LONDON Cookson Group CKSN.L is to buy Foseco FOSE.L, which supplies products to the foundry and steel industries, for an agreed 497 million pounds to strengthen its ceramics business.
Cookson, an industrial materials company, said on Thursday it would pay 295 pence per share, 31 percent above Foseco's closing price on October 1, the day before the companies said they were in talks about a deal at 295 pence per share.
Analysts praised the proposed deal when first touted last week, helping Cookson shares rise 9 percent to a five-year high at 843 pence, and reiterated those comments on Thursday.
Cookson will pay for Foseco with new debt facilities and an underwritten placing of 18.6 million new shares, or 9.6 percent of its issued share capital, it said in a statement.
"As a leading supplier of consumable products for use in the foundry and steel-making industries, Foseco is highly complementary to our ceramics division's activities," Cookson Chairman Robert Beeston said in a statement.
Cookson forecast annual cost savings of about 18 million pounds in the second year after completion of the deal, saying the acquisition would be neutral to its headline earnings per share in 2008 and significantly positive thereafter.
Those savings will be made at a cost of 15 million pounds.
Chief Executive Nick Salmon said including Foseco's 100 million pounds of debt and its pension deficit the deal had an enterprise value of just over 600 million pounds.
Landsbanki analyst Andrew Carter, who rates Cookson stock a "buy", said its proposed acquisition of Foseco was strategically and financially compelling and likely to happen.
"Our analysis suggests that 2009 earnings could be 87 pence, were the deal to be successful. A sector multiple of 12.3 times forecast 2009 earnings suggests Cookson could be a 1,070 pence share," he said.
Cookson shares, weighed down by the placing, were 0.4 percent lower at 818.5 pence in early trading to value the business at 1.58 billion pounds. Cookson stock has outperformed other general industrial companies by 37 percent over the past 12 months.