Mouchel rejects Interserve and Costain bids

Engineering consultant Mouchel has unilaterally rejected reduced offers for the business from both Costain and Interserve, it said this morning as it announced interim pre-tax profits down by three quarters.

Mouchel said both firms had reduced their offer after due diligence with the company, with Interserve’s revised offer of 135p per Mouchel share being “significantly reduced” from its original undisclosed proposal.

Costain’s final bid had been for 0.5531 Costain shares and 22p in cash, down from 0.5531 Costain shares and 30p in cash announced in January.

Mouchel said that Interserve’s revised proposal “significantly undervalues the business” and that Costain’s proposal had an “unacceptably high level of execution risk” to warrant further discussions. 

In a statement it added: “Any such discussions would also entail a further period of uncertainty and disruption to the business. Accordingly… the Board has decided it is not in shareholders’ interests to proceed with any further discussions with Interserve or Costain.”

It added that the decision had been taken without consultation with Mouchel or Costain, meaning revised higher offers were possible. However, the disclosure that both Costain and Interserve reduced their bids following due diligence will raise questions about the business, which today saw six month revenues fall by 13% to £270.3m.

Pre-tax profits before exceptional items fell 73% to just £4.1m.

The firm said that while trading conditions remained challenging, its short term performance was dependent upon “continuing to win work in those parts of the business where there has traditionally been less visibility and where the government’s deficit reduction programme continues to result in delayed or reduced spending decisions in our public sector customer base.”

Mouchel said it had a strong order book of £1.6bn providing “excellent visibility” of future work.

Chief executive Richard Cuthbert said the six months had been a “challenging period” for Mouchel. “Our clients have been impacted by the tough economic climate, leading to cuts in capital and maintenance programs and a decline in spending, which has negatively affected our performance.

“Furthermore recent corporate activity has been an unwelcome disruption to our business. We are nevertheless trading broadly in line with our expectations.”