Written on the 7 November 2016 by James Perkins

ALL but one of the UGL Limited (ASX: UGL) directors have recommended shareholders accept CIMIC's (ASX: CIM) offer to buy the company for $3.15 per share.

Non-executive director Robert Kaye was the only dissenter from the five-person board, saying he does not believe the offer $534 million offer represents the fair underlying value of the engineering services company.

Chairman Kathryn Spargo (pictured) told shareholders at the company's Annual General Meeting that it was essentially a 50-50 decision that depends on the individual shareholders' postiion.

"Based on our comprehensive review the Board believes that the question of whether or not to accept the Offer is finely balanced and depends on each shareholder's risk profile, portfolio strategy, financial circumstances and investment time horizon," says Spargo.

"The majority of the Directors recommend that UGL shareholders accept the offer. However the Board also understands how investors with a longer term investment horizon and higher risk appetite may decide to reject the Offer."

UGL is in the middle of restructuring its business and one of its major projects, the Ichthys LNG joint venture in Darwin, is facing delays and cost blowouts that could cost UGL hundreds of millions of dollars.

An independent expert brought in by UGL to assess the offer found that it was "fair and reasonable", despite being at the low end of his estimate of the company's value between $3.11 and $3.94 per share.

There is an argument that if UGL is given time to work through its problems, then in time, the share price will recover and exceed the value of the current offer.

While UGL shares are today trading at $3.15, it was only after the CIMIC offer was made that the shares soared to their current level and the directors believe that if shareholders reject the offer, the price will fall.

The offer was made at a 47.2 per cent premium on the share price of $2.14 on closing the day before CIMIC made its offer.

It is a 37.7 per cent premium to UGL's volume weighted average price since announcement of the potential for a further Ichthys provision on 6 June, 2016, of $2.29.

The offer represents and equity value of around $534 million and an enterprise value of around $762 million. The multiple implied by the offer is 8.5 times FY16 EBITDA.

The bid cannot be adjusted unless a second party makes an increased offer.

UGL shareholders have until 25 November to decide.

Spanish controled CIMIC, which was formerly known as Leighton Holdings, is trading up 0.56 per cent at $28.58 per share.

Author: James Perkins Connect via: Twitter LinkedIn





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