Statement regarding approach

RNS Number : 4073Y

Costain Group PLC

22 December 2010

 



NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN, INTO OR FROM THE UNITED STATES OF AMERICA OR ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION.  THIS IS AN ANNOUNCEMENT FALLING UNDER RULE 2.4 OF THE TAKEOVER CODE (THE "CODE").  IT DOES NOT REPRESENT A FIRM INTENTION TO MAKE AN OFFER UNDER RULE 2.5 OF THE CODE.  ACCORDINGLY, THERE CAN BE NO CERTAINTY THAT ANY OFFER WILL ULTIMATELY BE MADE.

Costain Group PLC

("Costain" or the "Company")

Statement regarding approach to Mouchel Group plc

This is an announcement falling under Rule 2.4 of the Code.  It does not represent a firm intention to make an offer under Rule 2.5 of the Code.  Accordingly, there can be no certainty that any offer will ultimately be made.

The Board of Costain announces that it approached the Board of Mouchel Group plc ("Mouchel") on 2 December 2010, with a view to making a recommended all share offer for the entire issued and to be issued share capital of Mouchel (the "Proposal").

The Proposal comprised 0.5135 new Costain ordinary shares for each Mouchel ordinary share.  Based on the closing price per Costain share of 206p on 21 December 2010 (being the last business day prior to the date of this announcement), the Proposal values each Mouchel ordinary share at approximately 105.8p representing:

·      a premium of approximately 87.2 per cent. to the closing Mouchel share price of 56.5p per share on 3 December 2010 (being the last business day prior to Mouchel going into an offer period);

·      a premium of approximately 44.9 per cent. to the closing Mouchel share price of 73.0p per share on 21 December 2010 (being the last business day prior to the date of this announcement); and

·      a premium of approximately 29.5 per cent. to the average closing Mouchel share price of approximately 81.7p per share for the period since the announcement of Mouchel's preliminary results on 28 October 2010.

Under the Proposal Mouchel's shareholders would receive approximately 48.0 per cent of the enlarged issued share capital of Costain.

The new Costain ordinary shares issued to Mouchel's shareholders would rank pari passu with the existing Costain ordinary shares, and the terms proposed assume that Mouchel's shareholders would be entitled to receive any final dividend declared by Costain in respect of the year ending 31 December 2010.

The making of any offer will be subject to a number of pre-conditions, including the satisfactory completion of due diligence and the recommendation of the Mouchel Board.  Costain reserves the right to waive any or all of such pre-conditions.  In addition, Costain reserves the right to make an offer at an exchange ratio on less favourable terms in the event that (i) the Board of Mouchel agrees and recommends any such change, (ii) a third party announces a firm intention to make an offer for Mouchel, or (iii) Mouchel announces, declares or pays a dividend or any other distribution or other payments to its shareholders, in which case there would be an equivalent pro rata reduction to the exchange ratio.  Further, Costain reserves the right to vary the form and/or mix of consideration and/or introduce other forms of consideration.

The Proposal has the strong support of Costain's key lending banks.

The Proposal was rejected by the Board of Mouchel on 6 December 2010 and there are currently no discussions taking place between Costain and Mouchel.  

Benefits of the combination of Costain and Mouchel

The Board of Costain believes that Mouchel and Costain are highly complementary businesses and that a combination would provide significant benefits for both sets of shareholders.  In particular, a combination would:

·          create one of the UK's premier solutions providers, with major capabilities across consulting, construction and care, delivered through two respected brands;

·          meet the increasing demands of blue chip customers who are consolidating their requirements into larger, longer term "bundled" or multi-disciplinary contracts and thereby significantly increase the addressable market for both businesses;

·          benefit from enhanced growth prospects through an enlarged private and public sector customer base and a combined forward order book of over £4 billion;

·          generate significant, realisable synergies; and

·          create significant value for both sets of shareholders through earnings enhancement*, dividend income and the potential for a re-rating of the combined business.

*This statement is not a profit forecast and should not be interpreted to mean that the earnings of Costain for the current year or future years will necessarily match or exceed the historic or published earnings of Costain.

For Mouchel's shareholders, the Proposal would provide them with a major stake in a well capitalised business, with a clear strategy for future profitable growth.

Commenting on the Proposal, the Chairman of Costain, David Allvey, said:

"The Board of Costain believes that there is a compelling strategic rationale for combining Costain and Mouchel.  In particular, it would provide the enhanced critical mass required by blue-chip customers who are increasingly moving to larger, longer-term bundled or multi-disciplinary solutions.

"The Board also believes that bringing together two of the UK's premium brands with major capabilities across consulting, construction and care, resulting in an order book of over £4 billion, would also create significant value for both sets of shareholders." 

Background on Costain and Mouchel

Costain

Costain has significant and growing consultancy and maintenance activities, alongside a leading construction and engineering capability.  At 30 June 2010, 14 per cent. of Costain's £2.5 billion order book was in operations and maintenance.

The Company continues to benefit from its 'Choosing Costain' strategy of focussing on targeted blue chip customers in chosen sectors whose major spending plans are underpinned by strategic national needs, regulatory commitments or essential maintenance requirements.  The Company continues to develop its scale and resources to meet successfully the increasingly complex delivery programmes and outsourcing needs of major customers. 

Over the next decade, the Board believes that those programmes will be primarily in three growth markets:-

Infrastructure                 - particularly Highways, Rail and Airports

Environment                  - particularly Water and Waste

Energy & Process           - particularly Nuclear, Power, and Hydrocarbons & Chemicals

Therefore, Costain's strategy is both to build on the Company's current strengths and to broaden and improve the quality of earnings streams by accelerating the development of an integrated business, providing front-end engineering consultancy, construction and ongoing care and maintenance services.

As previously announced, it is expected that the Company's growth aspirations and ambition for the business will be achieved through a combination of organic growth and by suitable acquisitions in line with strategy. 

On 8 November 2010 the Board of Costain announced Costain's interim management statement for the period from 1 July 2010 to 8 November 2010 stating that since 25 August 2010 the Company had delivered a strong operational and financial performance in line with the Board's expectations.  Further, the Board of Costain stated inter alia that since the half year, the Company had secured a number of additional major contract awards and had a forward order book of £2.4 billion.  At 8 November 2010, Costain had a strong cash position in excess of £100 million and no significant borrowings. 

On 29 October 2010, Costain paid an interim dividend of 3.00p per ordinary share, an increase of 9 per cent. compared to the interim dividend of 2.75p per ordinary share paid in 2009.  The total dividend in respect of the year ended 31 December 2009 was 8.25p per ordinary share.

Mouchel

Mouchel is a consulting and business services group working with government agencies, local authorities, government-regulated industries and the private-sector in similar sectors to Costain.

On 6 November 2010 Mouchel published its interim management statement for the period from 1 August 2010 to 6 November 2010 in which the Board of Mouchel confirmed that its expectations for the year to July 2011 remained unchanged and that, at the end of November 2010, Mouchel's order book had been maintained at £1.8 billion and its pipeline of tenders and near term opportunities had increased to £2.6 billion. 

In addition, Mouchel announced inter alia that it had net bank borrowings of £109 million at the end of November 2010 and Mouchel's lenders had appointed Deloitte to carry out a limited review to assist Mouchel's lenders' due diligence as part of the re-financing of Mouchel's principal banking facilities. 

A further announcement will be made as appropriate.

There will be a conference call for analysts and investors at 08.00 this morning.  Please contact Adam Aljewicz on [phone] ([e-mail]) for the dial-in details.

Enquiries:

Costain Group PLC	Tel: [phone]
Andrew Wyllie, Chief Executive
Tony Bickerstaff, Finance Director
Graham Read, Communications Director
Investec Investment Banking (Financial adviser & broker to Costain)	Tel: [phone]
Charles Batten
James Rudd
David Anderson
College Hill (PR adviser to Costain)	Tel: [phone]
Mark Garraway Mike Davies
Adam Aljewicz

A copy of this announcement will shortly be available, free of charge, on the Company's website at www.costain.com

Investec (which is authorised and regulated in the United Kingdom by the Financial Services Authority) is acting exclusively for Costain and for no one else in connection with the possible offer and will not be responsible to anyone other than Costain for providing the protections afforded to Investec clients nor for providing advice in relation to the possible offer or any other matters referred to in this announcement.

This announcement does not constitute an offer to purchase any securities, or an offer to sell or the solicitation of an offer to buy any securities, nor shall there be any offer to purchase or sell securities in any jurisdiction in which such offer, solicitation or sale would be unlawful.  No offering of securities may be made in the United States except pursuant to registration under the US Securities Act of 1933 or an exemption from registration.

The release, distribution or publication of this announcement in jurisdictions other than the UK may be restricted by law and therefore any persons who are subject to the laws of any jurisdiction other than the UK should inform themselves about and observe any applicable requirements.

Unless otherwise determined by Costain, this announcement and any proposed offer will not be made, directly or indirectly, in or into any jurisdiction where to do so would violate the laws of that jurisdiction (a "Restricted Jurisdiction") or the United States, or by the use of any means or instrumentally (including, without limitation, telex, facsimile transmission, telephone, internet or other forms of electronic communication) of interstate or foreign commerce, or of any facility of a national securities exchange of any Restricted Jurisdiction or the United States.  Unless so determined by Costain, the proposed offer will not be capable of acceptance by any such use, means or instrumentally or facility of any Restricted Jurisdiction or the United States.

Copies of this announcement will not be, and must not be, directly or indirectly, mailed or otherwise forwarded (including, without limitation, by telex, facsimile transmission, telephone, internet or other forms of electronic communication), distributed or sent in, into or from any Restricted Jurisdiction or the United States.

Forward looking statements

This announcement contains statements about Costain and Mouchel that are or may be forward looking statements.  All statements other than statements of historical facts included in this announcement may be forward looking statements. Without limitation, any statements preceded or followed by or that include the words "targets", "plans" "believes", "expects", "aims", "intends", "will", "may", "anticipates", "estimates", "projects" or words or terms of similar substance or the negative thereof, are forward looking statements.  Forward looking statements include statements relating to, among other things: Costain's expected growth markets over the next decade and the expected benefits of the proposed combination of Costain and Mouchel.

Such forward looking statements involve risks and uncertainties that could significantly affect expected results and are based on certain key assumptions.  Many factors could cause actual results to differ materially from those projected or implied in any forward looking statements, including, among others, risks relating to the successful combination of Mouchel with Costain; higher than anticipated costs relating to the combination of Mouchel with Costain; and facts relating to Mouchel that may impact the timing or amount of benefit realised from the combination that are unknown to Costain.  Due to such uncertainties and risks, readers are cautioned not to place undue reliance on such forward looking statements, which speak only as of the date hereof.  Costain disclaims any obligation to update any forward looking or other statements contained herein, except as required by applicable law.

Rule 2.10 disclosure

In accordance with Rule 2.10 of the Code, Costain confirms that, as at 22 December 2010, it has 63,486,932 ordinary shares of 50p each in issue and admitted to trading on the London Stock Exchange under the UK ISIN code GB00B64NSP76.

Disclosure requirements of the Code

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any paper offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any paper offeror is first identified.  An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any paper offeror(s).  An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any paper offeror is first identified.  Relevant persons who deal in the relevant securities of the offeree company or of a paper offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any paper offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any paper offeror.  A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any paper offeror, save to the extent that these details have previously been disclosed under Rule 8.  A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a paper offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. If you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure, you should contact the Panel's Market Surveillance Unit on [phone].

 

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