Japanese imaging equipment maker Canon Inc. (CAJ) and Dutch printer manufacturer Océ N.V. Monday revealed a conditional agreement by which Canon will acquire all ordinary shares of Océ through an all cash public offer of EUR 8.60 per share or about EUR 730 million. Canon's fully self-funded cash offer marks a premium of 70% over Océ's closing share price on November 13 and represents a 137% premium over Océ's average share price for the last 12 months.
Through the deal, Canon and Océ aim to create the overall No. 1 presence in the printing industry, utilizing the enhanced scale, innovation and client servicing. According to the companies, they have complementary fit in product mix, channel mix, R&D, and business lines that could lead to an outstanding client offer spanning the entire printing industry. Additionally, the combination is expected to have leading positions in the Small Office/Home Office, office, production and wide format segments, offering a wide range of products and services.
Furthermore, under Phase III of Canon's Excellent Global Corporation Plan, launched in 2006, Canon aims to join the ranks of the world's top 100 companies in terms of key measures of business performance. As one of the strategies to realize this goal, Canon aims to achieve the overwhelming No. 1 position worldwide in all of its current core businesses. Océ has direct sales and service network in 32 countries, which would provide additional sales and service support for Canon-brand products. Canon could also benefit from the addition of Océ's production and wide format printing line-up, along with the R&D synergies.
According to Canon's President and COO Tsuneji Uchida, "We are delighted to welcome Océ, the ideal partner in every respect, into the Canon Group. Through the merger of Canon and Océ, we believe that we will be able to realize clear benefits, not only in the area of R&D, but also in terms of product mix and marketing and are confident that this winning combination will contribute greatly to our goal of becoming the overall No. 1 presence in the printing industry."
Océ's CEO Rokus van Iperen said, "There is a great fit between our companies, which share similar values and a strong commitment to technology and innovation... This is the best possible combination in the consolidating global printing industry and will deliver scale in R&D, manufacturing and distribution. The combined organization provides us with access to a huge sales network in Asia as well as mutual cross selling opportunities in Europe and the United States."
The management and supervisory boards of Océ fully and unanimously supported the offer and decided to recommend it to the shareholders. Holders of the depository receipts for Océ's cumulative preference shares, Ducatus N.V., ASR Nederland N.V. and ING AM Insurance Companies B.V., with about 19% of the total share capital, have entered into a conditional agreement to sell their interests to Canon. The company's major shareholder Bestinver Gestion S.A., with nearly 9.5% of outstanding shares, provided an irrevocable undertaking to tender its shares under the intended offer when it is made.
Canon will finance the offer and debt repayment from internally generated funds. The cash consideration for depository receipts for cumulative preference shares amounts to EUR 65 million. Canon intends to refinance short and long term debt of Océ, as required. The total amount of short and long term debt amounted to EUR 704 million as of August 31.
As per the agreement, Océ may terminate the conditional offer if a bona fide third party makes a superior offer. An alternative offer will be regarded as superior only if its bid price exceeds the offer price by 10%, or in the event of a consecutive bid by 5%. Canon has the right to match a superior offer. If the conditional agreement is terminated pursuant to a competing offer, Océ will pay Canon EUR 7.95 million as compensation for opportunity costs and other costs incurred by Canon.
The offer is expected to commence in the first quarter of 2010 and its settlement date is to be determined.
When the transaction is completed, Océ will remain a separate legal entity and will become a division within Canon with headquarters in Venlo, the Netherlands. Océ will be responsible worldwide for wide format, commercial printing and business services and its office activities will be integrated in Canon's Office Imaging Products division, or OIP. Canon's Large Format Printing will functionally be integrated in the Océ Production Printing Division over time.
The Océ division will report to the Canon Board and will lead the R&D and manufacturing for its businesses. Océ's headquarters, combining R&D, production and sales functions, is expected to play an integral role for Canon's European regional operations. The current management board and key management of Océ is expected to remain in place. The Océ brand name will be maintained in the Océ division and would be applied in all relevant markets.
When the offer is completed, the Management Board of the Océ division will consist of Van Iperen, Kerkhoven and Schaaf. Océ's Supervisory Board will include Tanaka, Elverding and Baan, as well as three additional persons to be selected among Canon's top executives.
The offer is not expected to affect the existing employee level at Océ, excluding already announced personnel reductions. The combination will respect the existing rights of the employees of Océ, including applicable covenants with the Océ works councils and the unions, the applicable social plans and collective labor agreements. The combination will also respect the current obligations with respect to the pension rights of Océ's employees, the companies said.
The integration of Canon and Océ businesses are expected to take place over the next three years. The integration will be aimed at optimizing coordination of Sales, Service, Marketing, R&D and Manufacturing & Logistics, covering all business areas. This process will be directed and supervised by a steering committee composed of executives from Canon and Océ. The Sales and Service integration will be led by joint integration teams per region with initially two dedicated organizations, respectively, for the OIP and for the Océ division.
The companies noted that no further dividends are expected to be declared prior to the completion of this offer.
Mizuho Securities acted as financial advisor to Canon, while Stibbe and Herbert Smith acted as legal advisors to the company.
ING Corporate Finance acted as financial advisor to Océ and provided a fairness opinion. Lazard acted as financial advisor to Océ's Supervisory Board and provided a fairness opinion. De Brauw Blackstone Westbroek acted as legal advisor to Océ and Hill & Knowlton acted as communication advisor to the company.
Fortis Bank (Nederland) N.V. / MeesPierson CFCM will act as the exchange agency for this offer.
Canon recently reported a 56% decline in profit for the third quarter, while sales dropped 21.5% from last year. The company noted that the results were hurt by lower sales volumes of office equipment and other products as well as stronger yen. At that time, the company said it sees weak demand for most of its key products.
CAJ closed Friday's regular trade at $37.99, up from the previous close of $37.56, on 221,800 shares.
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