Spanish infrastructure group Ferrovial yesterday fired back at its takeover target Broadspectrum (BRS) (nee Transfield Services) telling its investors that there’s a good chance their shares will fall sharply if they reject the Spanish group’s $1.35 a share offer.
That offer is down sharply from the original $2 offering put on the table in late 2014. but rejected by Broadspectrum’s board (when it was called Transfield Services).
In a reply to Broadspectrum’s Target Statement and rejection of its latest offer, Ferrovial claimed there was a “substantial risk” the contractor’s stock price will fall if investors do not accept its $715 million hostile bid.
That is what happened in the wake of the rejected $2 a share offer, and when Ferrovial revealed its $1.35 a share offer late last year, Broadspectrum shares were trading at just 83 cents.
Ferrovial yesterday argued that independent expert Ernst & Young’s fair value range was "unrealistic and inconsistent" with market benchmarks and that the contractor would be trading at around 73¢ per share if the Spanish company had not made an offer.
"Since the announcement of Ferrovial’s offer, global stock market indices have fallen materially and Broadspectrum’s peers have fallen a further 14 per cent," Ferrovial said. "If Broadspectrum had traded in line with peers since the announcement date, its share price would be 73¢ per share."
Broadspectrum’s shares fell 0.8% yesterday to $1.195.
Broadspectrum’s rejection of the Spanish groups second bid is backed by some major shareholders who have accepted the Ernst & Young valuation of between $1.71 and $1.98 each and claim the new bid from the Spanish group is opportunistic.
Ferrovial claims that Ernst & Young’s assumptions are based on "unjustifiably high" assumptions of Broadspectrum’s future earnings and ignored the low value of the contractor’s stock price in the six months to December.
The Spanish group claims that Broadspectrum’s earnings base is narrowly “concentrated" rather than "diversified," with underlying earnings before interest taxation depreciation and amortisation (EBITDA) from its defence, social and property (DSP) division contributing 84% of group earnings in 2014-15.
“Earnings from Broadspectrum’s DSP segment appear likely to decline significantly post 2016,” Ferrovial said in yesterday’s statement.
Ferrovial’s takeover bid will close on February 22 unless extended.
