Chemical maker A. Schulman Inc (SHLM.O) offered to buy Ferro Corp (FOE.N) for $563 million to increase its pricing power amid weak demand, but the smaller rival rejected the bid saying it was better off continuing its own strategy.
Ferro shares jumped 33 percent to $6.90, topping A. Schulman's offer of $6.50 per share, as the bidder said it could adjust its offer if it gets the chance to inspect Ferro's books.
The Ferro stock was the biggest percentage gainer in afternoon trading on the New York Stock Exchange on Monday.
"(Ferro) is obviously hoping that this is the first offer and that either Schulman will either sweeten it, or somebody will come and beat them," said Longbow Research analyst Dmitry Silversteyn.
A. Schulman expressed its intent to buy Ferro in a letter on February 13, but was rebuffed by the Mayfield Heights, Ohio-based company. A. Schulman first contacted Ferro in November 2012.
Ferro advised shareholders on Monday not to take any action and said Goldman Sachs & Co was advising the company, with Jones Day serving acting as its legal adviser.
A. Schulman and Ferro sell products used in industries such as electronics and construction, and A. Schulman expects an acquisition to help cut costs and widen its customer pool.
"Ferro's business units align with A. Schulman's core competencies with the exception of pharmaceuticals, which is not strategic to us," said A. Schulman Chief Executive Joseph Gingo.
The expected acquisition would add to earnings in the first year following the transaction, Gingo said.
He estimated the acquisition of Ferro would lead to annual synergies of $35 million, on top of Ferro's projected savings of more than $50 million for 2014.
Akron, Ohio-based A. Schulman's offer of $3.25 in cash and the rest in shares is at a premium of 25 percent to Ferro's Friday close of $5.20.
The offer is valued at about of $855 million including debt, said A. Schulman, which was founded in 1928 by Alex Schulman.
A. Schulman shares were down 0.5 percent at $30.95 on the Nasdaq.
"I don't think Ferro is a very good fit for Schulman," Silversteyn said. "I can't imagine another company that would be interested in all of the businesses that Ferro has."
Ferro said in early February it sold assets related to its shrinking business that made conductive pastes used in making solar cells to a German company for an undisclosed sum. It also said it would cut about 120 jobs in Europe.
(Reporting by Krishna N. Das and Swetha Gopinath; Editing by Sriraj Kalluvila)