Another asset sale by Lendlease which yesterday revealed it was selling its services unit to Service Stream for $295 million in cash and $15 million in debt.
The $310 million enterprise value of the purchase will be a big swallow for Service Stream which was only valued at $394 million at Tuesday’s close of 96 cents a share.
That means the purchase of the Lendlease business will have a dramatic business on the smaller company’s structure and operations which were under pressure in the year to June with a slump in revenue and earnings.
Shareholders will be asked to pay a lot to help finance the deal.
Service Stream said it will fund the purchase by expanding its debt facilities and by asking shareholders for $185 million at 90 cents a share to fund the deal.
And shareholders will miss the final dividend which will be suspended to help the company use that cash to pay for the purchase.
Service Stream said it expected to resume paying dividends post-completion of the deal.
Service Stream said $123.1 million will be raised by fully underwritten 1 for 3 entitlement offer at 90 cents a share and a $61.9 million fully underwritten placement at the same price.
About $123 million will come from the draw down of debt facilities and available cash.
Existing debt facilities will be increased by $120 million to $395 million to partially fund the Acquisition, provide for client bonding requirements, and support the expanded group’s operations post completion of the Acquisition, Service Stream told the ASX on Wednesday.
Service Stream didn’t make the purchase rationale any easier by downgrading its June 30 forecasts and dropping the final dividend to help finance the transaction.
Service Stream warned of a sharp drop in full-year revenue and earnings for June 30 year as a result of lower telecommunication segment revenue following the conclusion of the nbn design and construction program in 2019-20.
Revenue will be down more than 13% to $804.4 million from $929.1 million while adjusted net profit slid 33% to $38.1 million from $59.8 million in 2019-20.
Service Stream said the merged company expects FY21 proforma annual revenue of around $1.6 billion and FY21 proforma earnings before interest, tax, depreciation and amortisation from operations of approximately $142 million, including the full-year pro forma run rate of synergies (cost savings).
But there was no estimate of what the proforma shape of the merged company’s revenue and earnings will be in 2021-22 financial year.
Service Stream said the deal will diversify its revenues, bolster the scale and depth of operations and expand the group’s immediate and future addressable markets.
“The acquisition of Lendlease Services marks an exciting chapter for Service Stream, transforming the business into a diverse, multi-network essential service provider, operating across the growing infrastructure services sector,” managing director Leigh Mackender said.
“The acquisition is highly complementary to Service Stream’s existing business, expanding our utility operations, delivering an established transportation infrastructure division and enhancing Service Stream’s contracted operations within the telecommunications sector.”
The acquisition is expected to complete in November
The divestment of Lendlease Services follows the recent sale of the Lendlease engineering business, and the US telecommunications and energy businesses.
“The divestments, combined with recently announced changes to the organisational structure, better position the Group to deliver on our $110 billion development pipeline, continue to deliver our construction backlog and grow our Investments platform in a more focused and efficient way,” Lendlease’s new global chief executive Tony Lombardo said.
Lendlease shares rose 2% to $11.67.