John Laing Infrastructure Fund has said it will “continue to evaluate options” for acquiring Balfour Beatty’s PPP portfolio after the contractor rejected its £1bn cash bid.
In an update to the City on 5 December, Balfour Beatty said the £1bn proposal from JLIF fell “significantly short” of its own view of the value of its PPP portfolio.
Balfour Beatty said its directors’ valuation of the portfolio had stood at £1.05bn at 28 June, but that it expected the “realisable value” to be “substantially in excess of the current directors’ valuation”.
However, in a statement later the same day, JLIF said Balfour Beatty’s valuation of its portfolio was “overly optimistic, considering the evidence from the many transactions in which JLIF has been involved over the intervening months”.
The statement said: “JLIF continues to believe shareholder value for Balfour Beatty will be maximised by these assets being owned by an infrastructure fund with a lower cost of capital, which specialises in investing in low risk, operational infrastructure assets.”
It added that it “awaits with interest another revised valuation of the portfolio from Balfour Beatty and in the meantime will continue to evaluate all other options for unlocking the portfolio”.
JLIF first approached Balfour Beatty in May 2014 with a proposal offering a £200m premium on the then-valuation of £766m, but it was rejected.
Balfour Beatty had said in its update that its targeted approach to selling individual assets as investments mature, and “expected future strength of the market”, would deliver greater value from its portfolio.
JLIF announced it would make a bid for the PPP portfolio, worth around £1bn in cash, on 1 December.
In October, Balfour Beatty disposed of its 50 per cent interest in the Pinderfields and Pontefract Hospital PPP project in West Yorkshire for £61.5m, generating a gain on disposal of £42.2m, which it said was a 28 per cent uplift on the directors’ half-year valuation.
It revaluated its portfolio in August 2014, increasing its portfolio value by 46 per cent to £1.05bn at June 2014.
Balfour Beatty will publish a revised directors’ valuation of the portfolio in January 2015, which will take into account contract wins and further investments and disposals since June 2014.
Its statement added that its investments business and the team operating it were “material to the Balfour Beatty group as a whole”.
It said this had “not been a factor in rejecting the JLIF proposal”, but that the benefits were of value to shareholders.
Balfour Beatty said: “The group’s construction and support services businesses derive real value from the investments business being in the group, something which needs to be taken into account in valuing the group as a whole, and in evaluating any proposal to acquire the Investments portfolio or business alone.”
It also updated the City on KPMG’s review of the UK construction business, which was announced in late September after Balfour Beatty issued its fifth profit warning in two years.
Balfour Beatty said it intends to announce the findings and conclusions from the review in the second half of January 2015, after its new chief executive Leo Quinn joins on 1 January.