The battle for control of scaffolding supplier PCH Group Ltd has turned hostile, with UK company Cape plc announcing its intention to launch a $233 million offer despite having a standstill agreement with PCH.
The battle for control of scaffolding supplier PCH Group Ltd has turned hostile, with UK company Cape plc announcing its intention to launch a $233 million offer despite having a standstill agreement with PCH.
The offer is subject to several conditions, including crucially that PCH's board waives the standstill agreement.
Cape is hoping that its move will encourage PCH shareholders to agitate for withdrawal of the standstill.
"Its designed to embarrass the board of PCH to review their position," Cape chief executive Martin May told WA Business News.
The PCH board hitherto has rejected calls to waive the standstill, arguing that Cape's $1.30 proposal undervalues their company, which they believe is poised to achieve strongly improved profits in coming years.
However, the competitive landscape has changed in the past month, since PCH and Cape terminated their friendly discussions.
Cape has agreed to buy Perth company Total Corrosion Control for $85 million and Melbourne company Concept Hire (which owns Perth's Blackadder Scaffolding Services) for $101 million.
Mr May likened the acquisitions to a pincer move that would squeeze PCH, which he said faced "a substantial and increasing amount of risk, now that they have an aggressive competitor in their market".
Mr May said Cape had recently won contracts in Kazakhstan and with BP in Kwinana, both in competition against PCH.
A Cape announcement is pasted below:
Cape PLC ("Cape") announces its intention to make an all cash offer for PCH Group Limited ("PCH") of $1.30 per PCH share.
Cape PLC (AIM:CIU), the international provider of essential support services to the energy sector, today announced its intention to make an all cash offer of $1.30 per share ("the Offer Price") for all of the outstanding shares in PCH Group Limited (ASX:PCG) ("the Offer"). The Offer is to be made by Cape Australia Investments Limited ("Cape Australia"), a wholly owned subsidiary of Cape.
Notwithstanding Cape's announcement of 7 August 2007 that talks with PCH had terminated, Cape remains of the belief that the acquisition of PCH represents an attractive opportunity for PCH shareholders to realise value and wishes to allow PCH shareholders an opportunity to decide on the merits of the Offer for themselves.
The Cape Board is aware that PCH shareholders representing a significant proportion of PCH's issued share capital have expressed their desire to the Board of PCH that the Offer be made available to them (notwithstanding the current terms of the standstill agreement).
The Offer is conditional (amongst other conditions outlined in Annexure A) on this existing standstill agreement being waived by PCH.
Cape Australia has been advised by the Foreign Investment Review Board that there are no objections, on the basis of the Australian Government's foreign investment policy, to its proposal to acquire all the issued share capital in PCH.
The Offer values PCH's equity on a fully diluted basis at approximately $233 million (£95.1 million). The Offer Price represents a premium of:
- 91% to the closing price of PCH's shares on 21 February 2007 of $0.68, being the last business day before PCH announced that it had received an indicative non-binding proposal from Cape;
- 91% to the one month Volume Weighted Average Price (VWAP) of PCH Shares up to and including 21 February 2007 of $0.68;
- 89% to the three month VWAP up to and including 21 February 2007 of $0.69;
- 104% to the six month VWAP up to and including 21 February 2007 of $0.64; and
- 13% to the closing price of PCH's shares on 12 September 2007, the last full trading day prior to this announcement.
The Cape Board believes that the Offer represents a highly attractive multiple of PCH's after tax earnings for the year ended 30 June 2007 of 25.3 times. The Offer also represents an EV/EBITDA multiple of 13.2 times PCH's EBITDA for the same period. The Cape Board believes that the Offer, which is entirely in cash, provides an excellent outcome and certainty of value for PCH shareholders.
Under the Offer PCH shareholders will also be entitled to retain the benefit of the 1 cent per share unfranked final dividend declared by PCH on 29 August 2007 and payable in early November 2007.
Martin May, Cape's CEO said: "We call on all PCH shareholders to make their views known directly to the Board of PCH so PCH shareholders can decide on the merits of Cape's Offer themselves."
"The Board of Cape strongly believes that the Offer is compelling and represents a significant premium to the trading value of PCH."
"Discussions between the two parties started in late 2006 and we have had several attempts to reach agreement with the PCH Board. We now believe it is the right time for Cape to be able to put a formal offer to PCH shareholders."
Offer details
The $1.30 cash per share offer is for all PCH ordinary shares, and is subject to certain conditions set out in Annexure A to this announcement.
On 3 September 2007, Cape entered into a new £240 million five year committed banking facility with Barclays Bank Plc. The facility comprises a number of tranches, one of which will be applied towards the consideration for the acquisition of PCH.
A formal Bidder's Statement is expected to be lodged with the Australian Securities and Investments Commission (ASIC) shortly.
Details on PCH and potential benefits to Cape
PCH is a public company listed on the Australian Stock Exchange (ASX: PCG) and head-quartered in Perth, Australia. PCH provides services including scaffolding and access management, formwork and shoring, temporary fencing, aluminium light access and materials hoists. The business is diversified across a range of industries, with services provided for construction and maintenance activities in Australia, the Caspian Sea, South East Asia and the Arabian Gulf. In the financial year ended 30 June 2007, PCH generated EBITDA of A$20.9m (£8.5 million), profit before tax of A$12.6m (£5.1 million) and a basic EPS of 5.3 cents per share. As at 30 June 2007, PCH had gross assets of A$144.4m (£58.9 million).
Cape believes that the acquisition of PCH would bring a number of benefits to Cape including:
- extension of Cape's footprint in the Far East/Pacific Rim;
- synergies based on Cape's expertise in supplying labour and a broader range of products and services to PCH's customer base; and
- the opportunity for Cape management to apply their expertise towards generating additional revenue and margin growth.
