Spanish competition authority gives green light to Bondalti bid for Ercros

Bondalti’s takeover bid for Spanish company Ercros has been accepted with commitments by the National Markets and Competition Commission (CNMC), the company said in a statement. The Portuguese chemical company has committed to supplying sodium hypochlorite at cost price for a period of five years, extendable to a maximum of 15 years.

With this approval, the José de Mello Group company takes another step forward in the €329 million bid launched in March 2024 for 100% of Ercros’ capital.

‘The National Commission for Markets and Competition (CNMC) has authorised, in the second phase and with commitments, Bondalti Chemicals S.A. to acquire full control of Ercros S.A. through an unsolicited takeover bid (OPA),’ according to the statement released on Thursday.

The CNMC considers that ‘the commitments presented by Bondalti in the second phase of the investigation are adequate, sufficient and proportionate to resolve the competition issues’.

‘The CNMC’s authorisation, albeit with demanding commitments for Bondalti, confirms the clear industrial rationale of our project. We continue to work with the CNMV to complete the regulatory process and start the acceptance period as soon as possible,’ said João de Mello, president of Bondalti, quoted in a statement.

‘We believe that the offer price represents an opportunity for Ercros shareholders. Furthermore, the alliance with Bondalti is very beneficial for Ercros and its employees, given the increasing level of competitiveness in the sector,’ he adds.

The head of Bondalti emphasises that, ‘with the integration [of Ercros], we hope to create the necessary conditions for the two companies, combined, to overcome the major challenges we face.’

Commitments resolve competition in hypochlorite

In the first phase of the investigation, the competition authority in Spain considered that the economic sector affected by the merger of the two companies is the manufacture of basic organic and inorganic chemical products and identified risks to competition in the caustic soda and sodium hypochlorite markets.

In the second phase of the investigation, the CNMC concluded that ‘in the caustic soda market, where the merged entity will have market shares of over 30% at national level, the existence of risks to competition was ruled out due to the presence of other operators and the competitive pressure exerted by imports.’

As for sodium hypochlorite, the authority ‘concluded that the operation poses a risk to competition in the areas of the factories analysed and in areas where there is overlap between factories, particularly between the Torrelavega factory and those in Sabiñánigo and Vila Seca’.

However, the commitments presented by the Portuguese company were sufficient to convince the CNMC to accept the offer, without the need to be subject to conditions imposed by the competition authority.

The Portuguese chemical company committed to supplying hypochlorite to third-party manufacturers at cost price, up to a maximum of 85,000 tonnes per year.

This annual supply will be based on a framework proposal approved by the CNMC, which details the basic purchase and supply conditions applicable to all buyers. This commitment will have an initial term of five years and may be extended for a maximum period of 15 years.

“An independent administrator will monitor Bondalti’s compliance with the obligations assumed under the commitment. In any case, the CNMC will monitor compliance during the stipulated period. Bondalti must report to the CNMC within the agreed deadlines,” explains the statement.

Ball passes to Ministry of Economy

Following this decision, the Spanish Ministry of Economy now has 15 working days to decide whether or not to refer the operation to the Council of Ministers. If it does so, ‘the Council of Ministers will have one month to make a decision based on criteria of general interest other than the defence of competition,’ according to a statement released by the Portuguese company. After this process, the Spanish Competition Authority’s decision will become final.

In March last year, Bondalti announced the launch of a takeover bid for the entire share capital of Ercros at €3.6 per share [a price that has since been adjusted to €3.505 after the payment of a gross dividend of €0.096], an offer that valued the Spanish company at €329 million.

In response to Bondalti, on 28 June 2024, Italy’s Esseco launched a competing bid to the Portuguese group’s offer, proposing to pay €3.84 per Ercros share [adjusted to €3.745 to deduct the dividend paid by the company]. However, this takeover bid has since been withdrawn, leaving the Portuguese company alone in the race for the Spanish company.

The conditions presented in both offers did not please Ercros investors, with a group of 150 shareholders of the Spanish company, representing around 27% of the Spanish giant’s capital, announcing in July last year that they would not accept either offer.

Bondalti has resisted raising the offer price, arguing that the price [adjusted for dividends] of €3.505 ‘represents a premium of 40.6% (including dividends) over the closing price of €2.56 on 5 March 2024’.

‘The European chemical sector requires significant investment and the creation of larger-scale industrial groups with the capacity to act in an integrated manner and face the major challenges that are transforming production and distribution systems: increased international competition, energy transition, digital transformation and the regulatory framework,’ Bondalti argues in a statement.

Bondalti’s objective, once the operation is completed, is to promote the delisting of Ercros shares from the Stock Exchange, with the offer being conditional on the acceptance of more than 75% of the capital, ‘allowing for effective integration and the creation of a European industrial group with the necessary scale.’

The transaction is also subject to approval by the Spanish National Securities Market Commission (CNMV) of the prospectus and corresponding documentation. Once approved, the offer announcement will be published and the acceptance period will subsequently begin.