Revised approach to Mouchel G

RNS Number : 9912Y

Costain Group PLC

06 January 2011

 



NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES OF AMERICA OR ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION.  THIS IS AN ANNOUNCEMENT FALLING UNDER RULE 2.4 OF THE TAKEOVER CODE (THE "CODE").  IT DOES NOT REPRESENT A FIRM INTENTION TO MAKE AN OFFER UNDER RULE 2.5 OF THE CODE.  ACCORDINGLY, THERE CAN BE NO CERTAINTY THAT ANY OFFER WILL ULTIMATELY BE MADE.

Costain Group PLC

("Costain" or the "Company")

Statement regarding revised approach to Mouchel Group plc

This is an announcement falling under Rule 2.4 of the Code.  It does not represent a firm intention to make an offer under Rule 2.5 of the Code.  Accordingly, there can be no certainty that any offer will ultimately be made.

Following Costain's announcement on 22 December 2010, the Board of Costain announces that it has approached the Board of Mouchel Group plc ("Mouchel") with a significantly enhanced proposal to make a recommended all share offer for the entire issued and to be issued share capital of Mouchel (the "Enhanced Proposal").

The Enhanced Proposal comprises 0.5947 new Costain ordinary shares for each Mouchel ordinary share.  Based on the closing price per Costain share of 227.0p on 5 January 2011 (being the last business day prior to the date of this announcement), the Enhanced Proposal values each Mouchel ordinary share at approximately 135.0p.  This represents:

·      an increase of approximately 27.6 per cent. over the value of the original proposal by Costain as announced on 22 December 2010 (being 105.8p per Mouchel ordinary share based on the closing price per Costain share on 21 December 2010);

·      a premium of approximately 138.9 per cent. to the closing Mouchel share price of 56.5p per share on 3 December 2010 (being the last business day prior to Mouchel entering into its current offer period);

·      a premium of approximately 84.9 per cent. to the closing Mouchel share price of 73.0p per share on 21 December 2010 (being the last business day prior to the date of the first announcement by Costain that it had approached Mouchel); and

·      a premium of approximately 25.3 per cent. to the closing Mouchel share price of 107.8p per share on 5 January 2011 (being the last business day prior to the date of this announcement).

The Board of Costain considers the terms of the Enhanced Proposal to be highly attractive to both Mouchel's and Costain's shareholders, particularly given the potential for future value accretion.  Under the Enhanced Proposal Mouchel's shareholders would receive approximately 51.7 per cent. of the enlarged issued share capital of Costain.  Mouchel's shareholders would, therefore, own an increased equity interest in a well capitalised, enlarged business, with a clear strategy for future profitable growth.

The new Costain ordinary shares issued to Mouchel's shareholders would rank pari passu with the existing Costain ordinary shares, and the Enhanced Proposal continues to assume that Mouchel's shareholders would be entitled to receive any final dividend declared by Costain in respect of the year ending 31 December 2010.  Costain declared a final dividend of 5.5p per share in respect of the year ended 31 December 2009.

The making of any offer will be subject to a number of pre-conditions, including the satisfactory completion of due diligence and the recommendation of the Board of Mouchel.  Costain reserves the right to waive any or all of such pre-conditions.  In addition, Costain reserves the right to make an offer at an exchange ratio on less favourable terms in the event that (i) the Board of Mouchel agrees and recommends any such change, (ii) a third party announces a firm intention to make an offer for Mouchel, or (iii) Mouchel announces, declares or pays a dividend or any other distribution or other payments to its shareholders, in which case there would be an equivalent pro rata reduction to the exchange ratio.  Further, Costain reserves the right to vary the form and/or mix of consideration and/or introduce other forms of consideration.

Costain's interest in Mouchel has the strong support of Costain's key lending banks.

The Board of Costain believes that by significantly enhancing the proposal, it is in the interests of both Mouchel's and Costain's shareholders for the Board of Mouchel to enter into discussions with Costain as soon as possible.

Benefits of the combination of Costain and Mouchel

The Board of Costain continues to believe that Mouchel and Costain are highly complementary businesses and that a combination would provide significant benefits for both sets of shareholders.  In particular, a combination would:

·          create one of the UK's premier solutions providers, with major capabilities across consulting, construction and care, delivered through two respected brands;

·          meet the increasing demands of blue chip customers who are consolidating their requirements into larger, longer term "bundled" or multi-disciplinary contracts and thereby significantly increase the addressable market for both businesses;

·          benefit from enhanced growth prospects through an enlarged private and public sector customer base and a combined forward order book of over £4 billion;

·          create a more efficient business through the generation of significant, realisable synergies; and

·          create significant value for both sets of shareholders through earnings enhancement*, dividend income and the potential for a re-rating of the combined business.

*This statement is not a profit forecast and should not be interpreted to mean that the earnings of Costain for the current year or future years will necessarily match or exceed the historic or published earnings of Costain.

Commenting on the Enhanced Proposal, the Chairman of Costain, David Allvey, said:

"The Board of Costain continues to believe that there is a compelling strategic rationale for combining Costain and Mouchel and creating an enlarged group with enhanced critical mass to meet the customer trend towards larger and longer-term bundled solutions.

"We believe that the strategic case put forward in our announcement of 22 December 2010 has been well received by both sets of shareholders and further believe that today's significantly enhanced proposal provides Mouchel's shareholders with immediate value as well as future upside potential, allowing them to share fully in future value creation alongside Costain Shareholders.  Accordingly, we look forward to engaging with the Board of Mouchel as soon as possible.

"Our ability to formalise a proposal that is attractive to Mouchel's shareholders and other Mouchel stakeholders and is recommendable by the Board of Mouchel is dependent upon gaining access to satisfactory due diligence in order to confirm our key assumptions, including those relating to synergies."

Costain, which expects to announce its preliminary results for the year ended 31 December 2010 on Wednesday 9 March 2011, has also this morning announced a trading update ahead of entering its Close Period.

Any further announcements will be made as appropriate.

There will be a conference call for analysts at 08.00 this morning (Thursday 6 January 2011).  Please contact Adam Aljewicz on 020 7457 2020 or at [e-mail] for details.

Enquiries:

Costain Group PLC	Tel: [phone]
Andrew Wyllie, Chief Executive
Tony Bickerstaff, Finance Director
Graham Read, Communications Director
Investec Investment Banking (Financial adviser & broker to Costain)	Tel: [phone]
David Currie
Charles Batten
James Rudd
College Hill (PR adviser to Costain)	Tel: [phone]
Mark Garraway
Mike Davies
Adam Aljewicz

A copy of this announcement will shortly be available, free of charge, on the Company's website at www.Costain.com

Notes to Editors

Background on Costain and Mouchel

Costain

Costain has significant and growing consultancy and maintenance activities, alongside a leading construction and engineering capability.  At 30 June 2010, 14 per cent. of Costain's £2.5 billion order book was in operations and maintenance.

The Company continues to benefit from its 'Choosing Costain' strategy of focussing on targeted blue chip customers in chosen sectors whose major spending plans are underpinned by strategic national needs, regulatory commitments or essential maintenance requirements.  The Company continues to develop its scale and resources to meet successfully the increasingly complex delivery programmes and outsourcing needs of major customers. 

Over the next decade, the Board believes that those programmes will be primarily in three growth markets:-

Infrastructure                 - particularly Highways, Rail and Airports

Environment                  - particularly Water and Waste

Energy & Process           - particularly Nuclear, Power, and Hydrocarbons & Chemicals

Therefore, Costain's strategy is both to build on the Company's current strengths and to broaden and improve the quality of earnings streams by accelerating the development of an integrated business, providing front-end engineering consultancy, construction and ongoing care and maintenance services.

As previously announced, it is expected that the Company's growth aspirations and ambition for the business will be achieved through a combination of organic growth and by suitable acquisitions in line with strategy. 

On 6 January 2011 the Board of Costain announced a trading update ahead of Costain entering its Close Period stating that since the announcement of Costain's Interim Management Statement on 8 November 2010, Costain has continued to perform well and consequently finished the year in line with the Board of Costain's expectations.  Further, the Board of Costain stated inter alia that Costain's order book benefited from a number of major contract awards during the year and as at 31 December 2010 had a forward order book of £2.4 billion which included circa £800 million of work secured for 2011.  Costain maintained its strong cash position in excess of £100 million and no significant borrowings.

On 29 October 2010, Costain paid an interim dividend of 3.00p per ordinary share, an increase of 9 per cent. compared to the interim dividend of 2.75p per ordinary share paid in 2009.  The total dividend in respect of the year ended 31 December 2009 was 8.25p per ordinary share.

Mouchel

Mouchel is a consulting and business services group working with government agencies, local authorities, government-regulated industries and the private-sector in similar sectors to Costain.

On 6 November 2010 Mouchel published its interim management statement for the period from 1 August 2010 to 6 November 2010 in which the Board of Mouchel confirmed that its expectations for the year to July 2011 remained unchanged and that, at the end of November 2010, Mouchel's order book had been maintained at £1.8 billion and its pipeline of tenders and near term opportunities had increased to £2.6 billion. 

In addition, Mouchel announced inter alia that it had net bank borrowings of £109 million at the end of November 2010 and Mouchel's lenders had appointed Deloitte to carry out a limited review to assist Mouchel's lenders' due diligence as part of the re-financing of Mouchel's principal banking facilities. 

Investec (which is authorised and regulated in the United Kingdom by the Financial Services Authority) is acting exclusively for Costain and for no one else in connection with the possible offer and will not be responsible to anyone other than Costain for providing the protections afforded to Investec clients nor for providing advice in relation to the possible offer or any other matters referred to in this announcement.

This announcement does not constitute an offer to purchase any securities, or an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any offer to purchase or sell securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.  No offering of securities may be made in the United States except pursuant to registration under the US Securities Act of 1933 or an exemption from registration.

The release, distribution or publication of this announcement in jurisdictions other than the UK may be restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the UK should inform themselves about and observe any applicable requirements.  If you are resident outside the UK, you are responsible for first satisfying yourself as to the full observance of the laws and regulatory requirements of your jurisdiction.

Unless otherwise determined by Costain, this announcement and any proposed offer will not be made, directly or indirectly, in or into any jurisdiction where to do so would violate the laws of that jurisdiction (a "Restricted Jurisdiction") or the United States, or by the use of any means or instrumentally (including, without limitation, telex, facsimile transmission, telephone, internet or other forms of electronic communication) of interstate or foreign commerce, or of any facility of a national securities exchange of any Restricted Jurisdiction or the United States.  Unless so determined by Costain, the proposed offer will not be capable of acceptance by any such use, means or instrumentally or facility of any Restricted Jurisdiction or the United States.

Copies of this announcement and documents relating to any offer will not be, and must not be, directly or indirectly, mailed or otherwise forwarded (including, without limitation, by telex, facsimile transmission, telephone, internet or other forms of electronic communication), distributed or sent in, into or from any Restricted Jurisdiction or the United States.

Forward looking statements

This announcement contains statements about Costain and Mouchel that are or may be forward looking statements.  All statements other than statements of historical facts included in this announcement may be forward looking statements. Without limitation, any statements preceded or followed by or that include the words "targets", "plans" "believes", "expects", "aims", "intends", "will", "may", "anticipates", "estimates", "projects" or words or terms of similar substance or the negative thereof, are forward looking statements.  Forward looking statements include statements relating to, among other things: Costain's expected growth markets over the next decade and the expected benefits of the proposed combination of Costain and Mouchel.

Such forward looking statements involve risks and uncertainties that could significantly affect expected results and are based on certain key assumptions.  Many factors could cause actual results to differ materially from those projected or implied in any forward looking statements, including, among others, risks relating to the successful combination of Mouchel with Costain; higher than anticipated costs relating to the combination of Mouchel with Costain; and facts relating to Mouchel that may impact the timing or amount of benefit realised from the combination that are unknown to Costain.  Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward looking statements, which speak only as of the date hereof.  Costain disclaims any obligation to update any forward looking or other statements contained herein, except as required by applicable law.

Disclosure requirements of the Code

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any paper offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any paper offeror is first identified.  An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any paper offeror(s).  An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any paper offeror is first identified.  Relevant persons who deal in the relevant securities of the offeree company or of a paper offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any paper offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any paper offeror.  A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any paper offeror, save to the extent that these details have previously been disclosed under Rule 8.  A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a paper offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. If you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure, you should contact the Panel's Market Surveillance Unit on [phone].

 

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