The other Ali G
Like pizza dough destined for one of Welbilt’s conveyer ovens, a takeover battle for the American cooking-equipment maker is shaping up nicely. Private Italian firm Ali Group, which counts McDonald’s and Starbucks among its clients, is attempting to further muscle into America’s fast-food kitchens with gusto, making a $3.3 billion all-cash bid to buy the U.S. maker of fryers and steamers. The offer upsets an agreed $2.9 billion deal from rival Middleby. But Welbilt’s shareholders are waiting for extra toppings.
Milan-based Ali, founded in 1963 by Luciano Berti as a professional dishwashing business, went extra-large on its quarry last week. At $23 per share, its unsolicited offer is some 13% higher than Middleby’s. And with cash promised from Goldman Sachs, the price is fixed, unlike Middleby’s all-stock consideration. Moreover, with less overlap, the Italian deal may face less regulatory scrutiny.
Investors like what’s on the menu but want more. On Friday, Welbilt shares rose to $24.71, above Ali’s cash offer. Yet Middleby already looks stretched. Promised annual cost savings of $100 million may be worth some $750 million to investors today. But Ali’s offer is already $1 billion above Welbilt’s value before Middleby’s April 21 deal. Adding planned savings to Welbilt’s forecast 2023 operating profit of $274 million would offer just a 6% return on the enterprise value of $4.6 billion implied by Ali’s offer. That’s likely below the target’s cost of capital.
To get back at the table, Middleby needs to more than match its rival with stock. Trouble is, with $1.6 billion of net debt on its balance sheet, and $1.3 billion on Welbilt’s, the $9 billion U.S. player can’t take on much more debt. It may also struggle to fully assess the firepower of its opaque Italian rival. The unlisted owner of Carpigiani gelato machines and Rancilio espresso makers doesn’t publish numbers. Its 2019 sales of 2.2 billion euros suggest it’s a tad smaller than Middleby.
What it does have is “substantial cash on hand”. Like many self-made Italian entrepreneurs, Ali’s controlling Berti family has shunned the stock market and, it appears, debt. It’s not contemplating using a blank-cheque M&A vehicle either. In that respect, Ali’s transatlantic pounce is quite spicy for an unlisted European family company – especially one that aspires to the pizza business.