The Australian private equity firm Crescent Capital Partners has launched a bid for the engineering group Cardno. The bid is for a proportional takeover and it would value the struggling company over A$520 million.
Increasing Its Share
The private equity firm acquired a 19.9% stake in the company earlier this year. On Monday, the firm announced its plan for the proportional takeover, which would see Crescent Capital Partners increase its share up to 58.9%. This would cost around A$215 million for the private equity firm.
The offer would therefore see Cardno investors able to sell their shareholdings to the firm for A$3.15 a share. This would be representative of 26% premium to Cardno’s last trading price at the end of trading on Friday.
The company was caught by surprise with the chief financial officer, Graham Yerbury telling the Australian, “We didn’t find out until about 15 minutes before it hit the ASX, when their lawyers contacted our lawyers”.
So far, the company has urged shareholders not to react, with official recommendation expected to follow shortly.
Dealing with Turmoil
Like so many companies, Cardno has been hit hard by the falling commodity prices. The Australian mining sector has seen new investment levels drop and falling oil and gas prices have reduced projects in the US and elsewhere in the world.
Its share price has dropped from the highs of A$7.56 in mid-2012 to around A$2 in recent weeks. It has also suffered from internal turmoil as it has appointed three chief executives in recent years.
To counter this, the private equity firm has proposed to appoint three of its partners as directors in the company. The documents show it would like to see Michael Alscher, Nathaniel Thomson and Neville Buch in the board of Cardno in an effort to see the board “take an engaged and active role in driving the strategic and operational performance of the business”.
Crescent Capital Partners will be especially focused on reducing debt levels at Cardno. The company’s debt levels were recently flagged by Goldman Sachs.
Will Investors Accept the Offer?
As mentioned above, it is unclear what the board at Cardno will recommend for investors. Analysts at Morningstar told the Australian in a note, “We believe Crescent will seek the accelerate the pace of asset sales, exit underperforming divisions, and maximise cash flow through further restructuring of Cardno”.
Furthermore, Courier Mail reported the investment firm, First Samuel, believes the governance has not been efficient enough and the move by the private equity firm is welcomed. Nonetheless, Dennison Hambling, fund manager at First Samuel, also noted the bid comes with “an attractive price”, but the private equity firm will be given time to turn the company around. The market also reacted positively. At the end of training on Monday, the company’s shared had risen by A$40 cents to A$2.90.
It remains to be seen the outcome of the bid. It is an interesting move by the private equity firm, as partial takeovers are often not favoured in the industry that typically goes for full buyouts.