CIBC divides steel products maker to conquer

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Some small caps are trickier to sell than others. CIBC World Markets Inc. gets full marks for cleverly pulling off a successful $363-million auction of Oakville, Ont. manufacturer Vicwest Inc. Two auctions, to be precise.

When Vicwest converted into an income trust in 2005, the company was a perfect fit for the structure. It had two different businesses with one thing in common: both bashed steel. One made grain storage containers for farms; the other made siding and roofing for builders. The idea was that their differing business cycles would complement each other, funding steady payouts.

Then Ottawa ended the income trust party. Owning two smallish, different businesses "really didn't make a lot of sense" for post-trust Vicwest, says CEO Colin Osborne. Vicwest tried to bulk up its agriculture business but it never found the right deal, losing out in the 2011 auction for grain container manufacturer GSI Holdings Corp. It explored selling itself, but prospective buyers typically just wanted one business and would only take the other at a discount. Vicwest was stuck in limbo.

Then on May 27, out of the blue, building products giant IKO Industries Ltd. revealed in a securities filing it owned 10 per cent of the stock. The share price jumped and the board realized serious players were willing to look past recent earnings weakness in its building products division and bank on the impact of a strengthening U.S. economy. It was time to put Vicwest on the block.

The CIBC bankers acting for Vicwest surmised there was no logical single buyer, so they ran two separate auctions – one for each division. Only strategic bidders already operating in the respective businesses were invited to bid; with the potential for synergies, they would be willing to pay more than private equity firms. Besides, Vicwest was already highly levered, leaving less room for buyout firms to add debt.

Each auction had its own data room and management presentation led by each division president. Where CIBC would typically have four or five bankers working on a deal this size, it had eight handling the two processes. By the July 25 due date, Vicwest received 12 bids roughly split between the two units. That was narrowed to two competing bids for each, received Sept. 25. Once the successful bidders were selected, "then we had to bring the two together," Mr. Osborne says.

The final deal, announced Nov. 11, is cleverly done. Under a plan of arrangement, Winnipeg-based Ag Growth International Inc. pays Vicwest $221.5-million for the grain business, while Irish building products maker Kingspan Group plc simultaneously buys out shareholders for $12.70 a share (20 per cent above its previous closing price), or $224-million in total, covering all the deal closing costs – and ends up with the siding and roofing unit.

Factoring for cash and assumed debt, Vicwest's enterprise value is $363-million. Investors interested in the saga can review the directors' circular, going out this week. But the deal, which goes to a shareholder vote Jan. 23, seems pretty much done: Mr. Osborne says he's talked to investors holding most of the shares and "they're quite happy with the price."

CIBC's key advisors were Richard Finkelstein, executive director, investment banking, Winnipeg-based Jason Stefanson, managing director and head of investment banking for the prairies, and Mike Boyd, managing director and head of global M&A. Neill May and Ryan Szainwald at Goodmans LLP handled the legal work.