Watpac-BESIX deal not good value for shareholders: Sandon

Watpac-BESIX deal not good value for shareholders: Sandon

Source: The Australian Financial Review.
By: Larry Schlesinger.

Belgium construction giant BESIX’s proposals to take majority control of ASX-listed Watpac is facing opposition, with activist investor Sandon Capital warning the deal does not represent good value to existing shareholders.

A month ago, BESIX struck a deal with the Watpac board to lift its stake in the construction and mining services company to 64 per cent from 28 per cent by acquiring half the shares of each Watpac shareholder.

The BESIX offer at 92¢ a share, was at a 37 premium to the February 23 closing price of 67¢, and valued the company at $168.7 million.

Watpac CEO Martin Monro said the proposed BESIX investment would help the company move into new markets and win bigger, more sophisticated projects while chairman Peter Watson said the proposal would generate “significant benefits for shareholders”.

But Sandon Capital, which manages funds holding a 3 per cent position in Watpac, disagrees, arguing the BESIX move is purely opportunistic and it will look to rally other shareholders to reject the offer.

“The argument and rational in favour of the BESIX proposal is flawed. BESIX should go back to Belgium,” said Sandon founder Gabriel Radzyminski.

He told The Australian Financial Review the BESIX offer undervalued the true worth of the underperforming Watpac business, which it calculated at between $1.01-$1.24 per share based on forecast FY19 earnings (EBIT) of $29.3 million. Watpac shares closed Monday at 76¢.

In addition, he questioned how the increased BESIX ownership would add more value in terms of skills and know-how given BESIX directors already had a duty to add value as members of the Watpac board.

“They’re also not putting any new capital into the business. If the BESIX deal was through the placement of new shares, we could better understand the rationale,” he said.

Instead, Mr Radzyminski said shareholders would be better served if Watpac returned $35 million in excess capital to shareholders and looked to sell its mining services business, which includes almost $300 million of mostly under-utilised equipment, in exchange for scrip.

Then it should focus on improving the management of its construction business which he said had a “chequered history” and could do a lot better.

Watpac CEO Martin Monro told the Financial Review the board had met with Sandon and was aware of their view.

“We’re disappointed to hear what they are saying prior to the details of the offer being disclosed in the scheme booklet,” he said.

“We’ve had very positive conversations with a number of shareholders. Some are neutral about the offer because they want to know more first,” he added.

An investor presentation put together by Mr Radzyminski and Sandon analyst Campbell Morgan notes that listed mining services contractors Maca Limited, NRW Holdings and Macmahon Holdings Limited have all grown their order books.

“There would be no shortage of people out there keen to own the mining kit,” Mr Campbell said.

Major Watpac shareholders include Commonwealth Bank of Australia and equities fund manager Adam Smith Asset Management.

Under a scheme of arrangement, 50 per cent of shareholders need to turn out to vote and 75 per cent must vote in favour. A vote is expected to be held in late June or early May.

It is understood there has been no contact yet between Sandon and BESIX.

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