2011-05-12
PBG and OHL suspend negotiations. Hydrobudowa Polska forecasts higher earnings.
· Negotiations with OHL have been temporarily suspended due to a significant difference between the current market valuation of Hydrobudowa Polska and the agreed price of the transaction. The Parties will return to the negotiating table once the Hydrobudowa share price returns to the level seen at the beginning of the negotiations.
· PBG and OHL will continue to cooperate in the area of procurement and execution of contracts on the Polish and foreign markets.
· Meanwhile, PBG commences the consolidation of the Hydrobudowa Group, including a merger of two Hydrobudowa companies (Hydrobudowa Polska and Hydrobudowa 9) and outsourcing.
· The 2011 profit guidance of the Hydrobudowa Polska Group is practically entirely based on the existing order book and provides for a 37% increase in net profit relative to 2010.
On May 12th 2011, PBG reported that negotiations with Spanish OHL concerning the sale of a 51% interest in Hydrobudowa Polska and a 50.1% interest in Aprivia had been suspended. It was a mutual decision of both parties, caused by a substantial decline in the price of Hydrobudowa shares and, consequently, in the company’s valuation on the Warsaw Stock Exchange relative to the originally agreed transaction price. The negotiations will be resumed once the stock price returns to the level seen at the beginning of the negotiations. OHL and PBG also reconfirm their intention to continue cooperation in the area of procurement and execution of construction contracts in Poland and abroad.
“It is difficult to say when we will return to the negotiating table, but I am convinced that any postponement of the transaction with OHL will not have any adverse effect on PBG’s expansion plans. We will focus mainly on procurement of contracts in the power engineering, gas, infrastructure and hydro-technical engineering segments. In each of those areas we envisage a major role for Hydrobudowa as a construction company,” said Jerzy Wiśniewski, President and CEO of PBG.
Negotiations’ timeline
At the beginning of 2010, PBG commenced talks with OHL concerning the companies’ equity cooperation through acquisition by OHL of significant blocks of shares in Hydrobudowa Polska and Aprivia. In July 2010, PBG offered to sell 51% of shares in Hydrobudowa Polska for PLN 431m and 50.1% of shares in Aprivia for PLN 75m. The agreed price of PLN 4.01 per Hydrobudowa share was based on the average price of the company shares in the six months preceding the offer date, that is PLN 3.49 per share, increased by a 15% control premium.
In September 2010, the parties executed a Memorandum of Understanding outlining the agreed terms of the transaction. In accordance with the Memorandum, OHL commenced a due diligence review of Hydrobudowa and Aprivia. The due diligence having been completed, towards the end of December 2010, the parties concluded an agreement supplementing the Memorandum. Under the agreement, OHL confirmed its intention to acquire shares in Hydrobudowa and Aprivia, and in January 2011, the parties commenced negotiations on the detailed terms and conditions of a share purchase agreement.
“The issue looming over the negotiations during the most recent weeks has been the declining equity valuations of construction companies, including Hydrobudowa Polska. Since July 2010, when the offer to sell the shares was made, the price of Hydrobudowa shares has retreated by over 34%. Given the agreed purchase price of PLN 4.01 per share, the value of the transaction would exceed the valuation of Hydrobudowa on the WSE by 82%, which has practically rendered the transaction impossible to execute. The parties sought other solutions, but have finally decided to suspend the negotiations until the price of Hydrobudowa shares returns to the level seen at the beginning of the negotiations. Neither OHL nor PBG has an intention to break off the process; they only intend to suspend the negotiations,” said Przemysław Szkudlarczyk, Vice-President of the PBG Management Board.
PBG to proceed with its plans involving Hydrobudowa
At present, PBG intends to resume projects that have been put on hold in connection with the planned transaction with OHL.
“We have in place a strategy for Hydrobudowa that will enable us to optimally leverage our resources and improve efficiency and performance through consolidation of the PBG Group across business sectors. This will help us improve our capabilities as a general contractor and significantly reduce fixed costs,” said Jerzy Wiśniewski, PBG’s President and CEO.
The planned activities involve the merger of Hydrobudowa 9 with Hydrobudowa Polska, which is expected to be completed at the beginning of 2012. Also, there are plans for certain organisational changes to be implemented to minimise fixed costs and enhance efficiency of operations, for instance by outsourcing organised parts of Hydrobudowa’s business or closing own overlapping organisational structures, particularly in company administration.
Net profit of PLN 50m at the Hydrobudowa Polska Group in 2011 and strong prospects for increasing the value of the Group’s order book
For 2011 the Hydrobudowa Polska Group has forecast net profit of approximately PLN 50m, with sales revenue estimated at nearly PLN 1.6bn. Although this implies only a 1% rise in sales revenue, the expected year-on-year increase in net profit will be 37%. The forecast is rather conservative and is based, to a large extent, on the existing order book of the Hydrobudowa Polska Group.
Hydrobudowa has been expanding its order book since the beginning of the year. Most recent developments include execution of contracts for construction of the Słowacki route in Gdańsk with a value of nearly PLN 130m (VAT excl.) and for construction of an arena in Toruń with a value of PLN 99m (VAT excl.), as well as best-bidder positions in tenders for construction of a tunnel under the Martwa Wisła river in Gdańsk with a value of PLN 720m (VAT excl.), an interactive history museum of Ostrów Tumski in Poznań with a value of over PLN 39m (VAT excl.) and the sewage system in the Piekło and Antoniów districts of Dąbrowa Górnicza with a value of nearly PLN 52m (VAT excl.).
Cooperation with OHL on foreign markets
Hydrobudowa Polska and Aprivia will continue to be actively involved in OHL’s foreign projects. As consortium members, the companies are currently preparing joint bids in tenders in Romania (construction of motorways) and Canada (construction of sport arenas); they also seek similar contracts in Russia and Ukraine.
Furthermore, PBG and OHL cooperate in the crude oil and natural gas sector. The companies are preparing for joint execution of projects in Latin America and Asia.