Mouchel is “actively reviewing” the approaches and its other options and advised shareholders take no action, the Woking, England-based company said in a statement. Costain earlier today announced a sweetened offer of about 172 million pounds ($274 million) to try to get management to enter talks.
Costain aims to create a building and services provider with an order book of 4 billion pounds. Private companies and U.K. government authorities are favoring bigger contracts for longer periods that incorporate a broad range of services. The builder should now consider going hostile with its bid, Panmure Gordon analyst Andy Brown said.
“Time is important,” Costain Finance Director Tony Bickerstaff said today in an interview. “This is our third approach and we are keen to get on and have a discussion. One way or another, we’ve got options and choices about delivering our strategy and we are pretty determined to do that.”
Mouchel jumped as much as 26 percent, or 29.75 pence, to 143.5 pence in London and it traded at 139.75 pence as of 11:17 a.m., valuing the business at 155 million pounds. Costain fell 3.5 percent to 215 pence, for a value of 136 million pounds.
Costain is offering investors 0.5531 of a share for each Mouchel equivalent and it included a cash element of 30 pence for the first time. The offer, which values Mouchel at 153.2 pence, came after “extensive” talks with investors, Bickerstaff said.
Mouchel’s three largest shareholders are Schroders Plc, Prudential Plc and M&G Investments, according to Bloomberg data.
‘Test the Waters’
“It would not do them any harm to go hostile now to test the waters and see how shareholders react if Mouchel management aren’t going to speak,” said Panmure’s Brown, who has a “buy” rating on Mouchel. “They’re saying they’ve had a good reception from both sets of shareholders. Strategically it makes sense.”
Bickerstaff said while Mouchel rejected a 294-pence bid from VT Group Plc a year ago, “things have changed quite considerably since then.”
“The VT offer is history,” the Costain finance director said. “Not so long ago their share price was about 56 pence.”
Mouchel’s loss widened in the year through July in the financial crisis and Prime Minister David Cameron’s coalition government is trimming spending to help shrink a record deficit. Lenders appointed Deloitte & Touche LLP to perform a review. Chief Executive Officer Richard Cuthbert plans to complete debt refinancing before first-half results due in March.
“In terms of the issues that they’ve faced as a business, we believe this will be a resolution for them,” Bickerstaff said. “Following our discussion with shareholders, the offer is at a level where they should talk to us.”
Mouchel’s information-technology unit, servicing local authority payrolls, could be attractive for Costain, said Ian Tyler, chief executive officer of Balfour Beatty Plc, Britain’s largest builder. Carillion Plc and Balfour Beatty are bolstering their facilities-management operations to complement a struggling construction industry.
“The bit that Mouchel have which is very interesting is the business-process outsourcing capability, largely directed towards entities like local authorities,” Tyler said in a Jan. 14 interview. “That isn’t Costain consolidating the market. That’s a new departure for Costain.”
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