The key to the success of the CIMIC bid could be UGL's exposure to the Icthys LNG project

The key to the success of the CIMIC bid could be UGL's exposure to the Icthys LNG project

Australian construction giant Cimic has launched a surprise AU$ 525 million (US$ 395 million) takeover bid for rival firm UGL.

Having already bought 13.4% of the company, Cimic has now offered AU$ 3.15 per share for the remainder, equating to a premium of 47% on UGL’s closing price of on Friday, October 7.

UGL’s shares slumped recently, following losses incurred from contracts on the Icthys liquefied natural gas plant project in Western Australia.

On revenue of AU$ 2.28 billion in 2015-16, the firm lost AU$ 106 million, but claimed that, taking the Icthys losses out of the equation, it made AU$ 33 million.

With this in mind, the UGL board has advised shareholders to reject the Cimic offer.

Furthermore, since the takeover bid from Cimic was announced, UGL shares have traded at a price above the Cimic offer.

Simon Mawhinney, the chief investment officer of Allan Gray Australia, which holds a 19.5% stake in UGL, said the bid could be seen as “opportunistic’’ because it was taking advantage of market disaffection with UGL’s poor recent earnings record.

Were it to gain control of UGL, Cimic has said it will “conduct a strategic review of UGL’s businesses in order to drive operational efficiencies and improvements to project delivery and analyse the composition and value of UGL's assets”.

It has also revealed plans to delist UGL from the stock exchange and “reconstitute” UGL’s board.

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