Yule Catto hails new era after deal for £376m

Yule Catto's Synthomer polymer division has manufacturing sites in Batley, Ossett and Stallingborough near Grimsby. All are expected to benefit from increased demand for Yule Catto's products following the purchase of PolymerLatex.

Yule Catto said the deal would boost its market share, product offering and pipeline.

It plans to fund the acquisition through a combination of a four-for-three rights issue that will raise about 225m and new credit facilities.

Yule Catto's shares rose 11.5 per cent last night to close up 30p at 290p. They have gained 10.6 per cent in the past three months, outperforming an 8.5 per cent rise in the FTSE Mid 250 Index.

At one point the shares touched a year high, making the stock one of the top gainers on the London Stock Exchange.

The deal, which will target the market for materials used in gloves, is expected to add to Yule Catto's earnings from the first year of ownership.

The acquisition, Yule Catto's biggest to date, will expand the group's position in the paper, carpet, foam, construction, paints, protective gloves, textiles and adhesives markets.

Efficiency savings of at least 20m a year are expected after the deal.

Yule Catto said the majority of these savings will be achieved through efficiency improvements within the manufacturing operations and the selling, general and administrative functions of the enlarged group.

Talking about PolymerLatex, Yule Catto's chief executive Adrian Whitfield said: "It's a company we understand and matches very well with our existing polymer chemicals business."

PolymerLatex, the leading global player in latex products, had reportedly received interest from another suitor Bain Capital's LLC Styron Corp, but Yule Catto's bid was the successful one.

Yule Catto's investors will be offered stock at 116p a share, on the basis of four shares for every three existing ordinary shares. Mr Whitfield said that shareholders are "very supportive" of the deal. "The acquisition of PolymerLatex represents a transformational opportunity for Yule Catto," he added.

"It creates a group with increased scale, an enhanced product portfolio, stronger market positions and greater efficiencies, all of which provide a foundation from which to grow and compete more effectively".

Describing it as a transformational acquisition, Brewin Dolphin analyst James Tetley said: "The valuation metrics look attractive on first take. The acquisitions strengthens the group's position in Europe and Malaysia and also adds scale to the already important nitrile market in Malaysia."

The new credit facilities include a three-year term loan facility of 150m and a revolving credit facility of 60m.

Law firm Pinsent Masons advised Yule Catto on the acquisition and the related 225m fundraising, which will be underwritten by HSBC, Barclays, Commerzbank, Collins Stewart Europe and RBS Hoare Govett.

Martin Shaw, Pinsent Masons head of Corporate, Europe, said: "The multi-jurisdictional auction sale process presented a number of challenges. The deal represents another example of the recent pick up of both UK and continental Europe M&A activity."

Mr Shaw led the team which originally floated Huddersfield-based Holliday Chemicals in 1994, which was bought by Yule Catto in 1997.

Completion is conditional upon approval by Yule Catto's shareholders at a general meeting to be held on December 30 and by European competition authorities.

Vital cog in the wheel

Yule Catto's manufacturing sites in Yorkshire form part of the group's Synthomer polymer business.

Synthomer was formed from the 2002 merger of Harco and Synthomer.

Yule Catto took over Harco in 2001, having become the 100 per cent owner of Synthomer in 1999. In 1994 Yule Catto bought Batley-based Viking Polymers.

The same year it installed a Biological Treatment Plant at Stallingborough, near Grimsby.

Dispersion production was transferred to Stallingborough from Harlow in 1991

Yule Catto became a 50 per cent shareholder of Harco and Synthomer in 1980.