Transfield Services Ltd fell nearly 18% in Sydney after the Spanish infrastructure group Ferrovial announced it has ceased negotiations with the Australian outsourcing and infrastructure services company.
In its latest attempt for a takeover, Ferrovial offered a sweetened A$2 per share for Transfield. However, the board of the Australian company said the price “still does not reflect the underlying value” of its shares.
After its was turned down for a second time, Ferrovial initially offered A$1.95 per share in October, the Spanish giant announced that “discussions have ceased”.
“Ferrovial Services has undertaken the limited due diligence available and concluded that there were a number of issues that impacted value,” Ferrovial said.
“We would like to know what those issues are,” said Simon Mawhinney, a portfolio manager at Transfield’s largest investor Allan Gray Australia, cited by Bloomberg. “That is not an unrealistic expectation of the board.”
Mr. Mawhinney also added that Transfields board rejected the bid without checking with shareholders first, and for that they would take responsibility.
“If it turns out in 18 months’ time that $2 a share was good value then they need to be held accountable. On the other hand if the share price is higher then they should be rewarded,” he said.
According to a person with knowledge on the matter, Ferrovial did not offer a higher price, partly because of Transfields dependency on government contracts. In February the company won a A$1.22 billion contract to operate Australias immigration detention centers in Nauru, Papua New Guinea and Manus island.
At the time the contract caused a lot of disagreements regarding Transfields decision to accept it. However, the contract helped Transfield to reach above zero levels, in October the company reported full-year net profit of A$67 million versus a hefty loss of A$238 million a year earlier.
Transfield is the second construction company that has received a bid from the Spanish group. In July, Ferrovial made a $1.4-billion bid for Leighton Holdings engineering and construction unit John Holland. However, Ferrovial dropped the offer.
Transfield Services Ltd gained 5.92% on Friday, but lost 4.75% on Monday and closed at A$1.71 in Sydney, marking a one-year increase of 109.20%. The company is valued at A$917.30 million. According to the Financial Times, 11 analysts offering 12-month price targets for Transfield have a median target of A$2.00, with a high estimate of A$2.25 and a low estimate of A$1.25. The median estimate represents a 11.70% increase from the last price of A$1.79.
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