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City Site - Mowlem presents route to PFI prizes


THE ONE sure thing about the preliminary approach received by John Mowlem this week is that it is unlikely to encounter much resistance from shareholders.

Since concern about its latest writedowns peaked in mid-August, the company's shares have climbed from 130p to 200p. Those shareholders who have ridden out the group's turbulent recent past will probably be grateful that the end is in sight.

Although the stock market already had a whiff of a takeover, speculation over the identity of the potential bidder remains rife (see News).

The current thinking in the City is that it is more likely to be a foreign or private group than one of the established quoted UK contractors.

There is not a huge amount that Mowlem could offer Balfour Beatty, Alfred McAlpine or Carillion which would not replicate their existing operations and which would justify paying a premium.

But for an overseas group or a private company seeking a slice of the UK support services and PFI market, Mowlem could present a lucrative prize.

And, as Skanska, HBG and Vinci have shown, major UK contractors can f lourish under the wing of an overseas owner.

For all its recent profit warnings, Mowlem still has an order book of £2.3 billion and a strong PFI portfolio, which will be notably enhanced if the group reaches financial close on its joint ventured £5 billion Allenby Connaught project for the Ministry of Defence.

The firm also has a promising facilities and asset management business with a blue chip client list. If a buyer could ultimate generate a 3 per cent margin on Mowlem's £2 billion turnover, the £320 million or so which it would be obliged to pay might seem to be reasonable value.

But Mowlem is a special case and the rise in contractors' share prices this week is unlikely to presage a spate of bids across the industry.

However, it does highlight the success of the major groups' strategies and growing recognition of the quality of their earnings.