Bid battle looms for Kentz

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Shares in the UK engineering company Kentz have risen by around 25% on statements by both Amec and the Germany company M+W Group that they have made approaches to buy the company.

The Kentz board said it had rejected a conditional and unsolicited approach from Amec worth between 565p and 580p per share in cash, after concluding with its advisers that the cash offer undervalued the company (although it represented a premium of up to 22% to last week’s closing price of 475p).

The board added that it was not currently considering any other offers, although it noted that an earlier indicative bid from M&W had been lower than the AMEC proposal.

Under Rule 2.6(a) of the Takeover Code, AMEC and M&W will both now be required to either announce their intention to make a firm offer for Kentz by 5pm on September 16 or confirm that they will not be making an offer.

Kentz has over 14,500 employees in 30 countries offering engineering, construction, technical support services to the oil and gas, petrochemical, and mining sectors. It made a pre-tax profit of US$104.8m on turnover of US$1.56bn in 2012.

Kentz has been seen as an undervalued company is some quarters for some time, and the shares have had risen from 370p to 475p over the summer as takeover rumours started to do the rounds with greater intensity.  Even so the shares do not look expensive, on an EV/EBITDA multiple on expected 2013 earnings of around 4.5x.

Liberum Capital estimates that the shares have a fair value of around 590p, even before any premium for control is factored in, and points that the market in which Kentz operates has a prospective pipeline of as much as US$14bn. Other bidders may emerge from the woodwork after today’s announcement and it seems that a significantly higher price may be needed to secure the business than the one currently on the table.

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