Costain鈥檚 拢170m bid is likely to remain the only offer and will not increase, say analysts
An imminent refinancing of debt by Mouchel is unlikely to lead to an influx of new parties interested in buying the firm, or to an increased bid from Costain, according to analysts.
Last week Mouchel said an announcement on the refinancing was imminent as it 鈥渆xpects to finalise the new facilities shortly鈥�.
Finalising the refinancing has been a key issue for its management, who initially expected to have the refinancing concluded by March.
But it may not be a major catalyst for a new bid from a third party, or a higher bid from Costain.
鈥淚f you read between the lines, Mouchel are on track for a successful refinancing of their banking facilities but this is no longer new news and wouldn鈥檛 have a big effect on their share price鈥�, said Peel Hunt analyst Andrew Nussey.
鈥淭heir current trading is probably more important than a refinancing鈥�.
A successful refinancing of Mouchel鈥檚 debt is likely to be more important to management than investors, according to Mark Fleetwood, analyst at Brewin Dolphin.
鈥淭he board wouldn鈥檛 want to move before a refinancing takes place as they may view it as having the potential to create more interest [from potential bidders].
鈥淐urrent shareholders who bought in for the recovery potential will see the refinancing as a good thing but it鈥檚 really just a side issue now.鈥�
Costain increased its bid for Mouchel for a second time last week, to 153p per share, valuing the firm at 拢170m.
It previously made an offer of 105p when Mouchel shares were trading at just 56p in December. Its second offer of 135p was rejected.
As part of its defence, or as a direct condition of its refinancing, Mouchel could sell one or more of its subsidiaries. The Middle East division is seen as most likely to be offloaded.
Its value is unlikely to have a material impact on the financial health of the business though.
鈥淭he Middle-East business isn鈥檛 worth very much and they have been a willing seller for a while鈥� said Fleetwood. 鈥淚t may only be worth around 拢5m, give or take鈥�.
While advising shareholders to 鈥渢ake no action鈥� in reference to Costain鈥檚 third bid last week, Mouchel also disclosed that it had been subject to a number of approaches from potentially interested parties.
However, Costain鈥檚 拢170m bid remains the only firm offer on the table.
Why Mouchel is refinancing
Many things will not be achieved by a successful refinancing of Mouchel鈥檚 debt, but there are some positives to be drawn.
First, it allows the board to focus on running the business. Time is scarce when managing a business this size and negotiations are bound to be a big drain.
Just as important to management will be the relief when negotiations are complete. Refinancing should create a floor under the share price, regardless of whether a new bid emerges, or Costain鈥檚 bid fails.
Finally, successfully concluding negotiations would strengthen thel board鈥檚 hand.
Mouchel and Costain: What the analysts think锘�
Robin Speakman
Shore Capital
Government departments are demanding more up-front working capital before awarding contracts and if Mouchel remains independent, it could end up being broken up as it doesn鈥檛 currently have this financial strength.
What Mouchel will need to do is target areas of growth for the future. This means that one or more business units could be sold in order to address its debt.
My advice would be that, all round, the risks are better with Costain.
David Brockton
Espirito Santo Investment Bank
Mouchel is clearly well progressed in terms of its refinancing but it doesn鈥檛 change the likelihood of another bid materialising when it鈥檚 completed. But certainty over their finances is definitely positive.
The refinancing moves Mouchel from a distressed firm to one where management鈥檚 hand in negotiations is significantly strengthened.
It becomes clear from talking to Mouchel management that they are not driven by their ego and there鈥檚 a genuine intention to deliver maximum shareholder value.
Mark Fleetwood
Brewin Dolphin
We are not convinced that sufficient shareholders would support the current bid it to enable it to go through. We would be surprised if Mouchel鈥檚 board supported a bid at this level given the longer term recovery potential they have alluded to.
The price looks reasonable on current estimates, but somewhat undemanding if you buy into the recovery potential.
Refinancing isn鈥檛 a massive issue for Costain as they have plenty of cash anyway and wouldn鈥檛 be too concerned by Mouchel鈥檚 debt.
No comments yet