Wescast Industries Inc., the Ontario-based cast iron and machining group, has agreed to be bought by China’s Sichuan Bohong Industry Co. Ltd., for a total price estimated at $201.4 million *. It said the decision to sell is a demonstration of its previously announced “strategic alternatives review.” "We believe this would be an attractive outcome for Wescast's shareholders,” according to director Jim Barton, who has been heading the Special Committee of the board. “We will work diligently with Bohong towards entering into a definitive and binding arrangement agreement and completing the acquisition."
Wescast describes itself as the world’s largest supplier of cast iron exhaust manifolds for passenger cars and light trucks, and it also produces a large volume of turbocharger housings. It has foundries in Wingham, Ont., Oroszlany, Hungary, and Wuhan, China, along with machining centers in Ontario, Michigan, Hungary, and China.
Sichuan Bohong Industry is a group of Chinese automotive supplier companies, including the Sichuan Haosheng Automobile Parts Manufacturing Co. Ltd., foundries at Mianyang City, in Sichuan Province.
Wescast and Sichuan Bohong Industry have reached a Memorandum of Understanding (MoU) by which Bohong would acquire 100% of Wescast at approximately C$13.60 per share in cash. The acquisition would be subject to various closing conditions, including approval of Wescast's shareholders, the Ontario Superior Court of Justice, and regulatory authorities of competent jurisdiction.
Chairman and CEO Ed Frackowiak said, "… the two companies are highly complementary in terms of products, services and operating values. In particular, we are excited by the potential to pursue future opportunities globally. This acquisition would accelerate some of the exciting new technology initiatives underway at Wescast."
According to Wescast’s announcement, Bohong has completed its review of the proposed deal and has agreed to pay a C$2-million deposit to Wescast as a demonstration of good faith in the MoU.
Bohong has advised Wescast, however, that it must secure obtain a commitment of financing from the China Development Bank. The MOU contains an exclusivity period until December 30, 2011, to allow Bohong to obtain that financing and for Wescast and Bohong to negotiate a definitive takeover agreement. The exclusivity period may be extended by Bohong to January 31, 2011, in exchange for a second deposit of C$5.0 million, and until February 29, 2012, in exchange for a third deposit of C$5.0 million.
Wescast agreed to reject any other agreements regarding any acquisition of all or a majority of its shares of Wescast during the exclusivity period.
Dong Ping, chairman and CEO of Bohong, said: "We believe Bohong and Wescast signing this MOU is a milestone event. Bohong intends to build on Wescast's long history and believes that this acquisition would assist Bohong and China's automobile industry to reach a new platform in servicing global customers."
*Editor's Note: This figure has been revised from an earlier report. We regret the error.
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