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Clearly Contacts Deal: Some Saw It Coming
Photo Credit: Forbes Business

Clearly Contacts Deal: Some Saw It Coming

Feb 28 2014, 2:36pm CST | by

By Zena Olijnyk Some investors had good foresight when it came to buying shares of Vancouver-based Coastal Contacts, which earlier this week agreed to a C$430 million friendly takeover by Essilor...

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21 weeks ago

Clearly Contacts Deal: Some Saw It Coming

Feb 28 2014, 2:36pm CST | by

By Zena Olijnyk

Some investors had good foresight when it came to buying shares of Vancouver-based Coastal Contacts, which earlier this week agreed to a C$430 million friendly takeover by Essilor International.

Coastal, which operates in Canada as Clearly Contacts, said Thursday that the Paris-based eyeglass manufacturer will pay C$12.45 a share for the company, which was launched by Toronto native Roger Hardy in 2000. This marks the largest investment into a Canadian e-commerce company in history and the largest into a Canadian optical company. Yesterday, the shares climbed above the offer price, to C$12.50. Since then, the stock has settled back to trade around the offer price of C12.45 a share.The purchase price represents a premium of 43% over the three-month volume weighted average price of C$8.73 on the TSX and 84% over the six-month average of C$6.78 . But it would appear there was something in the air to cause the shares to move significantly in the days leading to the announcement.

To be fair, the company’s shares have been on somewhat of a roll in the past year. The offer price is far above the CAD 5 range the stock was trading at last summer. As well, last Friday Wedbush initiated analyst coverage of the company.

On Thursday February 20, Coastal shares closed at C$ 8.84. Last Friday, it closed at C$10.09, ticking upwards on significant volume. The day before the announcement, released just after midnight Eastern Time on Thursday, it closed at C$10.39.

“No kidding some people probably knew something was up,” said Octagon Capital analyst Bob Gibson when asked about the price movement over the last few days.

However, Gibson noted a deal was bound to happen, as Essilor likely decided “it needed to have a presence” in Internet eyewear retailing, and Coastal was an obvious target.

This became especially true, he said, after WellPoint in early January agreed to sell its 1-800-Contacts business to private equity firm Thomas H. Lee and its Glasses.com business to Luxottica Group. Terms were not disclosed, but Gibon wrote in a research note following Coastal’s Q4 earnings release January 21, “it is our understanding that they were sold for two times sales.”

In an interview, Hardy confirmed that it was Essilor that approached Coastal, with discussions dating back to the fall. And what started off as a discussion about partnering on some projects turned into negotiations to take Coastal out.

Members of the board and Coastal’s officers together hold more than 16% of the outstanding common shares of the company. Last month, Coastal had 32.8 million common shares outstanding and options to purchase nearly 2.5 million common shares.

According to Bloomberg, Hardy recently controlled roughly 3.3 million shares, making that stake worth C$41 million. He also held options to buy 882,500 shares.

Hardy confirmed that the WellPoint transactions helped set a valuation for Coastal that both Essilor and Coastal management and investors could be happy with.

With Coastal’s sales for 2013 at C$234.4 million, the valuation falls close to two times sales. Given the same multiple estimated in the WellPoint deal, “one can assume that two times sales is a valid takeover multiple in this sector.”

WellPoint also took a charge of about $160 million on the sale of these companies, Gibson’s note said. It had bought them for $900 million in June 2012.

Essilor International is present in more than 100 countries, with brands such as Xperio and Varilix. Following a 2010 acquisition of Rhode Island-based FGX International, Essilor also manufactures non-prescription reading glasses. As well, through its subsidiary Satisloh, Essilor develops and sells equipment for prescription laboratories.

The all-cash deal is expected to close in the second quarter of 2014, with Essilor saying it will likely be at the end of April. The agreement includes a covenant giving Essilor has the right to match or better any offer that comes along or receive a C$16 million termination fee./>/>

Zena Olijnyk is a Toronto-based reporter for Mergermarket and can be reached at zena.olijnyk@mergermarket.com.

Source: Forbes Business

 
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