Last week John Laing Infrastructure Fund (JLIF) offered £1bn cash for Balfour Beatty’s portfolio of private finance initiative (PFI) and public private partnership (PPP) investments.
After consideration, the Board of Balfour Beatty decided that the offer fell ‘significantly short’ of its own valuation of the assets.
Although the directors' valuation of the PPP portfolio stood at £1.05bn as at 28th June 2014, Balfour directors reckon that the way it sells each asset as it reaches maturity, and given the current and expected future strength of the market, it would take more than the current valuation to persuade them to sell.
In October Balfour Beatty sold its 50% interest in the Pinderfields & Pontefract Hospital PPP project in West Yorkshire for a 28% premium above book valuation.
Balfour Beatty said that it would now prepare an updated directors' valuation of the portfolio in January 2015 and seek to provide an indicative value range for the current investments pipeline. In combination, these will set out the board's view of a market value for the existing PPP portfolio and the pipeline.
While this move suggests a desire to draw a higher offer for the investment portfolio, the board simultaneously counteracted this by saying that the PPP business was integral to group strategy and operations. Selling the portfolio would devalue the remaining construction and support services business it said, suggesting that the directors would prefer to receive a more substantial offer for the whole business, rather than one that breaks it apart.
Balfour Beatty’s board statement said: “The strategic value and synergies from owning the current Investments business – both the PPP portfolio itself and the skilled team that operates and develops the business – is material to the Balfour Beatty group as a whole. The Group's Construction and Support Services businesses derive real value from the Investments business being in the group, something which needs to be taken into account in valuing the group as a whole, and in evaluating any proposal to acquire the Investments portfolio or business alone. This has not been a factor in rejecting the JLIF proposal, given the substantial valuation gap versus the board's view of realisable value. Nevertheless, these broader synergistic benefits are of real value to shareholders, and will be further commented on at the time of publishing the January 2015 directors' valuation.”
Separately, Balfour Beatty said that the review of projects in the UK Construction business being conducted by KPMG was well progressed and field work would be completed by the end of the year. KPMG will deliver its report and recommendations to the board in January, by which time new chief executive Leo Quinn will be in post.