Symbolic sacrifice of FD won’t save the day
WHEN Costain offered 164.3p-a-share for Mouchel, someone should have bitten its hand off. Yesterday, its shares closed at 59.75p, less than half of the amount that was on the table. Management said the bid was too low – but it wasn’t as low as a preceding offer from Interserve, which reduced its own bid from 176p to 135p following due diligence.
After talks between the parties broke up in April, a fund manager at Schroders – which holds a fifth of the equity – said chief executive Richard Cuthbert had “one last chance”. In the event, it is finance director David Tilston who has had to walk the plank.
His sacrifice – largely symbolic – is unlikely to make much difference. Mouchel, like other firms that rely on public sector outsourcing, has a bleak future. Yesterday it admitted conditions were still tough with no respite in sight.
Local authorities have slashed their property budgets, with school building, refurbishment and maintenance contracts thin on the ground after the comprehensive spending review. The order book contains £1.5bn of work against £1.9bn a year ago, while the company is making fewer bids on an ever-dwindling amount of work.
Management are blaming the fact that the company has struggled to win orders on five months of bid talks, but this is an excuse that masks underlying weaknesses. The shares might be cheap, but we’d steer well clear.
david.crow@cityam.com