UK’s ISG circles wagons against hostile Texan takeover, and warns of fraudulent offers

The board of struggling UK contractor ISG has formally rejected a hostile takeover bid from US investor Cathexis, and has warned shareholders to beware fraudulent offers to buy their holdings.

In a shareholder alert ISG said holders should beware "unsolicited approaches from third parties suggesting they are linked with potential offerers. The company has sought advice and believes that these are not bona fide offers."

Texas-based Cathexis, which already owns 29.53% of ISG’s shares, is approaching shareholders directly with an offer of 143p for the remainder.

Cathexis is not paying an adequate premium for control of your company– ISG chairman Roy Dantzic

The offer represents a boost of 17% on ISG’s price when it was made on 11 December, but it was contingent on Cathexis obtaining at least 90% ownership.

Cathexis told shareholders that its offer would mitigate the inherent risks they were exposed to from ISG’s core construction business, which it said was "unpredictable" and "prone to extraordinary losses".

But Roy Dantzic, the chairman of ISG, shot back on 12 December, calling Cathexis’s offer "unsolicited and totally inadequate".

"Disappointing trading conditions in our UK Construction divisions aside, it fails to reflect the strong trading conditions and outlook for the rest of our business," Dantzic wrote to shareholders.

This year ISG has been hit by major losses at its UK and European construction divisions, but it enjoyed strong growth in UK engineering services, and revenue growth overseas in the Middle East and Asia.

Yesterday the ISG board again called on shareholders to ignore the Cathexis offer. Dantzic called Cathexis "an astute investor that has shrewdly built up its shareholding in ISG".

"The board urges shareholders not to give away your value in ISG at today’s inadequate offer price," he added. "Cathexis is not paying an adequate premium for control of your company."

Steep falls

Cathexis has been a shareholder in ISG since March 2012, but has grown its holding after steep falls in the value of the company.

ISG, which specialises in fit-outs and is listed on the London alternative investment market (AIM), suffered a 35% fall in its share price in February 2015 after it issued a £7m profit warning and announced the closure of an office in Tonbridge, Kent, and its exit from high-end residential work in London.

ISG chairman Roy Dantzic

In September the company blamed the bad news on "sizeable losses on a limited number of contracts taken on during 2012 and 2013" and restructuring costs.

Then ISG issued another profit warning in December, blaming "disappointing project outcomes on some older contracts" which had undercut strong performances by its UK fit-out and engineering services division. ISG said its construction division would make a loss of up to £5m over the year, causing its share price to plunge another 30%.

Overall, the value of ISG has declined by almost two-thirds in 2015.

The Texan investor first approached ISG in June, but its offer was rejected as undervaluing the contractor. After the December warning, however, it decided to appeal directly to ISG shareholders.

Despite its terrible year, ISG still issued a dividend of 5p, compared with 9.45p the previous year. Cathexis is arguing that the company would be more stable if it were taken into private ownership and did not have to pay any dividends.

Shareholders now have until 11 January to decide whether to accept the offer.

Top photograph: One of ISG’s recent contracts was a seven-floor office fit-out in 2013 for London property giant, Savills (ISG)

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