Analysts believe CIMIC’s announcement last week that it was in exclusive talks to sell half of its mining services business Thiess to Elliott Advisers is another signal that its parent company Hochtief will privatise the business.
Once delisted, they believe CIMIC will likely grow Thiess further through the acquisition of additional assets such as Downer’s mining operations, which have been up for sale through Macquarie Capital.
CIMIC announced the exclusive negotiations with Elliott on July 29, adding that the advanced talks would conclude in the coming weeks.
Earlier it was thought that Thiess could sell for about $1.5bn, but some analysts have its value at more like $3.5bn.
They say that should the sale to Elliott value the business at far less it would offer an indication as to how pressed the company was for funds.
By selling 50 per cent of Thiess to another party, analysts believe it allows its owners to move the business off balance sheet so it can be leveraged up.
This would paint a better picture of the performance of CIMIC’s CPB Contractors operation which builds infrastructure.
Thiess has been for sale in the past year through JPMorgan but now it is the stronger performer of the CIMIC divisions.
While some Australian Competition & Consumer Commission issues could exist for an acquisition of the Downer mining business, the thinking is that it is unlikely, given that Downer mainly services coking coalmining operations in Queensland.
Analysts also believe the deal will secure much-needed funds both for CIMIC, which has about $1.3bn of net debt, and its ultimate owner, Spain’s ACS.
The next step would be the privatisation that would enable a special dividend to be paid up the chain to its parent company to help pay down debt.
ACS controls about 50 per cent of the German company Hochtief, which is CIMIC’s major shareholder.
Hochtief embarked on a proportional takeover worth $1.2bn in 2014 that saw it take control of just under 70 per cent of the company when it was then named Leighton Holdings.
While Thiess is known to have been for sale, the acquisition by Elliott — the activist investor that lobbied BHP to sell assets — was a surprise.
The question remains as to whether it will consolidate the market further and buy other similar businesses or if it is simply a one-off investment.
Speculation emerged last year that CIMIC could be earmarked for a $1.5bn-plus privatisation, as private equity firm Apollo at one stage considered a Thiess acquisition.
At that time, it was also thought that Thiess could be demerged.
Thiess is the world’s largest mining services provider, with expertise in coal, copper, nickel, gold, diamonds and oil sands.
Any deal is expected to involve investment banks Citi, JPMorgan and Goldman Sachs.
CIMIC’s share price has halved in the past year, with its market value now about $7bn. The company last week said it made a $316.6m net profit for the six months to June.
The thinking is that CIMIC is better off out of the public eye, due to controversy surrounding contracts over the years and the volatile nature of earnings in the construction industry.
It is considered one of the best in the world in its category, but the sector is out of favour with buyers.
Earlier this year, there were reports out of Spain suggesting ACS could be keen for a sale of CIMIC as it grew increasingly concerned about the size of its own debt levels.
The problems for ACS have been compounded by debt from the €16.5bn ($21.7bn) acquisition of toll-road operator Abertis about two years ago.
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