Private equity circles paper merchant

PaperlinX is contemplating a PE takeover bid as it faces a pre-tax loss of $26m for the first half of the 2012 financial year.

The unnamed PE buyer has submitted a non-binding proposal for a whole of company buyout, while the merchant is also assessing numerous bids to acquire parts of the business.

Since its AGM in October, deteriorating trading conditions maintain a programme to restructure the business to remove costs. The company says the benefits flowing through are not enough to offset the weakened market conditions, particularly in its key European core.

Following a $108 million loss in the past financial year and red books ahead, a whole or partial takeover may be what the paper merchant needs to stay afloat. Though the buyout deal may yet be contested by shareholders, due to a dispute between holders of PaperlinX equity and hybrid Step-Up Preference Securities (SPS). Hybrid holders believe they are entitled to a bigger piece of the pie.

PaperlinX holds no certainty that it will receive a proposal at the suggested price, or that shareholders and holders of SPS securities would approve the deal in the event of a vote. In a statement it said:

Following the previously announced Strategic Review, the Company
has received an incomplete, indicative, conditional and non-binding proposal (“whole of Company proposal”) from a private equity firm to acquire all of the issued capital of PaperlinX and the Step-up Preference Securities ("SPS"). The Company has also received a number of separate proposals to acquire parts of its business. These proposals are currently being assessed.

The whole of Company proposal currently suggests a cash price for PaperlinX ordinary shares of approximately $0.09 per share and $21.85 for each SPS. It proposes an inter conditional structure whereby the ordinary shares would be acquired via a scheme of arrangement and the SPS would be acquired via a Trust Scheme.

The whole of Company proposal is also conditional on various matters including completion of extensive due diligence. There is no certainty that the Company will receive a complete proposal at the suggested price or at all, or that any proposal will be put to shareholders and holders of SPS securities or, if a proposal were to be put, that it would be approved by shareholders and holders of SPS securities, or that any transaction would eventuate.