Weeks after agreeing to sell in a deal worth more than $4 billion, one of Tampa Bay’s largest public companies has received a competing — and potentially superior — cash bid from an Italian company.
New Port Richey’s Welbilt Inc., which manufacturers and supplies restaurant and professional kitchen equipment, received a bid last week from Italian holding company the Ali Group that would pay more per share than an all-stock deal reached with Illinois-based Middleby Corp. in April.
Under that agreement, Middleby would trade its stock with shares of Welbilt stock at $20.38 per share — a nearly 28 percent premium over the company’s mid-April stock price of $15.98. Middleby would also take on $1.5 billion in Welbilt debt, according to a Friday filing with the U.S. Securities and Exchange Commission, bringing the total value of the deal to $4.7 billion. That’s up $400 million from when the deal was first announced April 21.
The Ali Group offer would pay shareholders $23 per share in cash, or a 44 percent increase from its mid-April stock price. That would place its total cash offer at nearly $3.3 billion.
Welbilt’s board of directors met Friday and determined that from a financial standpoint, the Ali Group’s offer was “reasonably likely” to top Middleby’s, according to the Security and Exchange Commission filing.
For now, the board has still recommended that shareholders approve the Middleby deal. But under the parameters of that agreement, they can change that recommendation at any time. Welbilt would have to pay a termination fee of $110 million to break its contract with Middleby.
A Welbilt spokesman said the company would conduct due diligence on the Ali Group deal over the next few weeks, but there had been no negotiations yet, and there was no timeline for a decision. The company otherwise declined to comment on the offer.
Late-in-the-game competing offers like the Ali Group’s aren’t particularly common, said Zac Smith, a senior vice president with Embark, a financial advisory firm that works on corporate mergers and acquisitions. But when they happen, they could spur a bidding war.
“It depends on how aggressive the boards want to be, and whether or not they want to taint the relationship,” Smith said.
There are reasons Welbilt’s board might turn down an offer worth more per share, but potentially less overall, Smith said. The company might determine that the Middleby deal would create enough synergistic savings, and a large enough market share, that it would drive their stock value past the Ali Group’s offer of $23 per share.
“With this combined company, potentially, the value of the stock could double or triple if the combination of the two companies is successful,” Smith said. “That’s why someone would want to take the stock deal versus the cash today.”
Smith said Welbilt’s due diligence would include a closer look at the Ali Group’s financials, including whether any new debt would be placed on Welbilt’s books or their own. It would also look at whether the Ali Group’s proposed cost efficiencies compare to those proposed by Middleby, and how the Ali Group’s market share aligns with its own.
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In a statement, Middleby CEO Tim FitzGerald said the Ali Group proposal faced financing “uncertainty,” calling it “highly opportunistic and conditional.”
“Middleby remains firmly committed to seeing our proposed merger with Welbilt through,” FitzGerald said. “We believe that the combination of Middleby and Welbilt can be completed with a high degree of certainty and deliver superior value to Welbilt’s shareholders. Ali Group’s non-binding proposal has a number of conditions, challenges and risks, all of which increase the uncertainty of achieving a completed transaction.”
In its own statement, the Ali Group said the company indicated it had financial backing from Goldman Sachs International.
“Our $23 per share proposal delivers significant cash premium value to Welbilt shareholders and is superior in every respect to Welbilt’s pending all-stock transaction with Middleby,” the statement read. “In addition to superior value, our proposal offers greater certainty of closing for Welbilt and its shareholders. We and our advisors look forward to engaging with Welbilt and its advisors to quickly negotiate and finalize a definitive agreement.”
The Ali Group statement also said it was unlikely to face the same antitrust scrutiny of a Welbilt-Middleby deal. On an April call about the deal, a number of investment analysts raised the question of whether the government would approve a merger between two of the food service industry’s biggest equipment providers. Both FitzGerald and Welbilt CEO William Johnson said then they were confident the deal would go through.
Despite the impact of the coronavirus pandemic on restaurant revenue, Welbilt saw net sales of $1.1 billion in 2019, making it one of Tampa Bay’s top-earning public companies. Locally, it keeps a relatively low profile; only about 150 of its 4,400 employees are based in Tampa Bay.
Founded in 1963, the Ali Group has 80 brands and 10,000 employees around the world, along with 58 manufacturing facilities on four continents.
Middleby has about 9,300 employees, more than half of them in the United States. The company had net sales of $2.5 billion in 2020.
Welbilt stock, which traded as low as $3.99 per share early in the pandemic, rose to a five-year high of $24.77 Tuesday morning. Middleby stock rose slightly to $167.85 just before noon — down from $181.99 the day the Welbilt deal was announced.