02 Jan ‘Excited’ Martin Monro to lead delisted Watpac as Besix gets Aussie ‘bargain’
Source: The Australian Financial Review.
By: Larry Schlesinger.
It took most of 2018, but Belgian construction giant Besix finally snared its prey just before Christmas, with the takeover of iconic Queensland construction company Watpac Limited.
December 24 was the final ASX trading day for Watpac, which floated in August 1985 and has a colourful history going back 90 years to the founding of Watkins Pacific Corporation by the Watkins family in 1928.
It could be argued Besix did in fact get Watpac for a “bargain” – as activist investor Sandon Capital, who lobbied hard against the takeover bid, had claimed.
With Watpac once valued at over $600 million, Besix ended up paying just over $100 million to acquire the remaining 72 per cent of Watpac shares it did not already own.
In the process, it took over a business turning over more than $1 billion annually, with a $3 billion-plus national pipeline of projects including building a new $250 million sports stadium in Townsville and over $230 million in the bank.
In addition, Watpac continues to win major contracts including being chosen as preferred contractor for the $600 million Lindeman Island redevelopment in the Whitsundays and designer and builder of the $110 million Deakin Law School building in Melbourne.
Adding to the gloss, Watpac sold its underperforming mining and civil construction businesses to Sydney-based Remagen Capital just three days before it delisted.
Watpac managing director Martin Monro who had pushed hard for the Besix deal, said he was excited about 2019 and in particular the “massive challenge” of transitioning Watpac from a publicly listed company to a subsidiary of the Belgian giant.
“I want to ensure its bedded down properly,” Mr Monro told The Australian Financial Review. “It won’t be a quick turnaround, but will require recalibration and fine-tuning.”
Mr Monro will continue to lead the Watpac management team, which he said would be enhanced with fresh Besix appointments to help Watpac expand into new areas, the first being marine infrastructure, one of Besix’s areas of expertise.
“We’re not losing anyone, but bringing in new faces with supplementary skills that can affect positive business change,” he said.
The Watpac name will also be retained, with Watpac chairman Peter Watson – another strong supporter of the Besix deal – also staying on as part of a new independent board.
Besix, which had the opportunity to study Watpac closely for five years after acquiring its initial 15.6 per cent stake from former Watpac chairman Kevin Seymour in 2013 (gaining a seat on the board), pounced in February as the Australian contractor reported an interim loss.
Besix’s first offer, via a scheme of arrangement, was to lift its stake in Watpac to 64 per cent from 28 per cent by acquiring half of the shares it did not already own at 92¢ a share (or $61 million in total), valuing Watpac at $168 million.
The proportional takeover offer came at a critical time for Watpac, which was in the midst of successfully transitioning away from its over-exposure to the troublesome low-margin Queensland residential sector to become a dominant player in more profitable sectors such as health and science, education and stadium construction.
Besix chief executive Rick Vandenberghe insisted the Belgian group, famous for building the world’s tallest tower, the Burj Khalifa in Dubai in 2009, was not interested in 100 per cent ownership of Watpac and wished to respect its Australian heritage.
But as a majority owner, he argued, Besix could help Watpac diversify into new construction markets and take on more complex projects. With about $4 billion in annual revenues, Besix also offered Watpac significant balance sheet support.
“With 28 per cent ownership it was difficult to grow the business, but now [with 64 per cent] we can open that all up,” Mr Vandenberghe said.
Despite calling it a “win-win” for Watpac shareholders, the Besix takeover drew the ire of activist investor Sandon Capital, representing about 3.2 per cent of the share registry. Sandon claimed the offer undervalued Watpac was “flawed”.
According to Sandon’s own calculations, Watpac was worth $1.01-$1.24 per share based on forecast earnings in the 2019 financial year of $29.3 million.
Sandon’s activism won over just enough Watpac shareholders with the scheme of arrangement vote going against Besix on June 7 by a small margin, despite a threat by the Belgians to sell out of Watpac entirely if its offer was rejected.
Emboldened, Sandon said it would push for board and management changes at Watpac following the defeat of an “ill-conceived scheme”.
But it was the Belgians who would have the last laugh, returning almost four months later with a new and simpler offer to take over the company in its entirety by acquiring all remaining Watpac shares at an unchanged price 92¢, or $102 million in total.
Sandon Capital was again opposed, arguing that Besix was “getting an even better bargain” second time round, given Watpac had won better quality contracts and improved its earnings since February.
But these claims failed to sway most shareholders. By December 4, Besix controlled 92 per cent of the Watpac register and two days later it proceeded with a compulsory acquisition of the remaining Watpac shares.
Having triumphed in the end, Mr Vandenberghe said, “We are extremely satisfied with the result”.
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