H.B. Fuller (FUL) Tells Ancora its $1.2 Billion Offer isn’t Enough

Reuters reported that H.B. Fuller Company (NYSE: FUL ) said its board unanimously rejected activist investor Ancora Holdings Group's unsolicited proposal to acquire its Building Adhesives Solutions (BAS) business for between $1.1 billion and $1.2 billion.

The board said the offer "significantly undervalues" BAS, is "substantially below precedent transactions," and ignores the unit's growth prospects, according to the company's statement. H.B. Fuller noted BAS delivered 6% organic growth year over year in the second quarter and said a carve-out would create "significant dis-synergies" since BAS shares manufacturing operations with the company's other businesses across more than 30 plants worldwide. The board also said Ancora's proposal "lacks key details needed to demonstrate" its ability to execute the deal. Ancora's activist campaign against H.B. Fuller began in May, initially opposing the company's acquisition of UK-based Advanced Medical Solutions Group.

H.B. Fuller Company (NYSE: FUL )'s valuation argument has support from BAS's recent performance and growth prospects. BAS delivered 6% organic sales growth and 10% EBITDA growth in the second quarter, while H.B. Fuller expects the business to become a significant earnings driver as construction markets recover and data-center demand grows. Those results give management a credible basis for arguing that Ancora's $1.2 billion offer undervalues the business.

H.B. Fuller also has a legitimate operational argument against separating BAS. The company shares manufacturing operations across more than 30 plants worldwide, and management expects a carve-out to create significant dis-synergies. Keeping BAS within H.B. Fuller could therefore preserve operating efficiencies that a standalone business might lose.

Management also has a clear strategic priority that competes with Ancora's proposal for its attention and capital. H.B. Fuller continues to implement its Advanced Medical Solutions Group acquisition while developing BAS as an important future earnings driver. The company can therefore focus on executing its existing strategy instead of diverting resources toward a major BAS separation.

Ancora's campaign could continue even after H.B. Fuller Company (NYSE: FUL )'s rejection. The activist has moved from criticizing H.B. Fuller's strategy to submitting a specific $1.2 billion proposal for BAS. Ancora could keep pressing the board or seek broader shareholder support. That escalation could keep pressure on management and sustain uncertainty about H.B. Fuller's strategic direction.