Coates to conduct due diligence processCoates Hire Ltd has...

Coates to conduct due diligence process

Coates Hire Ltd has thrown open its doors and invited potential suitors into its data room, two months after becoming the target of a number of takeover approaches.

Coates, Australia's largest hire group, said it had called a formal due diligence process in the face of strong interest in the company.

Potential suitors can gain access to the virtual data room from July 16, with the process expected to take about four weeks.

"The board is of the opinion that a formal assessment of indicative proposals by means of a due diligence process will give us a better understanding of the value of available offers," Coates chairman Bill Cutbush said.

In May, Coates said it had received preliminary takeover approaches from a number of undisclosed external parties.

Among those mooted to be preparing bidding syndicates in anticipation of a formal sales process were private equity firms Ironbridge Capital, Archer Capital and Pacific Equity Partners.

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

But Mr Cutbush said there was no assurance the due diligence process would lead to the company being acquired.

"At the same time, we will continue to pursue our analysis and quantification of strategic and operationally initiatives, their deliverability, risks and timing," he said.

"In this way, we will be able to compare the prospective value outcomes from both options before making a formal recommendation to shareholders."

Coates began a strategic review of its options, under advice by Macquarie Bank Ltd, law firm Allens Arthur Robinson, and consultants Booz Allen Hamilton.

Mr Cutbush said as a result of the process, the Coates board believed significant improvements could be made to the company's ongoing business.

Coates was forced to cut its profit forecast for fiscal 2007 earlier this month because of bottlenecks at coal exporting ports on the east coast, and on rail networks.

The delays were holding up resource companies that used machinery sourced from the company's Allied Equipment business.

Coates generates about 10 per cent of its revenue from the Allied Equipment division, which hires equipment to resource firms, while almost 30 per cent of total revenue came from the construction sector.

The company said its net profit for the financial year could be about five per cent lower than the $106 million forecast in February due to the patchy trading conditions, but it expected net profit to improve in fiscal 2008.


***Bottlenecks take toll on Coates Hire***
Australian Broadcasting Corporation
Broadcast: 07/06/2007

Reporter: Andrew Robertson

Bottlenecks and poor export volumes have taken their toll on the earnings of Australian equipment hire firm, Coates Hire.

ALI MOORE: Bottlenecks and poor export volumes have also hit earnings at Australia's largest equipment hire firm.

Investors wiped 4 per cent from the value of Coates Hire today off the back of a profit warning which is the second dose of bad news from the company in the bad four months.

Andrew Robertson reports.

ANDREW ROBERTSON: With annual revenue of more than $700 million, Coates has more than 20 per cent of Australia's equipment hire market.

However after a sustained period of strong growth the last 12 months have been patchy.

MALCOLM JACKMAN, CEO, COATES: We've seen the north and the west perform very strongly and the mining resources sector perform very strongly. But in other areas around non residential construction particularly in the south and east it's been somewhat weaker.

ANDREW ROBERTSON: In February, Coates revealed first half earnings down 6 per cent to $46 million. Today, Coates lowered its full-year profit forecast by 5 per cent to $121 million. This year is the first time Coates has given profit guidance and chief executive Malcolm Jackman concedes the lowering of that forecast is not a good look.

MALCOLM JACKMAN: The reality of like is mine production levels are down in significant areas. We've seen bottlenecks in the ports and on the rail heads particularly on the east coast with coal and lot of coal miners this year will export less product this year than last year even though the prices are up, volumes are down.

ANDREW ROBERTSON: Simon Kent Jones covers Coates for stockbroking firm Ord Minnett. He believes that maybe taking Coates longer than expected to bed down the acquisitions it's made in recent times.

SIMON KENT-JONES, ORD MINNETT: Any company that is growing at a hefty pace and is being priced on fairly large valuations, the share price has gone up quite strongly, then the market expects to get some colour as to earnings so the stock doesn't get away from it.

ANDREW ROBERTSON: Coates share price is down substantially from its record high 12 months ago and that's attracted and attention of private equity.

The company is refusing to reveal, though, who those potential private equity bidders are and according to chief executive Malcolm Jackman in his view Coates is not for sale.

MALCOLM JACKMAN: If the board decides that we have other options that will deliver better value for the company and to the shareholders then we will probably pursue those and we won't invite other parties to undertake due diligence.

SIMON KENT-JONES: It would be difficult I imagine for a private equity firm to acquire Coates now at a hefty premium and then look to spin it out in the next three to four years. It's difficult to see what kind of return that they might produce.

ANDREW ROBERTSON: All the analysts Lateline Business spoke to believe Coates is well managed and will bounce back quickly from today's setback.