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Mouchel makes much of its money from road maintenance. Photograph: Barry Batchelor/PA
Mouchel makes much of its money from road maintenance. Photograph: Barry Batchelor/PA

Costain makes £118m offer for Mouchel

This article is more than 13 years old
Merger with debt-laden firm would make Costain one of UK's biggest construction and infrastructure groups

Infrastructure construction specialist Costain came out of the woodwork today, announcing that it had made a £118m offer for embattled support services group Mouchel.

Mouchel revealed earlier this month that it had been the subject of approaches, but it had been unclear until today who had made a bid. Costain is offering 0.5135 new Costain shares for every Mouchel share, valuing it at £118m.

Mouchel, which makes much of its money from road maintenance, has been labouring under almost £100m of debt and worries about government spending cuts. Its shares fell 25% at the end of October after it issued a warning about trading, and it emerged more recently that Deloitte was advising its banks on a refinancing. Its net borrowings were £83m at the most recent preliminary results.

Mouchel has rejected Costain's offer, and added that it "significantly undervalues the business". A shareholder in the firm said that the bid represented "base camp" and there was "a long way to go". Analysts said they expected rival bids and a higher price.

The Costain move reflects a desire by the biggest UK contractors to move up the supply chain, taking on design and engineering challenges. Costain's chief executive, Andrew Wyllie, said it had been tracking Mouchel for several months. "We are building up our consulting capability," he said.

Costain has said in recent years that it expects a premier league of contractors to emerge in future as big-spending customers look to work with fewer businesses and take longer contracts. A merger between Costain and Mouchel would put the combined group on the threshold of the top 10 largest construction groups in the UK.

Wyllie added that Costain had gone public with its bid for Mouchel in order to get the chance to talk directly to its shareholders, though he suggested he did not intend to launch a hostile bid.

As recently as February of this year, VT Group offered almost 300p a share for Mouchel, before VT was itself taken out by Babcock. Mouchel had rebuffed VT Group's advances and its share price has been in steady decline ever since.

Analysts suggested Costain's bid was opportunistic. Wyllie said: "I think everyone recognises the world is a very different place to what it was 18 months ago."

Mouchel shares rose 32% to 96.5p, while Costain fell slightly, by 1p to 205p.

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