Amec rises after £1.5bn US offer is rejected

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Hopes of a bidding war sent shares in Amec to a four-year high yesterday as it emerged that the construction group rebuffed a £1.5bn offer from two US private equity firms last week.

The approach, from First Reserve and Texas Pacific, is the second offer Amec has rejected since June.

Shares in the company ended nearly 4 per cent higher at 415p amid expectations that further bids would be flushed out.

Amec is thought to be on the radar of private equity companies in the wake of the bidding war for the rival infrastructure company John Laing.

The company said the private equity offer - believed to have been pitched at 450p - was insufficient to tempt it into opening its books for due diligence. At 450p a share, an offer would value Amec at about £1.5bn.

Amec's board rejected the deal out of hand, arguing it significantly undervalued the business and its prospects. Another concern was that First Reserve and Texas Pacific were mostly interested in the oil and gas operations of the company that only account for about a third of Amec's profits.

Amec rejected the advances of Australian rival Downer EDI earlier this year after its bid, thought to be just shy of 450p, was also deemed to be too low.

However, analysts expect that the board of Amec would consider a compelling offer for the company. With two bids already lodged, analysts expect industry rivals such as Fluor of the US and Acciona of Spain could rival the private equity interest.

The investment bank Dresdner Kleinwort said that a bid of 534p would be a "starting point" for discussions given the long-term value inherent in the group. "In our view, major investors would disregard anything that did not start with a 5," the bank said in a research report.

However, another analyst, speaking off the record, said that Amec trades at a significant premium to rivals such as Balfour Beatty that have a more consistent financial performance and a more focused business. He noted that Amec shares traded at 280p in August and that the stock looks over-valued. "I fundamentally cannot see why anyone would want to pay over 500p for Amec," he said.

Amec is considering splitting its operations into two separate companies as part of a review of its business conducted by Samir Brikho, its chief executive. Mr Brikho, who joined the company in October from the engineering giant ABB, is looking at an option to split off Amec's assets in the energy and process management sector from its core infrastructure and private finance initiative business. The strategic review should be complete over the coming weeks, with an announcement due next month.

The review follows the company's decision to dispose of its French infrastructure services arm Amec SPIE for about £700m earlier this year. That deal reduced its debt burden by around £450m but also significantly reduced the company's size. It also generated a profit on disposal of about £220m that can be used for expanding its core business or for a cash return to shareholders.

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