SGO Cie de SaintGobain

THE NEWS: Compagnie de Saint-Gobain SA (SGO.FR) and Sika AG (SIK.EB) have struck an agreement to end their long-running legal dispute, bringing the French company's pursuit of a controlling stake in Sika to a close.

THE BACKGROUND: The dispute arose in 2014 after Sika's founding Burkard family agreed to sell Saint-Gobain its roughly 17% stake in Sika, along with its controlling voting rights.

Sika's management interpreted the deal as a hostile takeover and moved to block it.

Following a prolonged legal battle a Swiss court ruled in 2016 that the deal would be unlawful and allowed Sika's management to restrict the family's voting rights.

However, the Burkards sought to extend their agreement with Saint-Gobain and continued to propose candidates to Sika's board.

THE DEAL: Saint-Gobain paid 3.22 billion Swiss francs ($3.21 billion) to the Burkard family for its stake.

Sika then immediately bought back a 7% stake from Saint-Gobain for CHF2.08 billion--equivalent to a CHF750 million premium--and will cancel out the shares via a capital reduction.

This leaves Saint-Gobain with a 10.8% stake and no majority voting rights.

It must retain the stake for at least two years, while Sika has the right of first refusal to buy back its shares if Saint-Gobain chooses to sell at any time.

WHAT'S NEXT: Sika will call an extraordinary shareholders' meeting and propose the cancellation of its newly acquired 7% stake, as well as the conversion of all shares into a single class, where one share is equivalent to one vote.

Sika's CEO said the company is now free to go after acquisitions of up to CHF500 million, as the Burkards had previously blocked most efforts at dealmaking.

THE MARKET REACTION: Shares in Sika rose more than 10% in early trade on news of the resolution, while Saint-Gobain was trading around 2.8% higher shortly after midday.

Davy Research said the agreement "works well for all concerned," and ensures Sika's future independence.

Bernstein said Sika's CHF750 million premium was a fair price for its freedom and called the deal a "face-saving exit" for Saint-Gobain.

Write to Barcelona editors at barcelonaeditors@dowjones.com

(END) Dow Jones Newswires

May 11, 2018 07:18 ET (11:18 GMT)

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