Well the saga continues. Mouchel has now rejected both bids on the table from Costain and Interserve, after both companies reduced their offers for Mouchel following due diligence on the company. Costain, which tabled its third offer on 21 January (see Costain – third time lucky for Mouchel), reduced the cash component of this offer by 26% (effectively reducing the previous offer of c£172m to c£164m) and removed the entitlement to a final dividend. Meanwhile, Interserve, which emerged as the other bidder on 25 February (see here), tabled a reduced cash and shares offer of 135 pence, valuing Mouchel at c£151m. Mouchel came back fighting, saying that Interserve's revised offer “significantly undervalues the business”, and that Costain's offer “has an unacceptably high level of execution risk to warrant further discussions.” Shareholders weren't too happy with the news, and lopped 31% off Mouchel's share price.
Mouchel also reported H1 results for the six months ended 31 January, with revenue down 13% to £270.3m, and pre-tax losses of £1.5m vs. losses of £3.5m in H110. Mouchel is working hard to sort out its troubled finances. It has managed to secure its much needed financing, worth £170m over 3 years, and reduced costs by c£32m. It is also reducing its debts (net borrowings were down 16% to £96.9m). And having agreed the terms with “an investment partner” for its Middle East business, and made plans to dispose of certain “non-core businesses in the UK", more costs are likely to be taken out in the near term. Nonetheless the outlook isn’t too rosy, with Mouchel’s business heavily government-weighted, and pressure on costs coming from all sides.
Its supposedly more resilient BPO business is also being impacted. Revenue for long-term outsourcing contracts was down 7%, and margins were also hit – down c1% - although specific numbers weren’t provided. Headcount from the Government and Business Services division (in which the BPO operation sits) also declined 4% to 4,023, despite the inclusion of staff transferred in under the Bournemouth Borough Council contract (see Mouchel secures Bournemouth BPO deal), and revenue here fell 6% to £105m (underlying profits were £4.5m vs. £7.5m).
It seems that Mouchel still has some considerable work to do to iron out all of its problem areas. And certainly there was something in the due diligence that prompted Interserve and Costain's reduced offers. We wait with interest to see if one or both returns for another go.