The board of Broadspectrum (BRS) (the former Transfield Services) has not surprised the market by formally rejecting a $715 million hostile takeover bid from Spanish infrastructure giant, Ferrovial.
The company yesterday released an independent expert’s report that concluded the Spanish infrastructure group’s bid is “not fair and not reasonable”.
That has been the board’s stance all along and is similar to the board’s approach to the $2 a share offer in late 2014 from Ferrovial which also failed after being rejected.
But that was a friendly offer looking for support from the Broadspectrum board.
This time round, the Spanish company is playing hardball with the lower price and hostile approach. The surge in market instability will probably add to the attraction of the offer.
Ernst & Young Transaction Advisory Services, which was hired by Broadspectrum’s board to review Ferrovial’s cash offer, concluded that the contractor’s shares are worth between $1.71 and $1.98 per share, according to a letter Broadspectrum sent to shareholders after releasing its target statement and experts report to the ASX yesterday.
"Your Broadspectrum shares are worth a lot more than Ferrovial is offering," chairman Diane Smith-Gander said in the letter.
"This is the unanimous view of your directors and is supported by the independent expert, who has concluded that the offer is not fair and not reasonable."
Broadspectrum’s shares closed 1.2% lower at $1.24 yesterday.
BRS 1Y – Broadspectrum rejects Ferrovial’s hostile bid
Ernst and Young said Ferrovial’s offer was below the underlying fair market value of Broadspectrum. It also said the Spanish-company’s bid was "not reasonable”.
“While there are certain advantages to Broadspectrum shareholders, including a premium being offered to the recent trading price of Broadspectrum shares, we consider that the factors are not sufficient to conclude that the takeover offer is reasonable given Broadspectrum shareholders would receive less than fair value for their shares," Ernst and Young said.
“Broadspectrum is in a stronger position now than in December 2014, when Ferrovial indicated a willingness to pay significantly more for your Broadspectrum shares,” Ms Smith-Gander wrote in yesterday’s letter.
Ms Smith-Gander said Broadspectrum was in a stronger position today than in December 2014, when Ferrovial offered $2 per share for the Australian contractor. Broadspectrum rejected the offer.
Broadspectrum chief executive Graeme Hunt said in yesterday’s statement that the company had strengthened its balance sheet, reducing net debt by $182 million over the past three years, and that it had a “positive” outlook for 2017, with $2.3 billion in contracted revenue.
So in the basis of what we read yesterday in the experts report, the first offer of $2 a share would have won the day this time around?
The problem for the board is that the shares have not been near that suggested price range of $1.71 to $1.91 for months and were trading at just 83 cents before Ferrovial appeared late last year with the hostile $1.35 a share offer . The high for the past year is $1.80, well short of the top of the price range in the expert’s report.
