Australia's Bradken rejects new buyout offer from PEP, Koch

The bidders offered A$2.50 per share in cash - less than half the price PEP and Bain Capital were willing to pay in early December - via a scheme of arrangement. It equates to a valuation of approximately A$427 million ($322 million). The Bradken board said in a regulatory filing that it determined the offer does not represent fair value.

PEP and Bain initially approached the company last August with an offer of A$6.00 per share. This was subsequently revised down to A$5.10 and Bradken opened its books, allowing the private equity firms to conduct confirmatory due diligence. Talks fell through in January because market conditions made it impossible for the prospective buyers to obtain financing on acceptable terms.

Prior to PEP and Bain's offer being made public, Bradken was trading at A$3.32, down 45% since the start of the year. A rally followed but then the stock slumped to A$2.60 the bid was abandoned. It closed at A$1.94 the day before the new offer was submitted.

Set up in 1922, Bradken produces milling and crushing equipment used in mineral processing as well as mining equipment, cast metal services, and products for the transport and general industrial sectors.

The company relies on the resources sector for 92.5% of its revenues, with 26.2% alone tied to iron ore mining and processing activities. Australia and New Zealand account for nearly half of revenue. Bradken has been particularly badly hit by falling demand for crawler systems and other excavation equipment as Australia's miners scale back operations.

In the 12 months ended June 2014, the company reported a 68% in net profit to A$21.5 milllion; revenue fell 14% to A$1.13 billion; and EBITDA was down 22% at A$143 million. Bradken's first-half earnings, announced in February, make for equally grim reading. Net profit was down 64% year-on-year at A$13.8 million, while revenue reached A$495.4 million and EBITDA came to A$72.3 million, drops of 12% and 16%, respectively.

Although Bradken said efforts to reduce costs and maintain the long-term competitiveness of the business are well advanced, and a slight increase in sales revenue is expected in the second half, volatility in the commodity and mineral markets persists. Iron ore prices almost halved in 2014 and they fallen a further 30% so far this year, reaching $50 a ton.

Bradken is not the only Australian mining services player to draw interest from private equity during the current commodities downturn. Last year Centerbridge Partners announced it would support a $352 million restructuring plan for Boart Longyear, while The Blackstone Group agreed to buy the chemicals division of Orica, another mining industry supplier, for A$750 million.

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• Topics
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