Analysts expect increased offer after initial £71m bid from Cathexis is rejected

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Analysts expect US investor Cathexis to up its offer for UK contractor ISG, after its initial £71m offer for the firm was swiftly rejected by the ISG board last Friday.

Cathexis’ offer of £1.43 per share last Friday morning represented a 17% premium on the firm’s closing share price the previous day - but was dismissed within hours by the ISG board which said it “significantly undervalues the company”. No further offer had been made as Building went to press.

Building Value analyst Tony Williams said Cathexis “will clearly have to offer more”, adding that a bid of up to £2 per share for the firm was feasible.

Williams said he was “surprised” no one else had made an offer for ISG before as it “has a good core business with a good core skill-set”, as well as £1bn-plus revenue and a small balance sheet.

Meanwhile, Nick Spoliar, analyst at WH Ireland, said the firm was attractive due to its “fantastic position in fit-out in the UK”.

In its statement rejecting the Cathexis offer last week, the ISG board said it would write to its shareholders advising them to “take no action” and not sell their shares.

The offer comes after a difficult trading period for ISG caused by problem legacy contracts in its UK construction division, which led to a profit warning earlier this month, and a £12.9m pre-tax loss for the year to June 2015, posted in September.

In its offer statement Cathexis argued that ISG would be better suited to private ownership “due to the size of the company, the nature of its business, the cyclicality of its markets and the volatility of its share price and trading performance”.

The statement also revealed that ISG had rebuffed a previous takeover approach by Cathexis in June for the same reason. Cathexis argued ISG’s profit warning this month “reaffirmed its conclusion that ISG ought to be a private company”.

It added: “Cathexis believes the offer provides the certainty of a realisable value to ISG shareholders and allows them to mitigate the inherent risks that the company’s core construction business, by its nature, is unpredictable and prone to extraordinary losses from time
to time.”

Cathexis is seeking approval from 90% of ISG shareholders to seal the deal. It already owns 30% of ISG’s shares.

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