Written on the 19 October 2015 by Nick Nichols


PRIVATE equity group Crescent Capital Partners has sweetened the pot for Cardno (ASX:CDD) by $25 million in a move that has all but assured its partial takeover of the Brisbane-based engineering group will succeed.

After negotiations initiated by the Cardno board, Crescent has lifted its bid by 30c a share to $3.45 a share, valuing Cardno at $583 million.

The offer for 50 per cent of Cardno's stock remains below an independent valuation of between $3.74 and $4.13 a share, but the Cardno board has agreed to back the latest offer in the absence of a higher bid emerging.

The Sydney-based Crescent denies it is being opportunistic and, in its bidders statement, says the independent valuation assumes normalised EBITDA of $124.5 million which is significantly higher than analyst forecasts for Cardno's earnings in FY16 or FY17.

The new offer for one of every two shares held by existing investors is now unconditional and will close on November 2.

However, Crescent warns it does not foresee a short or medium term rebound in Cardno's earnings, with the company forecasting a 12 per cent fall in net profit in FY16 to $44 million.

It says the increased offer represents a multiple of 9.1 times the average forecast EBITDA by analysts for FY16. This is higher than the maximum 8.5 times multiple put forward by Cardno's independent expert Lonergan Edwards & Associates' valuation of the company.

"The performance of Cardno over the past three years has been materially worse than peers with similar business models, with Cardno's EPS down 50 per cent and shareholder returns of negative 52 per cent," says Crescent in its supplementary bidder's statement.

The increased offer and acceptance by Cardno has led the way for Crescent to make what it describes as an 'orderly board transition' over the next three months, subject to Crescent securing 30 per cent or more of Cardno's shares. Crescent currently holds 19.6 per cent of Cardno.

"Crescent believes a renewed board can create an environment for change in the business with a high focus on accountability, operating metrics and growth," it says.

The transition will lead to two of the current six Cardno directors resigning within three days of Crescent achieving its 30 per cent target, to be replaced with four new directors three nominees by Crescent and an independent director.

After three months, the remaining non-executive directors including chairman John Marlay will be replaced by Crescent appointments.

"Crescent believes that an orderly transition of the board over a three-month period provides a strong basis for successful change and rejuvenation of Cardno," it says.

Author: Nick Nichols





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