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Costain piles on the pressure in Mouchel takeover bid

Contractor Costain was this week continuing its pursuit of consultant Mouchel after seeing a second takeover approach rejected last week.

Costain’s most recent offer priced the consultant at around £150M. Mouchel rejected it immediately saying it “significantly undervalues the business”.

The offer of 135p per share was a 28% increase on its previous offer of £119M made at the beginning of December, but still more than half the 300p per share offered by VT Group in February last year after a three month pursuit of the firm (NCE 10 March 2010).

Despite the significant drop in valuation of the firm, Costain said it was “surprised” by Mouchel’s reaction, having only made its revised offer after consulting widely with its shareholders, joint venture partners and clients.

“[The offer] siginificantly undervalues the business”


“This decision by the Mouchel board denies its shareholders the opportunity to have a major stake in a well capitalised, financially efficient, enlarged business, with a clear strategy for future profitable growth,” financial director Tony Bickerstaff told NCE this week. “It is fair to say our approach has been well received by Mouchel stakeholders and our enhanced offer was made on the back of feedback we’d had.”

Bickerstaff said Costain would continue to engage in dialogue with Mouchel stakeholders, but stressed that time was now becoming a factor. “What is clear is that time is quite important. It has now been five weeks since we made our initial approach, and we had been looking at Mouchel for some time before that. It is not in anybody’s interest for this to drag on.”

Costain’s initial approach came after Mouchel’s shares hit an all-time low of 56.5p in early December – from a year high of 268p – amid concerns over government spending cuts and as it holds talks over the refinancing of its debt.

“No-one has questioned the logic of us making a move for Mouchel”

Andrew Wyllie

Costain said the firms are “highly complementary businesses”. Its main lending banks are already behind the bid.

Chief executive Andrew Wyllie told NCE that such a takeover would work for both firms strategically and financially, with a combined firm able to boast an order book of around £4bn.

Contractor Costain unveiled an ambitious strategy to expand significantly in consultancy and engineering design last March (NCE 18 March 2010). The move, to allow the firm to offer clients the “full life cycle” of services, was to be fuelled by acquisitional and organic growth.

“No-one has questioned the logic of us making a move for Mouchel,” said Wyllie. “We have been looking at them for a number of months. They have a good brand, some good long-term contracts and good people,” he said.

“We know they have some very good people. They are a very neat fit.”

Andrew Wyllie

Mouchel and Costain currently compete for Highways Agency maintenance work, an area that Costain has expanded rapidly into. By buying Mouchel, Costain would eliminate a major competitor, but Wyllie stressed that this was not the reason for his firm’s approach.

“They are not someone we necessarily work with, and we compete against them for MAC [Managing Agent Contractor] contracts. But we do come across them often as designers or clients’ representatives, which is why we know they have some very good people,” said Wyllie. “They are a very neat fit.”

Concerns had been raised that incorporating Mouchel would breach a Highways Agency limit on the number of MAC contracts that can be held by one firm.
Costain, through its AOne+ consortium with Colas and Halcrow, and Mouchel in partnership with Enterprise have seven MAC contracts out of a total of 13 available.

The Highways Agency is understood to cap firms on having any more than a 33% market share.

But Bickerstaff said that because the work is awarded in joint venture, Costain would remain below the threshold. The Highways Agency said it had no comment at this stage.

Takeover timeline

● 14 December 2009 VT Group confirms interest in acquiring Mouchel
● 10 March 2010 VT Group abandons Mouchel takeover attempt; Costain reveals strategy to expand into consultancy through acquistion
● 2 December 2010 Costain makes initial approach to Mouchel board
● 6 December 2010 Mouchel admits to London Stock Exchange that it is fighting one or more hostile takeover bids
● 22 December 2010 Costain goes public on takeover bid
● 6 January Costain ups offer to 135p per share. Mouchel immediately rejects it

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