Cash-For-Stock Deal for US Based Storage Company

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New Orleans-based liquid storage concern Westway Group (NASDAQ: WWAY) recently announced that it would agree to be taken private by buyout fund EQT Infrastructure II. The deal involves a simple cash-for-stock exchange: Once the deal is finalized, Westway shareholders will receive $6.70 per share in cash. All holders of in-the-money Westway options will be bought out at $1.70 per lot. Preferred stockholders will receive $6.79 per share and remain entitled to accrued dividends. The deal values the company at about $150 million.

The terms of the buyout also require Westway to sell off the entirety of its Canadian portfolio as well as its animal-feed subsidiary and certain physical assets like its storage-terminal properties in the British Isles. This part of the transaction will be valued at approximately $115 million. United Kingdom-based investment firm ED&F Man will assume control of these assets. Ironically, this firm maintained an ownership stake in Westway when it was known as Shermen WSC Acquisition Corporation.

Relative to Westway's closing price on the trading day before the December 20, 2012 announcement of the merger, this deal represents a premium of about 10 percent. However, the company's stock price had been artificially inflated for months due to persistent rumors that its management team was in buyout talks. Relative to Westway's year-ago closing price of $3.99, the deal represents a premium of nearly 68 percent. Holders of certain in-the-money options stand to earn an even greater return on their investments.

Westway and Its Business

Westway Group is a diversified bulk-storage company that focuses on providing liquid-storage solutions for a variety of clients. The company operates 25 storage terminals in North America, Europe, and Asia and has approximately 365 million gallons of available container space at any given time. It specializes in storing viscous or volatile materials, including molasses, vegetable oil, asphalt and other petrochemicals. Westway also operates a subsidiary that produces fillers and supplements for the animal feed products that it stores and transports. This subsidiary deals primarily with clients in the ranching and bulk-farming industry and has a global market base. Despite its broad reach, Westway employs fewer than 500 full-time employees thanks to its innovative cost-sharing business model.

In the petrochemicals storage space, Westway competes with pipeline and storage companies.  Kinder Morgan Energy Partners (NYSE: KMP) based in Houston, serves North America with its pipelines and storage and NuStar (NYSE: NS) serves North America and Europe.  Both companies have sales in the billions compared to Westway’s $440 million and they have much larger storage businesses.  KMP could have purchased Westway with their cash stores $518 million but NuStar doesn’t quite have the size as this point.  However, neither company would likely want the business storing the non-petrochemical products so it may not have been a good fit.  

EQT Infrastructure II is a buyout fund operated by the EQT Group. Like its parent, the fund specializes in squeezing value out of industrial and business-to-business properties. It invests mainly in the agriculture, construction, transport and infrastructure sectors and maintains close relationships with the principals of its target companies. Since its inception, EQT has facilitated partial or full buyouts for about 100 companies. Its current portfolio is worth over $10 billion. Although EQT Group's roots are Scandinavian, the company now enjoys a global presence and employs about 250 professionals in London, New York, Shanghai, Hong Kong and other key trade centers.

The Westway acquisition furthers EQT's strategy of investing in key global infrastructure assets. Although bulk storage is not a glamorous business, it is essential to the smooth functioning of global trade and development. It appears likely that EQT Infrastructure II will make moves to add to its growing liquid-storage portfolio in the coming years. Meanwhile, ED&F Man looks to consolidate its dominance of the United Kingdom's animal-feed industry with its acquisition of Westway's agriculture arm.

The Deal From Here On

Westway's board of directors has already signed off on the deal. Although its approval is technically on hold pending a customary antitrust review, the company's relatively small market capitalization makes it unlikely that any government bodies would stand in the way of the buyout. Further, nearly 80 percent of Westway is currently owned by just three discrete parties. Since each of these entities has already given its blessing to the deal, there is no additional requirement for a shareholder vote on the matter. 

Although several law firms have opened standard fiduciary-responsibility investigations into the acquisition, these are unlikely to delay the proceedings. While Westway's stock did trade above $6.70 for a brief period in 2012 and was once the subject of rosy stock-analyst price targets north of $7 per share, the buyout offer does not appear to undervalue the company. In addition to experiencing lackluster earnings growth due to a cyclical downturn in the bulk storage and shipping industries, Westway's stock price has remained range-bound between $3.50 and $5 for much of the recent past. Assuming that nothing arises to delay the deal, Westway could be taken private and de-listed by the end of the first quarter of 2013.

 


mthiessen has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. Is this post wrong? Click here. Think you can do better? Join us and write your own!

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