Rogers/DuPont: Uncertain whether SAMR review will result in remedies; bidder remains committed - sources

News Analysis 22 September

Rogers/DuPont: Uncertain whether SAMR review will result in remedies; bidder remains committed - sources

  • Deal faces industrial rather than competition related concerns
  • Concern coming from both trade associations and government agencies
  • Next two weeks likely key to whether deal completes by 1 November deadline
  • DuPont remains committed but analysts flag potential for revised terms

Six weeks out from the deal’s termination date, it remains unclear whether DuPont’s [NYSE:DD] proposed USD 5.2bn all-cash acquisition of Rogers Corporation [NYSE:ROG] will receive a conditional or an unconditional approval in China, according to two sources familiar with the situation. 

The deal is facing industrial rather than competition related concerns, according to the first source.

The regulatory procedure for addressing industrial rather than pure competition related concerns within the context of an ongoing review by China's State Administration for Market Regulation (SAMR) is less well established.

Supporting the view that the issues facing the deal are of an industrial nature, the second source and a source at a third-party, which has provided its comments to SAMR, said the regulator completed its official comment-seeking process a long time ago.

Recently, several high-profile deals such as US-based MKS Instruments’ [NASDAQ:MKSI] acquisition of Atotech, and the Bain Capital-led consortium’s proposed acquisition of Hitachi Metals [TYO:5486] gained unconditional clearance from SAMR after lengthy reviews that required third parties’ industrial-related concerns to be resolved through side deals. The two deals gained unconditional clearance two to three weeks after those concerns were addressed.

Based on those precedents, the Rogers/DuPont deal will need to resolve third party complaints in the next week or two if both the review and the deal are to be completed by the deal’s end date.

Third parties have real concerns about the deal, said the second source. These concerns are coming not only from trade associations but also government agencies, said the same source.

The first source said the deal parties initially did not prepare any remedies for the deal as they believed it would not generate any competition concerns.

A fourth source said that there was a chance the deal might not be completed by the final termination date of 1 November. The source stressed, however, that Dupont remains committed to acquiring Rogers.

When the deal was announced at DuPont’s 3Q21 earnings in early November 2021, the merging parties said they expected the transaction to complete in 2Q22. DuPont’s Executive Chair and CEO Edward Breen said the company had “studied the antitrust extremely deeply” and that it’s possible the deal could even “close a little bit sooner”.

The deal spread has widened to 14.71% in recent weeks on concern that the deal, announced on 2 November 2021, will not be completed by its second extended, and final, long stop date. At least two analysts have recently speculated that whilst Dupont management still “very much” want to acquire Rogers, the approaching deadline and the target’s financial performance may provide the bidder with an opportunity to strike a new agreement below the original USD 277 per share offer price. 

As reported, Chinese third-party concerns are stemming from the copper clad laminate (CCL) industry, where Chinese producers compete with Rogers and DuPont and also have to purchase major raw materials from DuPont.

DuPont produces flexible CCL (FCCL), one of the best performing products in the industry. Its products vary from copper clad laminates, coverlays, bondplys to sheet adhesives. Rogers mainly focuses on high-frequency CCL, which is broadly used for the construction of 5G networks, data centers as well as printed circuit boards (PCB), a core semiconductor component used in consumer electronic devices, electric vehicles, telecommunication devices and the aerospace industry. Both companies’ products are 5G network-related key materials.

Rogers and DuPont have vertical relationship in multiple products, but the proposed acquisition will not generate vertical competition issues, according to the first source. 

Major Chinese third parties compete with DuPont in 2L/3L FCCL market, while they compete with Rogers in the high-frequency CCL market, according to a sector analyst. DuPont supplies a range of raw materials in 5G networking. Some can be substituted by other suppliers, whilst the modified polyimide (MPI) , a key base used for FCCL manufacturing, is not replaceable. DuPont has a leading market position in advanced PI products.

The deal involves the adjacent high frequency CCL and FCCL markets and the combined entity will enjoy a leading position in these two markets, leaving little space for domestic competitors to compete, according to the analyst. Meanwhile, Chinese 5G network construction’s dependence on CCL supply from the combined entity will be increased.

DuPont did not return requests for comment. Roger said it does not comment on market speculation.

Shares of Rogers, which have tumbled in recent days, last closed 0.38% lower at USD 241.48.

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