Thiess lobs $350m bid for MACA
Thiess has lobbed a $350m cash offer for fellow contractor MACA, but the window is open for a rival bid.
Thiess has put fellow contractor MACA into play, launching a $350m friendly cash bid for the WA mining services business against the backdrop of a booming sector and tight labour market.
MACA shares jumped on Tuesday after Thiess, now owned by CIMIC and activist fund manager Elliott Investment Management, lobbed a $1.025 a share bid for MACA shares on Tuesday.
Offer values MACA at about $350m, with the cash bid a 42 per cent premium to the company’s volume weighted average trading price over the last month. Shares in MACA closed up 19c, or 23.7 per cent, to 99c.
The offer has been unanimously supported by MACA’s board and management, subject to a positive review from an independent expert report, with MACA co-founder and chairman Geoff Baker telling shareholders the Thiess bid was a “compelling offer at an attractive price”.
But the details of the transaction suggest the door is also open if a rival bidder emerges, and comes at a tricky time for shareholders to judge the relative value of mining services companies.
While the WA mining sector is booming, skilled labour shortages and soaring fuel prices have also led to rapid cost inflation for miners and contractors alike.
Tumbling commodity prices over recent months have put further pressure on the margins of smaller and mid-tier mining companies, and Jarden analyst Jakob Cakarnis noted in a recent research report that cost inflation has led to project deferral and delays, leading to concern that the previously strong pipeline of available new business opportunities could be drying up in the sector.
“Evidence suggests that mining activity still remains strong but feedback is increasingly patchy across the drilling, civil and mining service segments of the market,” Mr Cakarnis said in a client note.
Despite the uncertainty affecting the contracting sector, the terms of the friendly agreement still appear to leave a window open for a rival bid to emerge.
While the friendly deal requires MACA directors to recommend the Thiess offer, no break fee is included and there appear to be none of the customary “no shop, no talk” clauses common to most friendly tie-ups. MACA’s board is free to change their recommendation if a superior offer is made.
Thiess also noted in its bidder’s statement that it had conducted no formal due diligence on MACA’s books ahead of the bid, other than reviewing its statements to the market. It is understood the contracting major has only been in direct talks with MACA since last week.
Consensus analyst estimates tip MACA’s full year results to show $1.6bn in revenue and a healthy $200m in earnings before interest, tax, depreciation and amortisation. In April MACA said it expects to book EBITDA of $189m to $191m, and net profit of $35m to $37m.
The question for MACA shareholders considering Thiess offer – launched with a 90 per cent acceptance threshold – will be whether the cost and price squeeze for the mining services sector is close to a tipping point, or whether pressure will continue to grow on margins in the sector.
Jarden analysts noted the market had already pushed down share prices across the contracting sector, in anticipation of an earnings squeeze flowing from cost inflation.
“In our view, investor concerns about the impacts of higher cost inflation on mining services companies‘ EBITDA margins are well founded into the 2022 financial year results,” Mr Cakarnis said in a client note.
“Factors potentially alleviating the pressure on margins from cost inflation could be some way off.”
Thiess said on Monday it plans to continue to operate MACA under its current brand and structure. Acquiring MACA would give it far greater reach into the WA mining and civil construction market, however, which Thiess has traditionally struggled to penetrate.
Only one of its major Australian mining contracts is in WA, the Mt Holland lithium project now owned by Wesfarmers, with the bulk of its local work still in east coast coal mines.
MACA chairman Geoff Baker said in a statement MACA believed Thiess was right partner for the company’s future.
“Thiess approached us with a compelling offer at an attractive price which represents a strong premium to recent trading prices,” he said.
“Thiess will continue investing in our respected brand and will seek to provide additional development opportunities for our people as part of its national and international operations.”
While MACA directors unanimously recommended the Thiess offer, they said MACA shareholders should not take any action until a target statement – including an independent expert report – was completed in late August.
CIMIC was taken private by its Spanish parent company in April, and Thiess was separated from its main construction business in a joint venture with Elliott Management in 2020.