A Shabby Deal, a Bitter Fight, and a Welcome Ending

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(Bloomberg) -- Europe's bitterest takeover battle has ended, and all it took was a little money to change hands. Everyone comes away with something from the tussle for Swiss adhesives maker Sika AG. But the biggest winner is, rightly, shareholder power and good governance.

In December 2014, the Burkard family agreed to sell a 16 percent stake in Sika to French customer Cie. de Saint-Gobain SA. The Sika board and other shareholders were furious. The minority stake came with a majority of the voting rights, so control was changing hands with no compensation for ordinary investors. Worse, the transaction was hatched in secret, even though the Burkards sit on Sika's board.

Saint-Gobain thought the deal would close by the middle of 2015. But Sika's board exercised a controversial power to cap the French group's voting power. Cue bitter recriminations and a protracted legal battle. In time, Sika's shares crept up above the price at which the family had agreed to sell, making the whole thing look absurd.

Opposition shareholders, including the Bill & Melinda Gates Foundation Trust and Fidelity, dug in to defend their rights.

Everyone had an incentive to agree a compromise deal. The agreement with the Burkards was due to expire soon, so Saint-Gobain had a reason to talk. The possibility that the Swiss courts could reverse the voting cap must have focused Sika's mind.

A compromise unveiled on Friday saves face for all. Saint-Gobain's original purchase will go ahead at 3.2 billion Swiss francs ($3.2 billion), 17 percent more than the initial agreement.

Sika is then buying back part of the French company's stake in the business and canceling it, depriving Saint-Gobain of control. The Swiss firm is paying around 60 percent more than Sika's close on Thursday for this as compensation. Saint-Gobain will reap an immediate 600 million-euro profit, and still stands to gain from its remaining 10 percent holding in Sika.

But the big winners are Sika and its shareholders. The company will become a proper one-share, one-vote democracy. Saint-Gobain will be a genuine minority. Small wonder Sika's shares shot up as much as 11 percent. It's imperative that talk of an expanded relationship with Saint-Gobain doesn't turn into back-seat driving.

The Sika board and independent shareholders have secured a decent outcome. While Saint-Gobain has come away with a profit from all this, it has failed in its bid for control. The situation will hopefully be a deterrent to any dealmaking that seeks to ride roughshod over the rights of ordinary shareholders.

©2018 Bloomberg L.P.

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