho sa le of the textile plant and conversion of the rem aining assets into cash (a fte r paying liab ilities) and which we estim ate would am ount to betw een $ 5 ,0 0 0 ,0 0 0 and $G, 000,000. If perm ission could be obtained M r. L iz ars would like us to use this money in the purchase of further C ertain-teed shares.
If the proposals arc accepted and C ertain -teed issu e an additional 500,000 s h a re s to X. L M. C o ., the T . it N. G roup, with the sh a re s which it already owns in C ertain-teed, would have a holding of approxim ately 21y, and if the funds derived from the liquidation w ere.used In the purchase of fu rth e r C e rtain -teed chares, we could in c re a se o u r holding to betw een 24% and 25% which, in effect, re p re se n ts voting co n tro l.
2.
Disadvantages from the T. cc IL nolnt of view
At the p resen t tim e X . Zt M. C o. is a wholly-owned su b sid iary and its p ro fits a r c inco rp o rated with those of T . & N. L td. 7>.c average p ro fits of K, is M. C o ., b efo re tax es, which h ave been brought into the P ro fit L L oss Account of T. 6 X. Ltd. over the pas; five y e a rs amount to 723, 539, and if the proposals a rc accepted o u r trading p ro fits would be reduced by this amour.: and be substituted by an estim ated dividend fro m C crtain -tceo , on the 530,000 sh ares they would issu e , of $3*13,000, o r, say, 120,000. Although the carat.;,; on C crtaln-tccd sh ares a re approaching $3 p e r sh a re, which, on 530,000 sh ares would re p re se n t $ 1 ,7 4 0 ,0 0 0 , they have r e s tr ic te d th e ir dividend to CO cen ts p e r sh are, and we understand th e re is not m uch likelihood of an in crease in the near future.
Against this m ust be se t the fact that fo r the cu rren t y ear ending on S lst M arch, 1952, with th e lo s s e s w hich w ill be in c u rre d on closing down the Building P roducts D ivision, K . St M. C o . a r e unlikely to have any p ro fit avail able fo r Inclusion in the T . it N. consolidated accounts at 50th Septem ber, 1952.
29th M arch. 1962
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"37 `Castleman.CERTOOl 385
Pre-Tax Profits aa oertified by the Auditors
K.& M . 'a Pre-Tax Profits
Miscellaneous expenses not provided for in Departmental profit figures
Total of Departmental Profits
Building Products Turnover Profit or loss
Profit $
Textile Turnover Profit or loss
Profit i>
Industrial Products Turnover Profit or loss Profit
P Turnover Profit Profit "
1951
KEASBEY & MOTISON .CO.CPANY
Details from Accounts 1951 to 1962 (All figures in 1,000)
1952
1251
1954
1955
1956
1957
1258
1252
I960
1961
1962
2,364
2,216
2,006
1,612
1,870
3,454
3,255
2,181
1,389*
1,823
1,520
387
2,327
2,282
1,970
1,579
1,093
3,473
3,344
2,255
1,317
1,867
1,520
176
413
162
1
97
12
33
287
353
1,020
669
720
886
2,740
2,444
1,969
1,482
1,881
3,511
3,631
2,608
2,297
2,536
2,240
710
8,466 1,020 12.1
734 5
0.7
5,063 830
I6 .4
4,953 895
18.1
7,210 494
6.8
1,439 26
1.8
5,950 965
16.2
5,886 1,011 17.2
7,402 212
2.9
1,302 104
8.0
5,212 571
10.9
6,847 1,290 18.9
7,047 5
0.7
1,559 128
8.2
5,729 493
8.6
6,597 956
14.5
5,653 54
0.9
5,444 71
1.3
7,652
494 6 .4
7,218
697 9.7
6,854
1,133 I6 .5
1,149 72
6.3
1,587 63
3.9
1,553 86
5.6
1,405 18
7.8
1,325 43
3.2
5,032 372
6.5
4,750 178
3-7
5,119 320
6.2
4,766 64
1.3
3,807 316
8.3
8,337 1,536 18.4
12,390
3,341 27.0
12,665
3,719 29.4
12,440 3,223 .2 6 - 4 -
y
14,581 3,703 25.4
5,696
947 16.6
5,379 1,144 21.3
4,786
1,146 2 4 .O
1,570
-
10
-
0.6
*
1,289 90
0.7
3,751 572
15.3
5,067s/ 706
13.9
4,086 538
13.2
16,110
4,045 2 5 .I
17,547 4,090
23.4
17,025 2,484 14.6
* After including loss on sale of plant at Stockport (roofing
paper manufacture) this figure becomes l,193,000
Inoludes Textiles, for which separate analysis for I96I not available.
Castleman.CERT001386
T vt / / 1'/L
3th F e b ru a ry , 1033
KHASBiiY .-y j.j7 j.p r . co:. paxy
ci;nT,Mo:-Ti:i-:D p r im e r s canyor-A-rics
O'it'i th e closing down o f the Lulldlng P ro d u c ts Division of K. A " , C o ., e le c tiv e la th F e b ru a ry , 1332, the company will v irtu a lly becom e ao ae product company, i . c . A sbestos Ceracat 1'lpos. M r. Itawson Liea re , tl;o Chairman, and M r. Malcolm M eyer, the Prealdcnt of C crtain-tccd ProductsCorporation, have ex p ressed in te re s t irt acquiring the pipe plants from it. 2... Co. o r alternatively the entire company, and m eetings have recently been hold in M anchester at which th ese two gentlem en w ere p re se n t. At the m ost recent meeting held in London on F rid a y , th e 2nd F e b ru a ry , J.`. r . A lan K u sscll, of lid b c rt,' Wagg is Co. L td. and M r. J . 11. Thoraaon, of M o s e rs. Alien A C vcry, wero present.
M r. Lie are was interested originally in acquiring the issued sh a re capital of K. U 2.1. Co. and becom ing resp o n sib le for the cleaning up nec essary following the closing dor.n of th e Euilding P roducts D ivision, lie la te r indicated that he could not maho an offer fo r the sh a res of the company in view of tbo anticipated poor prefit re c o rd of 2-1. A M. C o. th is y e a r and the publicity whicl; would necessarily have to be given to `die aecpdsitlon of tije com pany by C a tta in -ic e d In the U .3.A . lie tltcreforc m ade an altern ativ e suggestion witich ho h a s prom ised to submit in writing, on the follow in' b asis:-
1. Ccrtain-tccd will acquire the four Asbestos Cement Pipe Flam s operated by K. & i t . Co. at A m b ler, :>t. L ouis. S a h a C lara and Hillsboro, i .c . the land, buildings and m achbiery. together with the Asphalt Hoofing P lant at P e rth Amboy, fo r which they would be prepared to iss u e to T . u M. (O) L td , (tho ovm er of the b.. A M . shares) 300,003 sh a re s of com m on stoch of C crtain-tccd.
2. In addition, if within two y e a rs they decided not to operate the Asphalt Hoofing P lan t they would dispose o f it and pay to K . A 2>i. Co. any excess received ov er 01,200,0-30.
3. Ccrtain-tccd would also pay fo r in cash at once the inventories of raw m aterials and finished goads relating to the pipe plants and the accounts receivable in connection therew ith.
S. C crtaln-tced would a ct a s `die M anaging Agent of T . A II. L td. in winding up K. A I.t. Co. and tu rn in g into cash tho remainL-ig asaots.
Economics of the Proposal
Ca) F ro m the -.ol:it of view of C e rta in -te e d
C ertain-iccd have la iss u e 2 ,5 5 3 ,6 SO com m on sioch of tho :-.ar valu of
0 : , on which for the y o u r to 3 lo t D ecem ber, 1031, they earned approxi
m ately $S,9C0,t)0C a te r ta x e s , which re p re s e n ts approxim ately
per
sh a re . La re tu rn for th e is s u e o f a fu rth e r 600,000 s h a re s fu r the Ci
pipe plants e tc . (exclusive of in v en to rie s and accounts receivable) *.vc
estim ate they would re c e iv e ia a c t in co m e, a fte r ta x e s , $2,000,000 p e r
; > (b>
annum, which rep resen ts approxim ately $3,3 p e r sh a re . C ertain -teed expect ta ea rn 03 p e r chore will th e ir own business la th e 1362 in sscial y e a r, and before Ion* to be earning C-i p e r c h a re ,
? r o n the eolnl of view of M. A *>!. Co.
The booh value of the net a s s e ts of X. C o. a t Svth S ep tem b er i s d (after including the shares held in C ertain-teed Products C orporation and Lcciwnll Gypsum Co. at approxim ate m arket value) w as ;>25,014,990. F o r th is v c would receive BSj.ubb C ertain-teed s h a re s , which a t to -d a y 's m ark et p ric e o f 42 p a rc w orth $29, ICO,060. in addition, v/e would re c e iv e the funds derived front the sa le of the textile plant and conversion of the rem aining a s se ts of Iv. ALL C o. into cash (a fte r paying lia b ilitie s) and > which wo estim ate would amour.: to between OS.Cifu.Ceb and $6,0bC ,JC d. - **** * If perm ission could be obtained M r. L ia a rs would like us to use th is money in the purchase of further C ertain-teed shares.
If tire proposals a re accepted and C e rtain -teed iss u e an additional COO,000 sh a re s to X, U Id. C o ., th e T . A if . G ro u p , w ith th e s h a r e s which it already owns in C ertain-teed, would have a holding equivalent to 2 1 .., and if the funds derived from the liquidation were used in the purchase of further C e rtain -teed s h a re s , we could in c re a s e o u r holding to betw een 24,1 an d 2S\. w hich, in effect, represents voting control.
D isadvantages from the T , *: X. point of view
At the p resen t tim e X,, A Li. Co. is a wholly-uv/neu su b sid ia ry and its profits are incorporated with those of T . A X. Ltd. The average profits ol h . A M. C o ,, before tastes, which have been brought into th e X'refit A L o ss Account of T . A X. Ltd. over the past five y ears amount to 725,309, and if the pro p o sals a r c accepted o u r trad in g p ro fits would be reduced by tills am ount a_*.d be substituted by an estim ated dividend fro m C crtain-tccd,on th e 600, coo c h a r e s they would issu e,o f $350,0C0, o r , sa y , 120,000. Although the c a m in jc on C e rta in -te e d sh a re s a r e approaching $3 p e r s h a r e , w hich, on 600,000 s h a r e s would re p re s e n t $1,600,000, they have r e s tr ic te d t h e i r dividend to 60 cents p e r s h a r e , and we u n d er stand th ere la not much likelihood of an increase in the n ear future.
Against this m ust be se t the fact that fo r the cu rre n t y e a r ended on 3 is t M arch, 1062, with the lo sse s which will be incurred on closing dov/n the Suttdin* I'roducts Division, tv. A h i. Co. a rc unlikely to have any profit available fo r inclusion in the T . & X . consolidated accounts at SCth S e p te m b e r, 1002.
Castleman.CERTO0f387