Balfour Beatty has rejected a £1bn bid for its lucrative portfolio of infrastructure contracts from John Laing Infrastructure Fund (JLIF), saying it’s not enough.
Shares in the UK’s largest construction firm climbed more than three per cent after it said the bid falls “significantly short” of its value.
The firm said its value stood at £1.05bn as of June, but this could be higher and it intends to publish an updated valuation in January.
Balfour Beatty said:
The group's targeted approach to selling individual assets as each investment matures, combined with the current and expected future strength of the market, leads the board to conclude that the realisable value of the PPP portfolio continues to be substantially in excess of the current directors' valuation. This has been recently evidenced by the disposal of an investment at a 28 per cent premium to the half-year directors' valuation.
A sell-off of its PPP portfolio would essentially break up the UK’s largest construction group which has been rocked by a string of profit warnings and exits of senior executives.
A broad review of its business addressing the tumultuous times is also due in January. While the firm said the wider business strategy did not play into the decision to reject the bid, it pointed out the value of “synergies” across the group to shareholders.
In addition, the strategic value and synergies from owning the current Investments business - both the PPP portfolio itself and the skilled team that operates and develops the business - is material to the Balfour Beatty group as a whole. The Group's Construction and Support Services businesses derive real value from the Investments business being in the Group, something which needs to be taken into account in valuing the Group as a whole, and in evaluating any proposal to acquire the Investments portfolio or business alone.
The PPP infrastructure arm is Balfour Beatty’s “crown jewels”, housing a mass of high value Public Finance Initiative (PFI) contracts which bring in a steady stream of profits over a long period of time, accounting for a large part of the overall business.
Edison investment Research analyst Roger Johnston said JLIF will have to “cough up considerably more” for it. He added:
We feel this goes to show that if any disposal was to be considered it would either need to be done at a substantial premium or be for the group as a whole. With Leo Quinn due to arrive in January, we don't see the group wishing to sell the crown jewels before the turnaround king arrives, not least before he has had real input into the updated valuation report the group has indicated will occur in January. This will also provide a range of valuations for the portfolio based on contract wins, disposals and a range of outcomes for the investment pipeline.