LONDON--Balfour Beatty PLC (BBY.LN) has received a one billion
pound ($1.56 billion) bid for its portfolio of infrastructure
investments, leaving the company mulling whether to sell a core
division and focus on reviving the fortunes of its construction
business.
John Laing Infrastructure Fund Ltd (JLIF.LN) Monday said it made
a "non-binding proposal" to buy Balfour's public-private
partnership assets for "approximately GBP1 billion in cash," to be
financed via a share issue. The portfolio of hospitals, schools,
transport infrastructure and housing projects was valued by Balfour
at GBP1.05 billion in June.
Shares in Balfour rose 4% after the announcement, trading eight
pence higher at 191 pence at 1330 GMT. Balfour said it will
consider the proposal, adding that it "remains open to value
creation opportunities across the group."
The approach comes as Balfour is awaiting the arrival of new
Chief Executive Leo Quinn and the findings of an external audit of
its loss-making U.K. construction arm. Shares in the company have
lost over a third of their value this year, leaving it with a
market capitalization of GBP1.32 billion. The infrastructure arm
has been a reliable source of cash for Balfour since it began
selling assets on a piecemeal basis in 2011.
Citi analyst Neil Dawson called the offer "a clear positive,"
affirming Balfour's valuation of the portfolio.
"Ultimately Balfour's current strategy is to liquidate PPP
assets over time, so realising the whole portfolio may be
attractive," he wrote, adding that the proceeds could help Balfour
fund a GBP200 million share buyback planned for next year.
Alastair Stewart, an analyst at Westhouse Securities, called the
proposal "a conundrum" for Balfour. The GBP1 billion offer is a
"low bid" tabled opportunistically by JLIF in the hope of appealing
to disenchanted Balfour Beatty shareholders who have been left
frustrated by the summer's failed merger with Carillion PLC (CLLN),
he wrote.
But if Balfour turns down the offer it could be left exposed to
any more unexpected "cash bleed" uncovered by KPMG's review of the
U.K. construction business.
"This could be addressed by piecemeal PFI [private finance
initatives] disposals, but we do not rule out the risk of an equity
raise at some point," Mr. Stewart wrote.
The market value of in JLIF has risen to almost a billion pounds
from GBP270 million when it floated in London in 2010. Shares
dropped three pence, or 2%, on Monday to trade at 121 pence.
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