Perenti Global still front runner to buy Downer’s mining division, but talks crawl

Downer CEO Grant Fenn.

Diversified mining services company Perenti Global is understood to be still in talks with Downer about an acquisition of its mining business after final bids were due last month.

Negotiations are inching slowly forward, say sources.

One theory is that an issue being discussed relates to Downer Mining’s contracts, although others have denied this remains a stumbling block in negotiations.

Perenti is likely to require an equity raising worth at least $250m to buy the business, which could be a tough ask amid the current volatile conditions.

Ausdrill raised equity at $1.47 a share in 2018 when it acquired Barminco and later changed its name to Perenti.

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It will be interesting to see if Downer instead pursues a demerger of the business, with offers falling below its expectations, or else retain the operation.

However, many think a divestment of Downer Mining is one of the major tasks that chief executive Grant Fenn has on his agenda before he is expected to retire later this year.

At least one other group is said to be in the race for Downer’s mining business, but the general consensus around the market is that Perenti is the strongest candidate.

Mining contracting and construction companies have been under pressure, with thin contract margins and large capital costs.

DataRoom revealed that Perenti was a suitor for the business on January 13 and the company later confirmed it was a bidder, but not at Downer’s $700m asking price.

The division generated $43.7m statutory earnings before interest and tax for the six months to December and $100.6m of earnings before interest, tax, depreciation and amortisation.

Downer is looking to exit its mining services division because it is too capital-intensive, with mining contributing about 12 per cent of Downer’s profit in the 2019 financial year but requiring more than 50 per cent of its total capital spending.

Earlier vying for the business has been private equity firms Apollo and Oaktree, which could still be in the mix.

Working for Downer is Macquarie Capital.