Australia's Broadspectrum Rejects Ferrovial Bid
January 21 2016 - 3:20AM
Dow Jones News
Broadspectrum Ltd., which manages Australia's detention centers
for asylum seekers, rejected a hostile takeover bid from Spanish
infrastructure group Ferrovial SA as it played down the risk of
lawsuits by detainees.
Broadspectrum's directors wrote to shareholders Thursday
recommending they reject the offer made in December—692 million
Australian dollars (US$478 million), or A$1.35 a share—as too low.
It included a report by independent adviser Ernst & Young
valuing the shares at A$1.71 to A$1.98. They closed Wednesday at
A$1.24.
Broadspectrum Chief Executive Graeme Hunt said feedback from
investors holding a significant part of the company's stock
suggested they support the board's decision.
"It seems to me pretty clear that a majority of our shareholders
will reject the offer," Mr. Hunt said in an interview.
A Ferrovial representative declined to comment on the board's
rejection. It is Ferrovial's second swipe at Broadspectrum. Late in
2014 it offered A$1.95 a share and then A$2 for the company, then
called Transfield Services Ltd., only to be rebuffed by the board
and abandon the bid.
Broadspectrum's share price fell by more than half in the 12
months before Ferrovial's latest bid, which the board said was
opportunistically timed to take advantage of a short-term slump.
Investors have been worried about one of the company's biggest
moneymakers, its contract to run detention centers on the remote
Pacific islands of Manus in Papua New Guinea, and Nauru, where
Australia runs an offshore visa-processing system for immigrants
trying to enter the country without authorization.
Broadspectrum also builds telecommunications infrastructure and
does maintenance work for mining companies, as well as working for
the country's defense department and providing social housing in
Australia.
The detention centers have been under scrutiny for several years
over allegations of abuse and sexual misconduct by staff. In
early 2014, Reza Berati, a 23-year-old Iranian asylum seeker, was
killed in rioting at one center. This has made Broadspectrum the
subject of an aggressive divestment campaign. Institutional
investors including industry-pension-funds Hesta and NGS Super have
recently sold their stakes.
Mr. Hunt played down warnings from human-rights activists that
the company could be sued over its treatment of refugees.
"We are very confident that we are doing a very competent job in
the activities that we undertake in these centers," Mr. Hunt said.
"And while it is always possible in any parts of our business that
legal challenges are brought or compensation is sought, I don't
believe that that's a material risk to the company."
In August Broadspectrum denied media allegations that it had
been lax in reporting incidents at its detention centers or had
misled a Senate inquiry into the subject.
In its bidder's statement Wednesday, Ferrovial called the
company's earnings outlook "highly uncertain." Broadspectrum, which
in 2014 was awarded a 20-month, A$1.2 billion contract to run the
detention centers, is now negotiating a renewal.
Analysts say it is likely to win one, but have warned that
revenue and margins are likely to fall with the drop in the number
of asylum seekers reaching Australia. In recent years the
government has adopted tough policies, including turning back some
boats to neighboring Indonesia.
Mr. Hunt said given the drop in volume, the work Broadspectrum
does for the Department of Immigration and Border Protection will
become a smaller part of its business.
"I think Ferrovial continue to overstate that [offshore
detention] is such a significant part of our portfolio," Mr. Hunt
said.
Write to Rebecca Thurlow at rebecca.thurlow@wsj.com
(END) Dow Jones Newswires
January 21, 2016 04:05 ET (09:05 GMT)
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