The conflicting fortunes of the mining and construction sectors was underlined yesterday in two announcements – the first was a big merger proposal that would see two small contractors unite, the second was bad news from Ausdrill that saw the shares lose more than a quarter of their value in the space of an hour or so.
Ausdrill’s pain is covered in a separate story as it reported the loss of tens of millions of dollars of business previously believed to have been secured.
And the market reaction was not a huge thumbs up to the news that Perth-based contractor Global Construction Services had launched an all paper $322 million “merger of equals” with construction group SRG.
GCS said the proposal would create a vertically integrated building services company while extending asset maintenance and cross-selling opportunities of specialised services.
It would have a combined market value of more than $300 million, net tangible assets of around $200 million and employ around 2,000 people globally.
Under the all-scrip deal announced to the ASX yesterday, SRG shareholders will get 2.479 GCS shares for each share they hold, giving GCS investors a 51% stake in the new company, SRG Global.
But investors thought otherwise and sold off the shares in both company and don’t like the absence of a control premium in the deal’s terms.
GCS shares dell 3.3% to 73 cents as investors wondered about the wisdom of it giving up 100% control of its business for 51% in the merged operation.
And there was an overwhelming negative response from investors in SRG who sold the shares down sharply – they closed off more than 7% at $1.75. It seems some investors wonder about the wisdom of giving up 100% control of its business for 49% in the merged company.
In fact the management structure of the merged company looks like a takeover by GCS with its chair and CEO grabbing the top two roles – all without a premium for control being offered to SRG shareholders.
GCS chairman Peter Wade will chair the merged company, with SRG’s Peter McMorrow will slot in a deputy chair,
But SRG managing director David Macgeorge will take the same role with SRG Global and current GCS managing director Enzo Gullotti will become executive director, with the rest of the board to be made up of representatives from both organisations.
Mr Macgeorge defended the merger, claiming it will produce an expected $3 million and $4 million a year in savings as well as a stronger combined offering and greater scale.
“This significantly enhances our ability to partner with our key clients over the full lifecycle of an asset,” he said.
“Our goal now is to maximise the strength of the combined group to deliver growth across the business and continue the journey to becoming a leading global specialist engineering, construction and maintenance group.”
The deal is expected to be completed by early September, unless SRG shareholders arc up about the lack of a control premium. Yesterday’s sell off suggests that is a possibility.