Every now and then, controlling shareholders of an excellent business foolishly attempt to enrich themselves at the expense of minority shareholders. At the close of 2014, the Burkard family announced its intention to sell its controlling stake of Sika AG (XSWX:SIK)(SIX: SIK) of Switzerland to a French competitor, Cie de Saint-Gobain, which has long coveted this prize of a company. The problem in this proposed deal is that the Burkard family, which conducted negotiations away from Sika’s Board of Directors, would receive a premium in the sale and all other shareholders would not. Now held up in the judicial process due to strong and swift legal action taken by Sika’s Board of Directors, and backed by key minority shareholders, we think this brazen attempt to deprive shareholders of Sika’s full and fair value will fail. Shares of this little-known gem of a company—a maker of high value-added construction materials to satisfy growing demand for stronger, lighter, and more energy- efficient building and automobile structures – have been knocked down to a discount, which we intend to exploit. Out of the range of possible outcomes in the battle for control, we believe the current plan of the Burkard family is the least likely, and when this corporate governance distraction is resolved in the favor of the Board of Directors and minority shareholders, the focus will return to the company’s attractive fundamentals of organic sales growth in both developed and emerging markets, earnings-accretive bolt-on acquisitions, and steady cash flow generation.
From David Winters (Trades, Portfolio)' 2015 annual letter to shareholders.
