from aap 15/7/07Allied tipped to go if Coates taken overMonday...

from aap 15/7/07

Allied tipped to go if Coates taken over
Monday Jul 16 14:52 AEST
Private equity predators are tipped to sell off the earthmoving and construction equipment arm of takeover target Coates Hire Ltd, if they win control of the country's largest equipment hire firm.

The obvious asset to be "flogged" under a private equity takeover was the Allied Equipment business, an analyst at a leading investment bank says.

Allied Equipment has been battling to win more business from its resource sector clients, which are being hampered by infrastructure delays.

"I think any buyer would need to do something with Allied Equipment, which is the number two player to Emeco Group (an international earthmoving company), and not a perfect fit within equipment hire," said the analyst, who did not want to be named.




The predicted sale of Allied Equipment, which generates about 10 per cent of the Coates' overall revenue, comes as Coates opened a data room so firms interested in buying the company can conduct due diligence.

Parties rumoured to be interested in the firm include Ironbridge Capital, Archer Capital and Pacific Equity Partners.

Japan's Nikko Principal Investments and US group Kohlberg Kravis Roberts (KKR) have also been named.

Neither Coates or the parties would comment on the speculation.

Last month, ABN Amro analyst Chris Sleep said in a report that a potential bidder would need to offer $6.20 per share, valuing the company at around $1.5 billion, to win the support of Coates' board.

Such an offer would allow a private equity firm to make a 15 per cent internal rate of return on the asset.

"We still believe Coates is not a perfect private equity candidate, given the inherent cyclicality of the business and short-term issues for the under-performing Allied division, which not all acquirers would be interested in," Mr Sleep said his report.

At 1350 AEST Coates shares were nine cents higher at $6.02.

The share price had gained in recent weeks in anticipation of a takeover offer being made for the company.

ABN Amro originally put a $6.50 per share price tag on Coates, but downgraded that to $6.20 following the firm's profit downgrade in June.

"Whilst this is lower than a traditional 25-30 per cent normal takeover control premium, one can't ignore the recent three to five per cent medium-term earnings downgrades and the reality that Coates would be trading back at March to April prices without such corporate appeal," it said.

On June 7, Coates said its 2006/07 net profit could be about five per cent lower than the $106 million it forecast in February.

It blamed the downgrade on "patchy" trading conditions that have hurt Allied Equipment and the Queensland operations, Coates North.

But profit would still be ahead of the prior year result by at least 7.5 per cent.