Shares in Kentz Corp. (KENZ) rose 24 per cent in anticipation of a bidding war, after it emerged that the Irish oil services group had rejected separate offers from sector rival Amec (AMEC) and the Stuttgart-based M+W Group GmbH (historically part of Austrian conglomerate Stumpf AG).
Amec's proposed indicative cash offer was pitched at 565p-580p a share, representing a minimum premium of 20 per cent to last Friday's closing price, or 13 times 2013 forecast earnings. A reasonable pitch on the face of it, but it was duly dismissed by Kentz management as "highly conditional and unsolicited". The indicative offer from M&W even fell short of that range, but the Germans haven't ruled out returning with a higher offer. Speculation has also emerged that Canada's SNC-Lavalin Group is interested in bidding for Kentz. Under the takeover code, Amec is now required to make a firm offer by 16 September, or withdraw the approach. So this one could run for a while yet, regardless of the fact that Kentz management said the company was not up for sale.
In the past, Amec has resorted to bolt-on acquisitions to augment its organic growth, which is currently being held in check by the underperformance of its operations in the Americas. And while the operational fit between the two makes sense, Kentz is certainly operating within higher-margin sections of the industry. The Tipperary-based oil services group has a demonstrable record of delivering shareholder value as a standalone entity, so it's highly unlikely that institutional shareholders would acquiesce under the proposed terms.
Nowadays, whenever an offer of this magnitude emerges we tend to wonder if it might herald anything for the M&A market, particularly when you consider the existing cash balances of many FTSE 350 constituents. For the economy as a whole, acquisitions by UK companies stand at a 17-year low, with activity through to July this year valued at £38.2bn, down 2 per cent on the same period last year. In a sense, the lack of M&A activity has been good news for shareholders. Amec, itself, revealed within its full-year report that it was looking for suitable acquisitions within the oil & gas sector, but that if no deals were forthcoming it would consider a cash return to shareholders.
