Coffey International has entered into a Bid Implementation Agreement, to be taken over by larger US rival Tetra Tech
The friendly all cash offer has been made at 42.5c a share or a 130% premium compared to yesterday’s closing price of 18.5c, valuing the company at $109m. While the offer is conditional on acquiring over 90% of shares, it is strongly credit positive. The bid is not overly opportunistic given Coffey shares have not traded at the offer level since early 2013.
The bid is fully supported by Coffey’s board with Chairman John Mulcahy strongly recommending the offer stating it “represents better value for shareholders than the market has been prepared to pay…On all indications available to us, it represents superior value to what we can foresee, over a realistic time frame, from continuing as a stand-alone business.”
The offer is indicatively timed to be completed before the end of the calendar year however this can be altered with agreement from both parties.
| Indicative timeline | |
|
Announcement
|
Day 01
|
|
Takeover offer opens
|
Day 25
|
|
If minimum conditions satisfied takeover goes unconditional
|
Day 49
|
|
Offer closes
|
Day 56
|
|
Acquisition completes
|
Day 90
|
Tetra Tech, Inc.
Tetra Tech is a large global US provider of consulting, engineering, program management and construction management services. It has a market cap of US$1.57bn, FY14 revenues of US$2.5bn and 13,000 employees. Tetra Tech has a very solid credit profile with strong cash generation, very low debt and significant liquidity. Its interest coverage is over 20x in FY14 and leverage of only 0.53x.
| USD | FY14 |
|
Revenue
|
$2,483.8m
|
|
EBITDA
|
$208.4m
|
|
Interest
|
$9.5m
|
|
Net debt
|
$81m
|
| Liquidity |
|
Cash
|
$122.4m
|
|
Available lines of credit
|
$458.8m
|
| Leverage |
|
EBITDA/Interest
|
20.24x
|
|
Net debt/EBITDA
|
0.53x
|
| Gearing |
|
Total debt/Total capital
|
16.75%
|
|
Net debt/Total capital
|
6.69%
|
Impact for bondholders
At this stage the offer is conditional on various customary items including that Tetra Tech must acquire at least 90% of Coffey’s shares on issue. Until unconditional there is a possibility the deal does not proceed.
Investors are able to continue to trade in the bonds of the company. The takeover offer is credit positive and pricing is volatile so we recommend investors contact their dealer to find current market levels if seeking to trade.
If the acquisition completes:
- Coffey would become owned by a much stronger entity and while there will not be an explicit guarantee from the parent to Coffey it would likely provide a level of financial support if required
- It would trigger the Change of Control condition meaning bondholders have the option to sell their notes back to the company at 101% of face value (noting change of control is triggered if 51% or more is acquired)
- Bondholders can continue to hold their bonds which have a first call date of September 2017 at 103% or September 2018 at 101.5% of par before maturity in September 2019
- We also note that the issuer continues to have the option to at any time purchase the bonds in the open market or by other ways such as by tender to bondholder and at any price
Combined entity
The acquisition is largely complementary and will create a global leader in international development. In Geoservices and Project Management there is limited geographic overlap as illustrated in the below chart. The premium being offered by Terra Tech appears to be due to the strong operational benefits it will gain.
Source: Company report
Full details of the takeover offer can be found here
, and Coffey’s FY15 AGM presentation including discussion of the offer can be found here.