What: It's a tough day for shareholders in engineering components manufacturer Bradken Limited (ASX: BKN). The share price plummeted 31% by late morning after the company announced before the market opened that discussions regarding a potential takeover offer from a consortium consisting of private equity firms Pacific Equity Partners and Bain Capital have ceased.
So what: Prior to the most recent approach by the consortium, Bradken's share price was trading around $3.30, with an indicative offer pitched at $5.10 in early December. However, until yesterday the stock had been trading only just above $4 which suggested there was serious doubt in the market that the transaction would ultimately succeed.
The doubts were correct because the bidders have walked away after citing – "recent volatility in global commodity and financing markets has impacted the Consortium's ability to obtain financing on terms acceptable to the Consortium". The share price has sunk to trade around the $2.85 mark, a level not seen since 2009.
Now what: This disappointing development for shareholders is a reminder to investors of the significant headwinds facing the mining services sector and the potential traps that can occur in the current market environment. A number of other leading resource-exposed service providers such as Worleyparsons Limited (ASX: WOR) and Monadelphous Group Limited (ASX: MND) also arguably look appealing from a valuation perspective at present. Although, many investors would be best off leaving this minefield alone for the time being.
