Now that WSP has been knocked off the table with a bid 10% higher than its own by British firm RPS, the Montreal engineering firm has a choice to make: surrender or outbid.
Posted yesterday at 2:51 pm
“It’s the ultimate test of discipline,” says analyst Maxim Sytchev of National Bank Financial.
WSP last month announced a deal with RPS management, a transaction worth close to $1 billion.
This massive takeover project has now been compromised by the RPS board’s acceptance of a competing offer from Tetra Tech, a NASDAQ-listed California company.
The contract concluded between WSP and RPS did not provide for severance pay in the event of termination of the contract.
WSP had revealed last month that the acquisition of RPS should allow it to increase its earnings per share by between 15 and 20% due, in particular, to the expected synergies.
In the eyes of analyst Frédéric Bastien, from the firm Raymond James, the interest generated by RPS demonstrates the importance of activity around climate change and the energy transition for consultancies.
WSP management said Monday that it was reviewing its options. “A new announcement will be made in due course,” the directive limited itself to indicating.
Giving up is never an easy decision to make, but it’s probably the right thing to do here.
Shares of RPS on the London Stock Exchange traded at a higher price than Tetra Tech’s offer on Monday, suggesting investors are expecting a higher offer.
“I can see the merit in a scenario where WSP comes up with an improved offer,” says TD’s Michael Tupholme.
However, to outbid Tetra Tech and acquire RPS, WSP would have to bid at least 10% higher than Tetra Tech’s.
According to analysts, WSP has the means to improve its offer. Benoit Poirier of Desjardins Securities reckons that a 10% premium to Tetra Tech’s proposal would “only” result in an additional roughly CAD123m to be paid given the recent sterling weakness in the foreign exchange market.
The analyst Chris Murray of the firm ATB Capital Markets, for his part, welcomes the reversal of the situation with astonishment.
He points out that in the past, WSP leaders have been able to avoid putting themselves in a superior position. “WSP has a long history of closing pending transactions which I attribute largely to management’s attention to shared values with those of the managers of their acquisition targets. »
Chris Murray calls the situation a “modest setback” for WSP. “RPS needed to strengthen the company’s environmental services business. While the transaction represented a significant step towards achieving WSP’s 2024 financial goals, the terms of the deal exceeded historical levels and were expected to impact margins. »
WSP had announced in March that it was aiming to generate net income of 10 billion by 2024. They reached 7.9 billion for fiscal year 2021.
WSP bosses are constantly in discussions with the leaders of multiple potential targets, stresses analyst Maxim Sytchev. “I have no doubt that WSP will be able to achieve its growth objectives without RPS. »
Shares of WSP ended Monday down 2% at $149.25 on the Toronto Stock Exchange.
Maxim Sytchev doesn’t wait to find out if WSP will throw in the towel or not and adjusts his assumptions to no longer take RPS into account. You are lowering your target to $181 for the stock in 12 months. It was $188 before Tetra Tech came on the scene.
WSP CEO Alexandre L’Heureux said Press last month that he had been chatting with RPS for four years and that the stars had “finally aligned”.
RPS has a workforce of approximately 5,000 employees. This consultancy business generates most of its €875 million turnover in the UK and Australia, but it also has a significant presence in the Americas. Approximately two-thirds of its income comes from environmental services or related to wastewater treatment.
WSP specified last month that the planned acquisition of RPS would be financed in particular with the help of its two main shareholders, namely the Caisse de depot etplacement du Québec and investment from the Office d’Canada pension plan.
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