Predictably shares in Transfield Services (TSE) jumped by around 30% in early trading yesterday after the company said it had received an indicative offer from Spanish infrastructure giant Ferrovial which values Transifield at around $1 billion.
Shares in Transfield hit a high of $1.97 and closed up 26.6% at $1.90, compared to the $1.95 per share offer that Transfield said undervalued the company.
Transfield’s shares closed at $1.50 on Friday, giving it a market capitalisation of $769 million, so the $1.95 indicative price is a substantial premium.
But its not enough to keep the share price over the indicative offer of $1.95, indicating reservations in some sections of the market about the probable success of this offer.
The Transfield board told shareholders to take no action regarding the cash offer.
“The Board of Transfield Services has considered Ferrovial’s proposal with the company’s advisers and has formed the view that the price of $1.95 per share does not reflect the underlying value of Transfield Services shares,” chairman Diane Smith-Gander said in a statement filed with the ASX before trading opened.
Transfield moved back into the black in 2013-14, reporting a full-year net profit of $53 million compared with the large $254.5 million loss a year earlier as income from its core Australian and New Zealand infrastructure operations offset lower earnings and revenues from its American business.
TSE YTD – Transfield Services receives takeover bid from Ferrovial
Transfield said in yesterday’s statement that it had "experienced strong trading in the first quarter ended 30 September 2014 and will update shareholders on the outlook for the current financial year at the Annual General Meeting on 5 November 2014".
"Nevertheless, the Board believes that shareholders interests are best served by conducting exploratory discussions with Ferrovial to determine whether a proposal which would deliver better value to shareholders, can be put forward.
"As part of these exploratory discussions, Transfield Services is prepared to provide Ferrovial with limited due diligence information on a non-exclusive basis, subject to an appropriate confidentiality agreement.
"Transfield Services will advise shareholders of the outcome of the discussions with Ferrovial as soon as practicable. The process may take some time and there can be no certainty that an acceptable proposal will eventuate,” the company said in yesterday’s statement.
Trading in Transfield shares yesterday tells us a couple of things.
The fact that in yesterday’s solid market rise, Transfield shares rose past the offer price of $1.95, then retreated, tells us there’s a lack of confidence in the eventual success of the possible offer.
Hedge funds, who normally trade these situations and go long in the expectations of another offer (look at the Warrnambool Cheese bidding war earlier this year), are a bit gunshy after taking a big loss in the battle for control of Treasury Wine Estates (TWE) after the company rejected the offers. TWE shares fell sharply – by around $1, leaving many hedge funds and other speculators with losses.
From the statement from Transfield yesterday, there’s a hint this could be another TWE situation where the target company gives some due diligence to the bidder, and then rejects the offer because there’s no chance of a higher price.
We now know that Transfield’s board wants a share price above $2, but to go long in TSE shares after the TWE rejection, is a big risk, it seems for many speculators, especially with global markets still tense.
