Héroux-Devtek sold to the Americans | Platinum had to increase its stake

The buyer of Héroux-Devtek had to add more than 150 million to its purchase offer last spring to prevent the Quebec multinational, which was evaluating two other proposals, from slipping through its fingers.

This is what is revealed in the solicitation circular recently sent to shareholders of the specialist in landing gear and aeronautical components. The document returns to the transaction of 1.35 billion announced on July 11 between the company and the American firm Platinum Equity.

“All other proposals received in the sale process provided for consideration that was significantly less advantageous to shareholders than that contemplated in the arrangement,” the 170-page circular explains.

We also learned that by accepting Platinum’s offer, approximately 20 people – senior executives of the Longueuil-based company, members of the board of directors and other managers – will be entitled to nearly $137 million in exchange for their shares and other financial instruments, such as stock options, that they hold and have accumulated over the years.

It is at the‘last fall that the management of Héroux-Devtek, one of the main players in the Quebec aeronautics industry, has decided to evaluate its options, without however warning the market.

Why this assessment? She believed that the company’s value was not fairly valued on the Toronto Stock Exchange.

Before Platinum’s $32.50-a-share offer, the Quebec-based manufacturer was worth about nine times its adjusted earnings per share, according to its most recent investor presentation. Elsewhere in the industry, that ratio is 14.6 times. The disparity is significant.

Furthermore, according to an analysis carried out by Desjardins Capital Markets, the “fair market value” of Héroux-Devtek shares was between $28.50 and $33.

On the eve of the announcement of the takeover bid, the stock closed at $25.32.

It was at the end of last January that the company’s advisors began to solicit potential buyers. The company’s largest shareholder, the Caisse de dépôt et placement du Québec (CDPQ), was made aware of what was going on.

The Quebecois nest egg then expressed a “strong interest in remaining a shareholder.” It was only at the last minute that it threw in the towel for tax reasons – to avoid increasing the taxes to be paid by the company’s executives who will remain shareholders in the new structure.

Read “The Caisse wanted to remain a major shareholder”

Seven potential buyers raised their hands last April. At that time, Platinum, the only suitor identified in the circular, offered between $26 and $28 for each of Héroux-Devtek’s shares. Its offer fluctuated between $875 million and $943 million to snap up all of the multinational’s outstanding shares.

It was only a month later that the American firm increased it to $32.50. At that time, there were only three offers left on the table. At the Quebec manufacturer, it was quickly understood that it would be difficult to obtain more Platinum.

“Further pushing the negotiations could have caused Platinum to withdraw the proposal, which would have deprived shareholders of the opportunity to evaluate and vote on the arrangement,” the document said.

Big buyouts

Héroux-Devtek’s senior management – ​​which includes Executive Chairman Gilles Labbé and President and CEO Martin Brassard – will retain shares in the new corporate structure.

Still, the sale of the landing gear specialist is set to be profitable for several executives and directors of the company. Twenty people – senior executives, executives and directors – will share 137 million.

The size of the amount is influenced by the salary of Mr. Labbé, architect of the multinational’s growth over the past four decades. He will keep only a minority of the shares accumulated over time. With his stock options, he should be entitled to nearly $81 million.

For his part, Mr. Brassard should get some 12 million. He will transfer the equivalent of 8 million into the structure of the company which will be owned by Platinum.

Added to this are nearly 9 million in bonuses intended to “reward” certain executives – including Messrs. Labbé and Brassard – during the sale process that took place over the last few months.

Héroux-Devtek shareholders must vote on Platinum’s offer on September 6. More than two-thirds must give the green light for the transaction to go ahead. The CDPQ has already given its blessing.