Cimic’s $1.5b takeover bid is ‘lousy’, investor says
Jenny WigginsInfrastructurereporter
Apr 6, 2022 –10.50am
Cimic investors have complained that a $1.5 billionhostile takeover bid does not represent fair value for the construction group’sshares, and one has labelled it “a lousy offer”.
Shareholder Stephen Fonti told Cimic’s annualgeneral meeting on Wednesday that he had been an investor in the company for along time and was being “asked to take a bath” after the company’s independentdirectors recommended shareholders accepted a cash offer of $22 a share.
“I’m not happy,” Mr Fonti said. “Hochtief is buyinga bargain … I reckon that it’s a lousy offer, it’s the same price as it was in2014.”
The price offered by German construction groupHochtief, which is owned by Spain’s ACS, is a little lower than the $22.15 ashare it offered in March 2014 during the Spaniards’ initial attemptsto secure greater control of Cimic.
And it is much lower than the price Cimic’s shareswere trading at in 2018-19, when they fetched between $40 and $50 a share.
Another shareholder, Alan Kirk, said investors werepaying Hochtief to take away Cimic’s future earnings. “I don’t believe this isa fair long-term price,” Mr Kirk said.
Russell Chenu, one of only two independentdirectors on Cimic’s board, acknowledged that the takeover bid was low relativeto the 2018-19 share price, but argued that “Cimic is now a different companyfrom what it was in that period”. He believed $22 a share was reasonable.
Mr Chenu said he and the other independentdirector, Kate Spargo, were taking losses on the Cimic shares they previouslyacquired. Mr Chenu sold 4085 shares this week after accepting the takeover bid,while Ms Spargo sold 4000 shares. “We wish the offer had been higher, but it’snot,” Mr Chenu said.
Challenging few yearsCimic executive chairman and chief executive JuanSantamaria said the company had faced several challenges in the past few years,including a $1.1 billion writedown on its Gorgon jetty project, a $1.8 billion writedownon its Middle East business, and the unwinding of some $2 billion of working capital facilities partially provided by financierGreensill Capital, which collapsed in March.
It has also taken a hit from a financial settlement onMelbourne’s West Gate Tunnel project.
Mr Fonti said he had asked Cimic for a hard copy ofthe so-called “target statement” on the takeover, but despite telephoning torequest one he had not received the booklet, which is almost 200 pages long.“Incompetent, one-sided type of approach to this takeover,” he said.
Shareholders were sent electronic copies of thetarget statement but had to telephone the company to request hard copies. MrChenu said he would provide a copy to Mr Fonti.
Mr Santamaria told the AGM that skills shortageswere hampering the construction group’s growth and that it was buying materialsfor projects early and storing them as it grappled with rising costs.
“Like other major Australian companies, we arefacing growth constraints related to skills shortages, particularly among keytrades, and the escalation of material and fuel costs,” he said.
Hochtief’s takeover bid could be extended if itdoes not get the 95.92 per cent it needs to be able to immediately compulsorilyacquire the rest of the construction group. It had secured almost 88 per centof Cimic at the start of the week.
ACS wants to complete the takeover before MrSantamaria becomes ACS’s global CEO, with a vote on his nomination to be held in Madrid on May 6.
On Wednesday, Mr Santamariareiterated calls for Australia to restore previous permanent migration levels to help attract “the best skilled talent”, and said Cimic was working with TAFE and universities to develop accelerated courses and “cross-skill” people from other sectors.
Rising construction material costs
The Business Council of Australia has called for a“catch-up” of migrants above the government’s annual permanent net overseas migration cap of 160,000, which the budget implies will revert to the pre-pandemic level of 190,000 in 2023-24.
Due to the rising costs of materialsused in construction, Cimic was securing supply contracts upfront, procuring and storing materials and commodities, and using financial hedging, Mr Santamaria said.
The construction group said there were projectsworth more than $480 billion up for grabs that suited its capabilities. It wasbidding to build Sydney’s new Western Harbour Tunnel as well as work on thecity’s new metro west rail line and several projects in Asia.
“New projects are being awarded with more equitablesharing of risk, and the outlook remains attractive across our core markets,underpinned by numerous stimulus packages announced by governments,” MrSantamaria said, reiterating Cimic’s guidance for annual netprofit after tax of between $425 million and $460 million.
Talks to resolve a financial disputewith joint venture JKC Australia related to work done by Cimic subsidiary UGL as part of a consortium on a power plant for the Ichthys LNG project in the Northern Territory are “accelerating” before an arbitration hearing on April 14.
The UGL consortium (in which UGL has a 42.5 percent stake) is claiming $741.7 million plus interest and arbitration costs, butthe JKC consortium is claiming $2.08 billion plus interest and costs.
Cimic directors recommend $1.5b takeover bid
The construction group had set targets to reduceits scope 1 and 2 emissions to net zero by 2038 and to reach net zero for scope3 emissions by 2045, and had also supported the goals of the Paris ClimateAgreement to stop global warming, Mr Santamaria said.
But the company has some way to go to boost thenumber of women in its workforce, with only 25 per cent of its employeesfemale.
Women comprised 37 per cent of the people selectedfor Cimic’s graduate program this year, up from 33 per cent a year earlier.
A corporate video shown at the AGM said Cimic wasfocusing on “digital delivery” of projects and was using more technology whenplanning and designing work on projects such as the new Western Sydney Airport.
Jenny Wiggins writes on business, specialising ininfrastructure and transport. Connect with Jenny on Twitter. Email Jenny at jwiggins@copyright link
