This morning the majority of the board of engineering, construction, and maintenance services provider UGL Limited (ASX: UGL) recommended its shareholders accept the takeover proposal from construction giant Cimic Group Ltd (ASX: CIM).
Although it wasn't unanimous, four out of five directors at UGL are in favour of the $3.15 per share offer that CIMIC tabled just under a month ago.
According to the release an independent expert found the value of the company on a 100% controlling interest basis to be in the range of $3.11 to $3.94 per share.
As the offer CIMIC made fell within this range, the independent expert deemed it to be both fair and reasonable.
Non-executive director Robert Kaye was the only director to not recommend the takeover proposal. He has recommended that shareholders reject the proposal, believing that the offer price does not reflect the underlying value of the company. Within the release he provided reasons for this. Firstly the offer price is at the very low end of the range that the expert values the company at. I would agree with Mr Kaye that CIMIC looks like it is getting a bargain at this price.
The next reason he has given is that UGL has a strong 'base business' and is well advanced in its turnaround. There's no denying that times have been hard for UGL, but he is correct in saying that things are improving.
The 'base business' does look strong when you consider that 84% of FY 2017 and 50% of FY 2018 revenue has already been committed through contracts secured in the order book.
Mr Kaye also believes the timing of the offer is opportunistic considering the collapse of UGL's share price in June related to problems at the Ichthys Project.
Finally, he is of the belief that the offer price may not reflect the full strategic value of UGL to CIMIC. After all in its bidder's statement CIMIC advised that it not only sees UGL as complementary to its existing business, but intends to leverage its capabilities to generate synergies from the transaction.
Although I am not a shareholder and I'm merely outside looking in, my opinion would be that CIMIC shareholders are getting the better deal from this transaction. Mr Kaye makes some valid points and I can fully understand why he did not recommend the proposal.
In light of this I would suggest shareholders read through the target statement provided by management today, before making a decision on whether to accept the offer.
