CONSTRUCTION GROUP Balfour Beatty has rejected a £1 billion offer for its package of public private partnership (PPP) contracts, arguing the approach fell “significantly short” of its value.
Rebuffing the bid, from John Laing Infrastructure Fund (JLIF), the firm said it will next month publish an update valuation of the portfolio, which was valued at £1.05bn as of 28 June.
“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,” Balfour said yesterday.
“This has been recently evidenced by the disposal of an investment at a 28 per cent premium to the half-year directors’ valuation.”
Balfour has issued three profit warnings this year and its shares have fallen by more than a third, although they jumped this week after JLIF confirmed its interest in bidding for the PPP assets, which include long-term agreements to run projects such as schools and hospitals.
Its troubles have been centred around its UK construction and engineering services operation due to the impact of design changes, project delays and contractual disputes.
The group is run by executive chairman Steve Marshall, who fought off a takeover approach from Carillion earlier this year and has said he will step down once a new chairman has been found. Leo Quinn, currently boss of defence technology firm Qinetiq, is set to join as chief executive on 1 January.
Since joining the stock market in 2010, JLIF said it has proven itself to be a leading infrastructure fund and “an ideal owner” of Balfour’s PPP assets.
The company said yesterday that it was “disappointed” by Balfour’s rejection of its approach, which it said would “unlock the value” of the portfolio.
“Without access to the project data, any discussions with Balfour Beatty or further information, it is difficult to understand the basis on which Balfour Beatty is anticipating a substantial increase in valuation,” JLIF said.
“JLIF continues to believe shareholder value for Balfour Beatty will be maximised by these assets being owned by an infrastructure fund with a lower cost of capital, which specialises in investing in low risk, operational infrastructure assets.”
Analysts at Investec said: “Whilst we recognise current appetite from the secondary market for PPP assets, £1bn cash on the table given Balfour Beatty’s current predicament looks a tempting bid.
“It would give the incoming chief executive significant firepower to undertake the substantial and costly turnaround required and importantly accelerate this process dramatically.”