Balfour Beatty rejects JLIF’s £1bn bid

The UK developer reckons the sum offered earlier this week by the London-listed fund falls “significantly short” of the realisable value of its PPP portfolio.

The board of Balfour Beatty today announced its decision to reject a non-binding offer by John Laing Infrastructure Fund (JLIF) to purchase its entire public-private partnership (PPP) portfolio for £1.0 billion (€1.3 billion; $1.6 billion).

In a statement, the UK developer said that the proposal fell “significantly short” of its own view of the value of the portfolio, despite its latest valuation exercise – carried out in June – placing it at £1.05 billion.

Balfour Beatty intends to sell individual assets as they mature rather than bundled in a portfolio, which it believes gives them greater realisable value. This view was bolstered, it said, by “the current and expected future strength of the market”.

It cited the recent disposal of its 50 percent interest in the Pinderfields and Pontefract Hospital PPP project – sold to HICL Infrastructure Company at a price exceeding the asset’s valuation by 28 percent – as evidence that the potential proceeds resulting from the separate sale of its PPP assets could amount to much more than £1 billion.

It also argued that significant synergies were currently being achieved between its development and investment management units, a factor of additional value that had to be taken into account when evaluating proposals to acquire its investments portfolio or business alone.

“This has not been a factor in rejecting the JLIF proposal, given the substantial valuation gap versus the board's view of realisable value,” the company said.

“Nevertheless, these broader synergistic benefits are of real value to shareholders.”
Had it been approved, JLIF’s bid would have resulted in the largest secondary capital raising undertaken within the listed infrastructure fund sector to date. It would also have marked a significant jump in scale for the vehicle, which has a current market capitalisation of £981 million.

The company intended to fund the acquisition largely via an equity capital raise of ordinary shares, as often been the case during prior transactions.

“JLIF has proven itself as a leading London-listed infrastructure fund investing in low risk, operational infrastructure assets and therefore believes it would be an ideal owner of the portfolio,” it claimed earlier this week.

Changes to Balfour Beatty’s valuation methodology in the first half of this year led it to report a jump in its Directors’ Valuation – an indicator of the value of its PPP portfolio – of about 46 percent compared with applying the former one last June. The company plans to publish an updated Director’s Valuation in January 2015, so as to reflect its latest contract wins, investments and disposals in the period since June, and a further review of underlying project valuations.

Leo Quinn, current head of defence research group Qinetiq, is also set to join Balfour Beatty as group chief executive on 1 January. His appointment comes at a time of crisis for the company, which has seen five profit warnings in the last 18 months.
Its investment unit, which comprises the PPP portfolio, has however been profitable and generated liquidity for the business.