CIMIC chief executive Marcelino Fernandez Verdes has been seizing control of subsidiaries. Photo: Rob HomerSpanish-led construction group CIMIC has made a $256 million hostile takeover bid for Sedgman after the Queensland engineering group rejected demands to shrink its board.
CIMIC, which already owns 37 per cent of Sedgman, is offering $1.07 per share in cash for the Queensland group, a 35 per cent premium to its closing share price of 79¢ on Tuesday.
Sedgman shares soared 28¢ on Wednesday to close at $1.07. CIMIC has already started buying Sedgman shares, appointing Credit Suisse Equities to buy any stock offered at or below $1.07.
The Spanish-controlled CIMIC, formerly known as Leighton Holdings, released its bidder’s statement on Wednesday and said the offer was final.
Sedgman, which has appointed Citi as its financial advisor, told investors to take no action on the takeover bid until its board hired an independent expert to review the offer and released a recommendation. Under takeover laws, CIMIC must keep its bid open for at least 30 days.
Sedgman, which had a market capitalisation of $179 million before the takeover bid emerged, has performed well under its current management team, with the company’s shares rising 58 percent over the past 12 months. More control
But CIMIC wants to exert more control over its subsidiaries. It has also been trying to seize full ownership of residential property developer Devine.
CIMIC’s parent company, Grupo ACS, sent Spanish executives to Australia to run the group after wresting control from its Australian management team in early 2014.
Ben Brownette, analyst at the Commonwealth Bank, said ACS had been successful at turning around parts of CIMIC as well as its controlling shareholder, Germany’s Hochtief.
“There appears logic in the view that Devine and Sedgman could also be improved,” Mr Brownette said, adding that CIMIC could also target mining-related businesses such as Barminco and Ausdrill.
CIMIC voted against Sedgman’s remuneration report at the engineering company’s 2015 annual meeting, as well as the election of three independent directors.
It demanded Sedgman appoint a second CIMIC-nominated director (CIMIC already has one director on the board), reduce the size of its board from six to five, and have direct involvement in the engineering group’s decision making Demands rejected
Sedgman’s board, led by chairman Rob McDonald, rejected CIMIC’s demands.
Analysts at RBC Morgans said a competing bid for Sedgman could emerge given the company had $109 million of cash on its balance sheet and strong intellectual property, but acknowledged CIMIC’s 37 per cent stake would make it difficult for another bidder to succeed.
“Sedgman has built up a strong balance sheet and continued to improve its pipeline of opportunities,” RBC Morgans said.
CIMIC said on Wednesday it wanted to increase its holdings in Sedgman so it could “better support the future direction” of the Queensland company.
It planned to change Sedgman’s board, review its dividend and capital management policies, but continue its existing plans to increase “market and commodity diversification”.
Sedgman, which designs and builds commodity-related infrastructure such as coal handling plants and gold processing facilities, has been trying to diversify away from the coal industry and expand internationally.
CIMIC will also consider delisting Sedgman from the Australian Securities Exchange.
CIMIC’s offer has been approved by the Foreign Investment Review Board and will be funded from the construction group’s existing funds and debt facilities.
The $256 million takeover bid includes 12.1 million Sedgman performance rights that can be converted into shares and sold into the offer.
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