Ferrovial bids $880m for Australia’s Transfield as stepping stone to China

Spain’s Ferrovial has followed its $1.7bn bid for three UK airports last week with an US$880m takeover bid for Transfield Services, the outsourcing and construction company that runs Australia’s offshore immigration detention centres.

Iñigo Meirás (pictured), the chief executive of Ferrovial, said the move was part of a strategy aimed at giving the group exposure to markets outside Europe, which is experiencing slowing growth. 

He said that the move to Australia was the first stage on a journey towards the rapidly expanding Chinese market. He told The Sydney Morning Herald: "It’s not just about Australia, it’s the right platform to get some exposure to the Chinese boom."

But the board of Transfield has advised its shareholders to turn down the offer of US$1.72 a share (AU$1.95), which it said undervalued the company. Diane Smith-Gander, Transfield’s chair, said: "The board of Transfield Services has considered Ferrovial’s proposal with the company’s advisers and has formed the view that the price of $1.95 per share does not reflect the underlying value of Transfield Services shares." 

She added, however, that Transfield said it would engage in "exploratory discussions" with Ferrovial to see whether it was willing to increase its offer, and would be willing to give the company limited access to its books.

The two companies have already become acquainted through their membership of a consortium that made an unsuccessful bid for the East-West Link, a road project in Melbourne.

The offer price is higher than the quoted price of Transfield, which was US$1.32 when the offer was made. A banking source told the Financial Times that Smith-Gander was being "quite brave" by turning down the bid. He said: "I think shareholders would want this price put to them." 

This was confirmed today by one of the company’s biggest shareholders, fund management company Allan Gray, which owns 19% of the company. Simon Mawhinney, a portfolio manager at Allan Gray, told Bloomberg: "Transfield is undervalued and that’s exactly why we own it." 

Transfield is one of the biggest outsourcing and infrastructure development companies in Australia, and also has operations in New Zealand and the Americas. Earlier this year it won a US$1bn contract to run Australia’s asylum seeker detention facilities on Manus Island, Papua New Guinea, and Nauru.

Ferrovial’s move to Australia follows the decision of Spain’s Grupo ACS to buy Leighton Holdings, Australia’s largest construction company. It also positions the company to take advantage of an expected wave of privatisation in the country, which some commentators have said may be worth $100bn.

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