May 1, 2018 / 1:14 AM / 2 months ago

Proxy advisory firms back Knauf's $5.9 billion bid for USG

(Reuters) - Proxy advisory firms Institutional Shareholder Services Inc (ISS) and Glass Lewis & Co have sided with German producer of building materials Gebr Knauf KG in its $5.9 billion bid for U.S. gypsum manufacturer USG Corp (USG.N), Knauf said on Monday.

The firms have issued reports recommending that USG shareholders vote against all four of USG’s director nominees at USG’s annual shareholder meeting on May 9, to send a message that the company must engage in negotiations.

USG is under pressure to enter into discussions with Knauf after rejecting a $42 per share offer in March. USG shares ended trading on Monday at $40.23.

USG has argued Knauf’s bid undervalued the company despite USG’s largest shareholder, Warren Buffett’s Berkshire Hathaway Inc (BRKa.N), offering to sell its 31 percent stake at that price.

“Progressive engagement between the parties has stalled due to the USG board’s response, namely its refusal to either make a clear counteroffer (one that will not intensify shareholder scepticism) or structure and initiate appropriate limited diligence,” Knauf said in a statement, citing ISS’s report.

To be sure, even a resounding vote against the company would not be in any way binding for USG, which has a staggered board, meaning only four of its 10 directors face a shareholder vote this year. It also has a “poison pill” defence available, preventing Knauf from launching a hostile bid.

Reporting by Harry Brumpton in New York; Editing by Chris Reese

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