2023-05-02 18:19:09 ET
Summary
- Solenis and Diversey Holdings, Ltd. entered into a definitive merger agreement, creating a strong presence in the specialty chemicals and hygiene solutions sectors.
- Bain Capital, Diversey's majority shareholder, has supported the transaction by selling some shares at a discount and rolling over the remainder.
- The deal is marked by minimal volatility and is considered stable, with an expected completion in the second half of 2023.
- Dutch Work Council consultation is a necessary step, but it is unlikely to pose any significant challenges to the merger.
- There is potential for a 3.19% upside in Diversey Holdings, Ltd. over a relatively short time frame.
Diversey Holdings, Ltd. ( DSEY ) is a global cleaning supply company worth around $2.64 billion. It is being acquired by Solenis , a U.S.-based leading manufacturer of cleaning supplies and cleaning chemicals at $8.40 per share. The latter was already acquired by Platinum Equity (a private equity firm) in 2021 for $5.25 billion. Diversey is partly owned by Bain Capital, which is selling some shares at a discount and rolls over its other shares and supporting the transaction. In March, the shares were trading at around $8.18, and currently, they are trading at $8.14. There is barely any volatility, as the market seems to view it as a very solid deal (which I'd agree with).
Bain Capital will contribute approximately 56% of its existing equity into Solenis at an implied value per Diversey share of $7.84, and will sell its remaining shares to Solenis for cash at the same price. The Diversey Board of Directors unanimously approved the merger and recommended that Diversey shareholders vote in favor. But Bain represents 73% of the shares, so the shareholder vote is tied up.
On a Dutch career site , I noticed JSA Tax Consultancy announcing a couple of new hires. Here's a quote about one of the hires translated into English (emphasis added):
He has extensive experience in the tax guidance of transactions, in the context of acquisitions, mergers, financing, and stock listings.
Rijnhout works for various foreign clients with entities in the Netherlands (including the Portuguese trading company Sonae) and large Dutch companies. Due to his focus on the Rotterdam region, his work is often linked to the port and the energy sector.
Notable transactions Rijnhout was involved in include the IPO of NIBC on Euronext Amsterdam, the acquisition and financing of Diversey Group by Bain Capital , the joint venture of Uber with Yandex (Yandex took over Uber's stake last week), and advising Lion Capital and Hema on the refinancing round of the department store chain.
I'm not sure if this means anything, but I'm taking it as a tentatively positive sign a lawyer working on this deal is moving shops. If it was about to fall apart and there were a lot of problems, I could imagine lawyers having to work on this all the time to work out alternatives or prepares possible amendments. Then again, it is likely just one person from a team of lawyers working on this deal.
There is also the matter of the Dutch Work Council consultation. That's a process that has to be observed to close this deal. It involves asking a special type of board for "advice" on the merger. However, if the advice is negative, the company can ignore it. This gets the merger into trouble if procedures haven't been followed regarding this consultation, but otherwise, it shouldn't affect it (read more about the process here ).
The Diversey Holdings, Ltd. deal is officially set to close in H2 2023, but it is a relatively small deal, and it was announced on March 8. If things got very heated with the Dutch Work Council, that process could take until mid-June but likely not much longer. Then we'd see some negative or positive advice (but with demands), and depending on how willing the buyer is to smooth things over, formal resistance may put some time on the clock.
The outside date is December 8, 2023, subject to a possible three-month extension, and that should easily take care of that. I don't expect a problem on this front (the company is already owned by private equity, after all.
There is still a 3.19% upside in this deal because the spread has widened instead of narrowed over time. If the deal breaks, the share price likely drops to $6 or potentially a bit lower. I don't think it is an event that's likely to occur, but if it happens, it's at least a 25% loss. It seems likely to me this wraps up in June or July. It also seems unlikely to break as it is a typical private equity hand-off of a solid boring business. It isn't as exciting as Elon Musk buying Twitter, but maybe that's why some relatively easy pennies can be picked up here. 3.19% in a few months doesn't seem terrible.
Conclusion
Most conditions for the Diversey Holdings, Ltd. merger have been taken care of. While the Dutch Work Council consultation is a necessary step, it is unlikely to pose any significant hurdles for the merger. With a closing date set for the second half of 2023, the Diversey Holdings, Ltd. deal has ample time to address any potential issues that may arise.
Even if the consultation becomes very problematic, it is unlikely to result in a deal break. More probably, the consultation isn't a problem and the Solenis deal to acquire Diversey Holdings, Ltd. closes in June or July. This means there is an opportunity for investors to benefit from the 3.19% upside potential that can be realized in a relatively short timeframe.
For further details see:
Diversey Holdings: Potential For 3.19% Upside In A Month Or Two