Extract from today's AFR:
Detention centre contractor Broadspectrum is pulling out all the stops to either extract a higher price from suitor Ferrovial or send the hostile Spanish bidder packing.
The company's half-year earnings results have to be viewed in the context of Ferrovial's $715 million offer rather than the company's underlying performance.
It says strong cashflow has driven the decision to buyback up to 10 per cent of its stock but it also makes the company harder for Ferrovial to acquire because it reduces the number of shares on the market and increases the value of the stock.
It is a common tactic used in takeover defences. Foster's did the same thing in 2011 when it was fending off advances from SAB Miller.
Strip out all the noise around the takeover battle and Broadspectrum has not posted a bad result.
Underlying earnings before interest, taxation, depreciation and amortisation (EBITDA) rose 11.1 per cent to $124.7 million. Its net profit has trebled to $25 million. The company is chipping away at its debt pile and cashflow is strong. The company expects to generate $100 million of free cash flow in financial year 2017.
However, this does not cushion the blow from the last week's news that its key contract running detention centres on Nauru and Manus Island is no longer set in stone. While the contract has been extended for 12 months, after that it will have to compete with a another company for a new five-year deal.
This a potentially a blow for the company but Broadspectrum has managed to keep its key investors, who are not yet willing to accept Ferrovial's $1.35-a-share offer, on side.
BRS Price at posting:
$1.14 Sentiment: Hold Disclosure: Held
