GSW Inc.
TSX : GSW.A
TSX : GSW.SV.B

GSW Inc.

February 03, 2006 15:41 ET

GSW Announces Agreement with A.O. Smith

OAKVILLE, ONTARIO--(CCNMatthews - Feb. 3, 2006) - GSW (TSX:GSW.A)(TSX:GSW.SV.B) announced today that it has entered into a Pre-Acquisition Agreement with A.O. Smith under which A.O. Smith will make a take-over bid to acquire all of the outstanding Class A Common Shares and Class B Subordinate Voting Shares of GSW for CDN$115 per share in cash.

The offer price amounts to approximately CDN$393.5 million for all the GSW shares. It also represents a 95% premium over the CDN$59 closing price per GSW Class B Subordinate Voting Share on June 23, 2005, the day preceding the announcement by GSW and A.O. Smith that GSW's majority shareholders were in exclusive discussions with A.O. Smith regarding a possible sale transaction.

As previously announced, the U.S. Justice Department and Canadian Competition Bureau have favourably concluded their anti-trust investigations and A.O. Smith has received approval under the Investment Canada Act to proceed with the proposed acquisition.

GSW's two majority shareholders have also entered into a Deposit Agreement with A.O. Smith. The two majority shareholders own shares representing approximately 74% of the equity and 68% of the votes attached to all of the shares of GSW. Under terms of the deposit agreement, they agree irrevocably to deposit their shares under the Offer. The shares tendered by the two majority shareholders would be sufficient to satisfy the minimum condition in A.O. Smith's Offer.

A Special Committee of independent directors of GSW reviewed the offer and obtained independent legal and financial advice. In particular, the Special Committee engaged GMP Securities LP as its financial advisor in October 2005 to provide a fairness opinion in anticipation of a potential A.O. Smith offer. GMP Securities has provided the Special Committee and the board of directors with an opinion that A.O. Smith's Offer is fair, from a financial point of view, to all the shareholders of GSW. A copy of the fairness opinion will be included in the Directors' Circular to be sent to the Shareholders regarding the Offer.

The discussions between A.O. Smith and the two majority shareholders of GSW were announced on June 24, 2005 and GSW has not received any proposal which would be financially superior for GSW's shareholders to the terms of A.O. Smith's Offer. The Company explored a range of strategic alternatives over the past two years (including the possibility of converting to an income trust), and has concluded that the A.O. Smith Offer is the best alternative for all shareholders.

As previously announced, the two majority shareholders entered into exclusive discussions with A.O. Smith and A.O. Smith conducted due diligence on GSW, but the majority shareholders were not prepared to agree to terms with A.O. Smith and the Company was not prepared to provide A.O. Smith with access to highly confidential and competitively sensitive information, unless A.O. Smith was able first to obtain the necessary approvals of Canadian and U.S. antitrust regulatory authorities. Those approvals were received and announced on January 4, 2006 and, after subsequent negotiations, the two majority shareholders agreed on January 20, 2006 with A.O. Smith on the price of $115 per share at which A.O. Smith and the majority shareholders would be prepared to proceed, subject to A.O. Smith completing its remaining due diligence and the parties entering into definitive agreements. That process is now complete.

The Special Committee and its financial advisors have reviewed information provided by certain minority shareholders regarding their analysis of the value of GSW's shares and have concluded that the analysis was based on incorrect information and assumptions. The details of the information provided by the minority shareholders and the Special Committee's review of that information will be included in the Directors' Circular to be sent to the Shareholders regarding the Offer. The Special Committee also contacted a third party who recently expressed interest in acquiring the GSW shares at a higher price than under the Offer. The Special Committee provided the third party with access to senior management of GSW and confidential information regarding GSW under the terms of a confidentiality agreement. The Special Committee has since been advised that the other party will not be pursuing a transaction with GSW.

The Special Committee has recommended that the board of directors of GSW recommend that shareholders accept the Offer and the board of directors of GSW has made that recommendation and approved the Pre-Acquisition Agreement.

Under the terms of the Pre-Acquisition Agreement, A.O. Smith is required to mail a take-over circular by February 23, 2006 and take up Shares under the Offer by March 31, 2006, subject to the conditions set out in the agreement being satisfied or waived. In addition to certain customary conditions, the Offer will be conditional upon at least 66-2/3% of the outstanding Class A Common Shares and 66-2/3% of the outstanding Class B Subordinate Voting Shares being tendered to the Offer. As noted above, the shares required to be tendered by the two majority shareholders under the terms of their Deposit Agreement are sufficient to satisfy that minimum condition. To the extent that any remaining shares are not tendered to the Offer, A.O. Smith has advised GSW that it intends to acquire those remaining shares by way of compulsory acquisition or other subsequent acquisition transaction under applicable law, at the same price per share as provided for under the Offer. GSW expects that A.O. Smith will be in a position to effect that transaction even if no shares are tendered to the Offer other than the shares held by the two majority shareholders.

The Pre-Acquisition Agreement contains customary provisions prohibiting GSW from soliciting competing acquisition proposals, but in certain circumstances allows the directors of GSW to accept and recommend a superior proposal if doing so would be consistent with its fiduciary duties. However, unless A.O. Smith releases the two majority shareholders from their irrevocable Deposit Agreement, GSW's directors believe such a proposal is unlikely. GSW has agreed to pay a fee of CDN$12 million to A.O. Smith if GSW enters into or consummates a competing transaction and both GSW and the two majority shareholders are released from their obligations to A.O. Smith, or in certain circumstances where GSW or A.O. Smith terminate the Pre-Acquisition Agreement and a transaction which is financially superior for the shareholders is consummated.

The Pre-Acquisition Agreement also provides that GSW must pay A.O. Smith's expenses up to a maximum of US$5 million if A.O. Smith terminates the agreement by reason of a breach by GSW of its representations, warranties or covenants.

GSW Inc. has been a manufacturing pioneer since 1847. Today, the company is a leading manufacturer and marketer of consumer durable products, including water heaters and building products. The company employs over 1,700 people at three operating divisions in Canada and the United States. GSW is listed on the Toronto Stock Exchange under the symbols GSW.a and GSW.sv.b. For more information about the company, visit www.gswinc.com.

This release contains forward-looking statements, which reflect management's current views of future events and operations. These forward-looking statements are based on assumptions and external factors, including assumptions relating to product pricing, competitive market conditions, financial data, and other risks or uncertainties detailed from time to time in the Company's filings with securities regulatory authorities. These forward-looking statements represent the Company's judgment as of the date of this release and any changes in the assumptions or external factors could produce significantly different results.

Contact Information

  • GSW Inc.
    Jamie Hyde
    Chief Financial Officer
    (905) 829-1197, Ext.227
    jhyde@gswinc.com