Analysts predict next bid could be made more attractive if construction group dips into cash pile
Analysts expect Costain to increase its bid for Mouchel, despite being rebuffed twice so far, as the saga of the potential takeover appears to be nearing its end game.
Costain made its first move for the embattled consultancy just before Christmas, valuing Mouchel at 拢118m, or 105.8p per share. This was rejected by Mouchel directors, who have fought to maintain the firm鈥檚 independence since they fended off a 拢300m bid from VT Group early last year.
A further offer from Costain of 拢152m, 135p per share, was dismissed last week as an undervaluation of the business.
Analysts predict the current all-share offer could be sweetened if Costain were prepared to dip into its 拢120m cash pile. 鈥淐ostain has a lot of cash on its balance sheet and some of this could be used to help make the deal more attractive.,鈥� said Andy Brown, an analyst with Panmure Gordon. 鈥淚t [Mouchel] looks like a good fit and would complement Costain鈥檚 existing business.鈥�
Chris Banbury, an analyst at KBC Peel Hunt, agreed: 鈥淚 think they will come back. They can squeeze Mouchel up to 150-155p a share. It also depends on whether they find anything they don鈥檛 like when doing the due diligence.鈥�
Other firms regarded by the City as potential suitors include Capita, Balfour Beatty and Serco, although none are thought to be involved, or expected to make a counter offer, at this stage.
According to bid documents, Costain believes that if a takeover went ahead the combined organisation would be able to 鈥渕eet the increasing demands of blue chip customers who are consolidating their requirements into larger, longer-term bundled or multi-disciplinary contracts鈥�.
The combined group would have revenues of more than 拢1.6bn, based on the two firms鈥� most recent financial year ends, catapulting it into the top 10 construction and consultancy firms in the UK. This increased size could help win contracts as clients seek to do business with larger, well financed, companies.
Mouchel鈥檚 share price reached its lowest point of 56.5p in December 2010 - a fall of 79% from its peak last year.
On the cards: The Mouchel takeover
Turnover of the combined group (拢m)
A combination of Costain and Mouchel would create the UK鈥檚 ninth largest contractor, by revenue. It would immediately diversify both firms鈥� revenue streams, giving Costain exposure to high growth areas, which can be better exploited by a firm with more solid finances. The combined firm鈥檚 order book would approach 拢4bn.
Timeline of decline: From a 拢300m bid to one for 拢152m
Mouchel鈥檚 share price has plummeted over the last year. Its managers have a lot to prove after turning down a rival bid, less than a year ago, which valued the firm at twice the price Costain has offered. This could be behind their determination to remain independent. A review of Mouchel鈥檚 business is being undertaken by Deloitte and the result of this could be a determining factor in the tussle for control of the group.
Head to head: Andrew Wyllie Richard Cuthbert
Chief executive, Costain
Age: 47
Pay: 拢697,500
Wyllie has acquired a reputation as a straight-down-the-line chief executive who rarely gives away anything about his personality when speaking to analysts or journalists. His reputation is solid, but not sparkling. As one analyst says: 鈥淗e鈥檚 not the first person you鈥檇 think of as a real star CEO. There are some that you think, if they can鈥檛 do it, no one can. But Wyllie isn鈥檛 one of them.鈥�
But underneath it, says one source close to Wyllie, is a figure aggressive enough to want to secure Mouchel for reasons other than business. 鈥淗e鈥檒l be enjoying the rough and tumble of it,鈥� they say. 鈥淗e might get carried away with a rush of blood to the head [over the purchase].鈥�
At 47, 10 years younger than his opposite number, Wyllie is 鈥渘ot as jaded as Cuthbert,鈥� says the source. And with his career very much in the ascendant, this could make a deal more likely.
Chief executive, Mouchel
Age: 57
Pay: 拢405,000
鈥淰ery likeable, blunt, no nonsense,鈥� is how one source who knows Cuthbert describes him. But the strain of running Mouchel has taken its toll. 鈥淥ver the years people have seen his confidence ebb away with one announcement after another.鈥�
Some analysts question whether Cuthbert has been too prone to bullishness in the past, piling into Dubai just before that market failed, for instance. 鈥淗e鈥檚 desperately been talking up the independence story,鈥� said the source. 鈥淗e fought very hard to see off VT Group 鈥� [If Mouchel is sold] it will come as a blow.鈥� Some analysts think Cuthbert鈥檚 concern for his legacy may increase resistance to a deal. But Stuart Black, who was a director at Mouchel Parkman in 2007 alongside Cuthbert, insists he 鈥渨ill do what is right for the business鈥�.
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