Broadspectrum Ltd share price rockets: Here’s why

Broadspectrum Ltd (ASX: BRS) has seen its share price jump 32.1% to $1.48, after the diversified services and contracting company decided to accept the takeover bid from Ferrovial.

The company’s board had rejected the Spanish infrastructure and services giant’s advances previously, but have now unanimously recommended shareholders accept the $1.50 cash per share bid.

The main reason Broadspectrum says it has changed its mind is due to increased uncertainty over its Manus Island contract. Manus Island is where the Australian government has been sending illegal immigrants, but the Supreme Court of Papua New Guinea recently ruled that the detention of asylum seekers was unconstitutional.

PNG’s Prime Minster Peter O’Neill advised the day after that the Manus Island Regional Processing Centre would be shutdown. That has created a great deal of uncertainty for Broadspectrum – and any potential future earnings from its contract with the Department of Immigration and Border Protection. It is unclear what the Australian government will do with detainees on Manus Island now, whether they will be moved to another part of Asia, and whether Broadspectrum will play any further part in managing the centres.

The company generates the majority of its profits from the division running the detention centres.

The deal looks highly likely to go ahead now with the support of Broadspectrum’s board, but shareholders might be somewhat frustrated that the board knocked back a $2 per share bid from Ferrovial more than a year ago.

Foolish takeaway

Broadspectrum shareholders might want to accept the offer or sell their shares on the market at the current price of $1.48, before the offer expires on Monday and falls over.

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Motley Fool writer/analyst Mike King doesn't own shares in any companies mentioned. You can follow Mike on Twitter @TMFKinga

The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Bruce Jackson.

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