UGL (UGL) shares closed up 48% at $3.18, three cents above a takeover offer price revealed yesterday by Spanish-controlled construction giant, CIMIC (the new name for serial under performer, Leighton holdings).
Despite getting Foreign Investment Review Board clearance for its $3.15 a share offer, the overbidding of the offer indicates for the time being there’s a feeling another bidder might appear.
CIMIC closed up 0.5% at $27.47 after revealing it had picked up 14% stake in UGL and had declared its offer ‘final’ meaning it will not be able to lift its price for at least six months.
UGL directors told has shareholders to take no action at this point, with the board to meeting soon to discuss the bid.
The offer from CIMIC valued UGL at $524 million bid for UGL, with an offer that was a 47% premium to UGL’s close on Friday of $2.15.
It is the second takeover in the sector – last week, Japan’s Hitachi Construction Machinery, launched an agreed $689 million bid for Bradken (BKN).
CIMIC has instructed Macquarie Securities to stand in the market to buy shares in UGL at the offer price. The were more than 30 million shares traded yesterday,
CIMIC said in its statement yesterday intended to “conduct a strategic review” of UGL’s businesses to “drive operational efficiencies and improvements to project delivery" while also assessing the value of the target’s assets.
It would also review the dividend and capital management policies of the target and reconstitute its board.
CIMIC has been selling assets and mounting bids this year under its new Spanish controllers. It sold its Nextgen business for $861 million and a few months ago wrapped up a $286 million bid for Sedgman, which has a big operates in the coal industry.
UGL generates around 40% of its $2.2 billion annual revenue from the rail and defence sectors, 24% from asset maintenance and a further 24% from the engineering and resources sector.
UGL share price has been weakened by problems and rising costs on two contracts: a $740 million joint venture building LNG trains, and a $550 million joint venture building a power plant.
UGL had warned in June that it may need to set aside an additional $200 million on top of the $175 million in provisions it took in 2015 to settle the two contracts for INPEX’s Ichthys liquefied natural gas plant. The shares fell 33% on June 6 when the warning and downgraded guidance was reported.
The extra provisions forced the company to report a loss of $103 million for 2015-16, after it lost more than $220 million for 2014-15 because of the provisions that year on the LNG project contracts.
