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Mouchel rejects Interserve and Costain approaches

Consultant Mouchel has revealed it has rejected the latest takeover proposals from Interserve and Costain and ended all talks with suitors as it posted a 73% plunge in half-year profits.

The consultant dashed hopes of a deal with rival Interserve after it said the group slashed its approach to £151M after going through Mouchel’s books.

Mouchel, which last month chose Interserve as preferred bidder over Costain, decided it was not in shareholders’ interests to continue discussions with either firm after consulting its biggest investors.

Interserve said that now has “no intention” to make an offer for Mouchel.

Costain had also reduced its third, £175M, approach for Mouchel after carrying out due diligence, it emerged today. It is yet to comment on Mouchel’s rejection of its revised offer.

Mouchel said the advances had been an “unwelcome disruption” to the business as it struggles amid public sector belt-tightening.

Half-year results today reveal the group saw underlying pre-tax profits slump to £4.1M after revenues dived by 13% in the six months to 31 January 2011.

Following mutual due diligence, Interserve submitted a revised and significantly reduced conditional proposal to Mouchel’s board valuing each Mouchel share at 135p, including 50p in cash.

On 21 January Costain announced a conditional proposal comprising 0.5531 Costain shares and 30p in cash for each Mouchel share, which at that time valued Mouchel at 153.2p per share plus the entitlement to any final dividend payable by Costain in respect of the year ended 31 December 2010. On 17 February, after conducting some initial due diligence Costain reduced its proposal to 0.5531 Costain shares and 22.25p in cash and with no entitlement to any final dividend.

Chief executive Richard Cuthbert admitted that in the current trading environment he could see “some benefit” from being part of a larger group, but the “significant integration risks” along with the reduced valuations meant that the boad was unable to recommend the transaction to shareholders.

“Any such discussions would also entail a further period of uncertainty and disruption to the business,” it added.

Cuthbert added that he remained “very confident” in the firm’s prospects as a stand-alone business. “We have a focused strategy, established market positions and great client relationships,” he said.

“We will continue to play a leading role in transforming essential services and sustaining vital infrastructure across the UK public sector and in selected overseas territories. In an environment where all of our clients are facing the challenge of delivering higher quality services more efficiently, it is clear that our skills will be increasingly in demand and this underpins our long term, positive outlook,” he said.

Cuthbert admitted that in the short term, trading remained tough.

“It has been another challenging period for Mouchel,” he said. “Our clients have been impacted by the tough economic climate, leading to cuts in capital and maintenance programmes and a decline in spending, which has negatively affected our performance. Furthermore recent corporate activity has been an unwelcome disruption to our business. We are nevertheless trading broadly in line with our expectations,” he said.

Officially Mouchel remains in an offer period until Interserve and Costain confirm they are no longer interested in the firm.

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