Investor says Balfour is “overly optimistic” to expect higher valuation of its PPP portfolio
John Laing Infrastructure Fund (JLIF) has said it is still in the hunt to acquire Balfour Beatty’s PPP business, despite its £1bn offer being rejected today.
JLIF said Balfour was “overly optimistic” to believe its PPP business was worth more than the offer and said it “awaits with interest another revised valuation of the portfolio from Balfour Beatty”.
JLIF said in the mentime it “will continue to evaluate all other options for unlocking the portfolio. A futher announcement will be made if and when appropriate.”
Its statement also revealed JLIF first approached Balfour Beatty in May 2014 with a proposal valuing the portfolio at a little under £1bn, which was rejected.
JLIF’s statement in full
Ltd (“JLIF”) is disappointed that the Board of Balfour Beatty plc (“Balfour Beatty”) has chosen not to engage in constructive discussions with JLIF to unlock the value of its PPP Portfolio (the “Portfolio”).
JLIF first approached Balfour Beatty in May 2014 with a proposal that attached up to a £200 million premium to the then Balfour Beatty directors’ valuation of £766 million, leading to an indicative valuation for the entire Portfolio of a little under £1bn. This proposal was rejected.
On 1 December 2014, having reviewed the Balfour Beatty directors’ portfolio valuation in August, taking into account disposals and new investments, JLIF made a non-binding proposal to acquire the entire Portfolio for approximately £1bn in cash, equivalent to 145 pence per Balfour Beatty share.
Without access to the project data, any discussions with Balfour Beatty or further information, it is difficult to understand the basis on which Balfour Beatty is anticipating a substantial increase in valuation. The Balfour Beatty announcement this morning appeared to use the price of the recent sale of one asset for £61.5 million as evidence to support a substantial uplift in valuation for the entire Portfolio. JLIF believes this is overly optimistic, considering the evidence from the many transactions in which JLIF has been involved over the intervening months.
JLIF continues to believe shareholder value for Balfour Beatty will be maximised by these assets being owned by an infrastructure fund with a lower cost of capital, which specialises in investing in low risk, operational infrastructure assets.
JLIF’s proposal would allow Balfour Beatty to:
- Realise a certain and significant cash return for its shareholders, rather than relying on intermittent disposals in varying market conditions;
- Reduce its group costs;
- Further reduce the pension scheme liabilities;
- Improve the capital structure of the residual group;
- Continue its involvement in supply chain contracts and therefore retain any synergistic benefits; and
- Achieve the Board’s own stated objective of reducing complexity in the group.
JLIF awaits with interest another revised valuation of the Portfolio from Balfour Beatty and in the meantime will continue to evaluate all other options for unlocking the Portfolio. A further announcement will be made if and when appropriate.