bids are in., page-12

Coates Hire price slips after takeover bids rejected August 29, 2007 12:00am
A DECISION by Coates Hire Ltd to knock back takeover proposals sent its shares sharply lower today, after the group posted a fall in annual earnings.

The rejection of offers potentially worth up to $1.55 billion was questioned by analysts, who said Coates should have allowed shareholders to make the final decision.

But Australia's biggest equipment hire firm said the offers weren't high enough.

Coates today used its full year results briefing to announce the results of a strategic review that concluded it was better off going it alone than accepting an outside offer.

Coates has been the subject of takeover rumours in recent months, after a poor first half result attracted the attention of potential predators, including private equity firms.

In June, the group said it would allow interested parties to conduct due diligence so it could assess the value of any offer.

But chief executive Malcolm Jackson said today the proposals from unidentified third parties did not meet the board's expectations.

"The board has determined that the proposals received from interested third parties are not at an appropriate value to justify recommendation, and accordingly failed on price," Mr Jackson said.

"The board considers that shareholder value will be better served by the company, board and management turning their full attention to value enhancing strategies and the pursuit of a number of strategic initiatives, building on the successful re-structuring of the business in fiscal 2007."

Coates recorded an eight per cent fall in bottom line net profit to $92.38 million for 2006/07, as sales rose 7.7 per cent to $770.40 million.

But it forecast operating profit to increase by 15 per cent in 2007/08, from $102.4 million last year.

Confidentiality agreements precluded Mr Jackson from disclosing who was interested in Coates or the value of the offers.

But unconfirmed speculation has centred around private equity firms such as Ironbridge Capital, Archer Capital, Pacific Equity Partners, Kohlberg Kravis Roberts and Carlyle Group.

It's believed private equity firm Carlyle and tool and equipment hiring company National Hire had teamed up to make a $6.20 a share offer.

Coates shares fell 6.87 per cent, or 38 cents to end at $5.15, after investors cut $95.3 million off its value to $1.29 billion.

Aequs Securities institutional dealer Ric Klusman said the Coates board should have put any offer to shareholders.

"I think it is the wrong decision, I think they should say we accept it, subject to a higher bid," he said.

"It's the shareholders decision."

Analysts also said the lower share price may tempt an interested party to make a hostile bid.

But Mr Jackson said the company's review was "extremely robust", so robust that it "almost drove us to distraction".

"The bidders had the best opportunity to get a very close and careful look at the organisation," he said.

"The review certainly reconfirmed the board's outlook on the company ... there's nothing like have a full medical over five weeks or so to get into the bowels of the organisation."

If Coates received any further interest it would be obliged to consider the offer, Mr Jackson added.

Austock Securities analyst Craig Stranger said Coates shares were pummeled as investors, betting on a takeover, exited the stock.

"A lot of shares have been bought by people looking for the bid, and now they're exiting," he said.

"Now they have to decide whether Coates is worth buying on fundamentals.

"We argue that it is worth at least $5.40 on fundamentals, and probably up to $6.00."

Mr Jackson said in 2007/08 Coates would build on its "solid, if not spectacular performance" of last year.

"Trading conditions in the first two months of 2007/08 had been positive, with a growing order book and a strengthening outlook," he said.

"The company is highly confident of delivering strong results in fiscal 2008 and beyond."

Coates today also announced the acquisition of specialist equipment hire firm Prime Industrial Rentals, from Atlas Copco for $38.7 million.

Coates declared a final dividend of 11 cents, taking the total for the year ended June 30 to 21 cents, up from 19 cents in 2005/06.



Coates shares drop after sale fails
August 29, 2007 - 11:24AM

Coates Hire, Australia's biggest equipment hire firm, said it would not recommend any of the takeover proposals it had received because the offers were not of sufficient value.

But it said it remained up for sale and would evaluate any new offers.

"The bids received do not reflect any appropriate synergy benefits that would be available, particularly considering Coates' leading market position and strong geographical footprint," Coates Chairman Bill Cutbush said.

The news, plus a fall in earnings, sent its share price plunging this morning. At 11.04am shares were down 7.4 per cent, or 41 cents to $5.12.

Any future offers would be looked at, but in the meantime Coates would work on value-enhancing strategies and building on a restructuring of the business in fiscal 2007, Cutbush said.

The company put itself up for sale in June after a series of approaches from several parties following weaker-than-expected half-year earnings in February.

Sources have told Reuters that bidders included a consortium comprising global private equity firm Carlyle Group and Australian equipment hire group National Hire Group.

Coates, which hires out everything from portable toilets to generators to the building, mining, power, oil and gas industries, also said net profit after tax fell 8 percent to $92.38 million for the year to June 30 from $100 million a year earlier.

A strategic review had identified $30 million a year of operational efficiencies which would be realised progressively over the next five years, the company said.

Market conditions were robust with key customers reporting growing order books, the company said.