Costain told to pay up if it wants to buy Mouchel

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Mouchel, the support services group, batted away an improved all-share takeover proposal from the construction group Costain yesterday that would value the group at around £150m, a £31m improvement on its first approach.

Costain's renewed attempt to woo Mouchel represents a chunky premium of 139 per cent over the closing price on 3 December, the day before bid talk lit a fire under the share price of the embattled group.

Mouchel, which has been seeking a refinancing deal with lenders, said the proposal on the table still "significantly undervalues the business". Before making a formal bid, Costain wants access to Mouchel's books.

Prior to the takeover interest the shares had been under a cloud as a result of the need to refinance debt at time when steep government cutbacks have hit the business. Mouchel views Costain's approach as opportunistic and prompted by the weakness in its shares. Analysts have also said Costain must do better and might have to come up with a cash component before Mouchel is forced to the table.

David Brockton, an analyst at Execution Noble, said the proposal was still "short of expectations". Robin Hardy, at Peel Hunt, said Costain might need to table a proposal at 150p and include "some element other than Costain paper" to get Mouchel talking. The company's shares finished the day 20p higher at 127.75p yesterday.

Costain said: "The Board of Costain is surprised by Mouchel's response to Costain's significantly enhanced proposal. This decision by the Board of Mouchel denies its shareholders the opportunity to have a major stake in a well capitalised, financially efficient, enlarged business, with a clear strategy for future profitable growth."