Costain courts Mouchel

BUILDING firm Costain has revealed itself as one of the suitors circling outsourcing firm Mouchel as it confirmed an all-share approach for the embattled group.

Costain said it had put forward the proposal on December 2 just days before Mouchel said it had received unsolicited approaches in the wake of heavy share price falls, which it believed did not "reflect the true value of the company".

The potential offer from Maidenhead-based Costain would value each Mouchel share at around 105.8p, equivalent to 118m.

Costain's bid interest comes after Mouchel's shares hit an all-time low of 56.5p in early December from a year high of 268p amid concerns over the impact of Government spending cuts and as the group holds talks over the refinancing of its debt pile.

Mouchel rejected the preliminary approach on December 6, but Costain is hoping to engage with Mouchel's shareholders and bring the board to the negotiating table.

Mouchel's shares soared around 20 per cent on news of Costain's takeover interest.

A merger of Costain and Mouchel would create a business with a combined order book worth more than 4bn, according to Costain.

The suitor added that its proposal would provide Mouchel shareholders with a "major stake in a well capitalised business with a clear strategy for future profitable growth".

Shareholders in Mouchel would receive around 48 per cent of Costain under the terms of the proposal.

Mouchel, which develops infrastructure for councils and Government agencies, has been hit by a drop in demand after the change of Government in May as departments have reined in spending and postponed or scaled down projects.

The group axed its final dividend in October after posting a pre-tax loss of 14.7m and a 15 per cent drop in revenues to 632.6m for the year to July 31.

It is leading a turnaround to get the business back on track, with plans including possible sales of non-core parts of the business and a potential fundraising to shore up its balance sheet.

The group has already rolled out a 25m cost saving programme to help combat the tough conditions, with job losses since 2009 reaching 2,000.

But it is labouring under 109m of debts and the group's lenders have appointed accountancy firm Deloitte to carry out a review of Mouchel as they work towards a refinancing.

The group has offices across the UK and employs around 10,000 people, including agency staff. Costain has around 3,000 staff.