Metro Glass turnaround prospects far from clear

Bain Capital’s investment this week in troubled Metro Performance Glass is not the first time the private equity firm has been involved in the company.

Stock Takes recalls an affiliate of Bain was a substantial shareholder prior to the Metro Glass initial public offer in 2015.

The shares were held through Sankaty Advisors which had acquired an 11.95 per cent stake in a debt for equity swap back in 2012 when Metro Glass was then known as Metro GlassTech.

Sankaty sold down in the IPO three years later along with fellow lender-turned shareholders, Deutsche Bank and JP Morgan, and private equity firms Crescent Capital Partners and Anchorage Capital.

The float raised $244 million with the shares selling at $1.70 a piece, a far cry from the 40c per share that Bain’s Special Situations Asia Fund paid for a 9.4 per cent stake in Metro Glass through on-market trades worth $7m on Wednesday.

Bain’s entry has added some intrigue as to whether it is positioning for a potential takeover of the struggling glass company or whether it sees it as a turnaround story.

Stephen Bennie at Castle Point Funds is one who struggles to see a quick turnaround after Metro Glass reported a 22 per cent drop in halfyear net profit, lowered its full-year guidance and said it won’t be paying any dividends as it struggles to turn around its Australian business.

It also highlighted the entry of new competitor APL in the New Zealand market.

“It’s tough to look at Metro as a turnaround story as earnings are almost certainly going to go lower in the next two to three years, as residential activity cools in Australia and New Zealand.

“A situation that looks set to be exacerbated by increased capacity and competition in its industry. None of that is pretty but rather alarmingly the market capitalisation of Metro’s equity is now less than the debt it owes its bankers.” Bennie thinks the banks may turn the screws on the company to try and raise capital to pay down debt and given where the share price sits that shapes as a brutally dilutive, discounted rights issue. MPG’s shares closed at 47c yesterday.

Tower takeover?

Another company which Bain has a stake in is listed insurer Tower, which reported a loss this week after being hit by a raft of severe claims and a settlement with a reinsurer.

Bain bought a 19.99 per cent stake in Tower in March from rival insurer Vero after the Commerce Commission made it clear that it was uncomfortable with Vero’s stake.

As part of that deal Bain reached an escrow agreement with Vero that if it bought any more shares in Tower and paid over 80c per share that Vero would be topped up the difference.

That escrow comes off on December 8 so if Bain were going to move to a full takeover it would make sense to wait until after that.

Tower’s share price has dipped since Bain bought in meaning any further acquisition of shares could come at a cheaper rate. Tower’s shares closed at 76c yesterday.

Horse before cart?

The board of Restaurant Brands seems to have jumped the gun by giving the thumbs up to Mexican takeover bidder Finaccess Capital before the independent report on the offer is complete.

The board indicated this week that subject to the $9.45 offer price being within or above Grant Samuel’s valuation range it would recommend shareholders accept the partial takeover.

Shane Solly, portfolio manager at Harbour Asset Management, says normally he would expect to see an independent report before a company board endorses a proposal.

“[It] may be a case of quick service from the quick service restaurant chain,” he quipped.

Mohandeep Singh, an analyst at Craigs Investment Partners, believes the board may have been under pressure from shareholders to give its view given the time lag from the first announcement of the potential offer.

RBD first signalled it had received a proposed takeover offer on October 18 and then gave an update on November 9.

“They may have been getting quite a bit of pressure from investors who are saying: ‘We are in limbo here’.”

The offer, which has yet to be made in writing, is unusual in that it is only for up to 75 per cent of the company.

Although documents released this week show Finaccess would settle for anything over 50 per cent.

Singh said there were plenty of other listed companies with single majority owners pointing to Vector, Port of Tauranga, Air New Zealand and Briscoes as well as the power companies.

“I think the big difference between those names and this one is they have relatively passive owners.”