Forge Group shareholders have today approved a placement to fellow engineering and construction company Clough despite the late emergence of a competing proposal that was pitched at a higher share price.
Forge Group shareholders have today approved a placement to fellow engineering and construction company Clough despite the late emergence of a competing proposal that was pitched at a higher share price.
The competing bidder had asked for today's shareholder meeting to be deferred so that it could conduct due diligence on Forge.
Shareholders rejected that motion on a show of hands and proceeded to support a placement of 10.2 million shares to Clough, which had already secured commitments from directors and shareholders of Forge.
Forge disclosed this morning that the competing non-binding proposal was for 100 per cent of the company and was from a S&P/ASX 100 company.
Potential alternative bidders that fit this description include Sydney-based groups Leighton Holdings, Downer EDI and UGL (formerly United Group).
Forge said the alternative proposal was a mix of cash and scrip and was pitched at a price below the current market price but at a premium to the price offered by Clough.
At the end of February, Clough announced it was set to invest up to $98 million to potentially acquire a 31 per cent stake in Forge.
The acquisition served as the foundation of a strategic alliance allowing both companies to leverage complementary services in the oil and gas, mining and civil infrastructure sectors.
The Clough deal was struck at a price of $1.90 per Forge share but since being announced the share price has climbed as high as $3 per share.
Speaking to WA Business News after today's meeting, Forge managing director Peter Hutchinson said the company was "very happy with the outcome of this morning's meeting".
"This is what we set ourselves to do six weeks ago ... people are starting to see the benefits of (the Clough alliance) already," he said.
"I think the shareholders felt very strongly that we've got a bird in the hand that solves a lot of our problems - the strategic alliance is a good outcome for Forge."
Nonetheless, he said the board still had an obligation to determine whether the alternate bidder was still interested in pursuing its proposal and potentially coming up with a superior offer.
"One of the conditions of that (competing) proposal was that this placement does not proceed, so we'll need to re-engage with the bidder to see if it wishes to continue," Mr Hutchinson said.
The Forge board said on Thursday the competing proposal could "reasonably be considered to become a superior proposal and that it must enter into discussions and negotiations with the counterparty".
In a separate statement, Clough said on Thursday it had been notified and would consider details of the competing proposal when known.
However Clough said details of its call option agreements with certain major shareholders of Forge in respect of 19.99 per cent of Forge's issued shares would also be provided to the market.
"Clough's ability to call the shares under these agreements is not impacted by competing proposals, whether or not they are considered by the Forge board to be superior," Clough said in the statement.
Considering these call option agreements it would seem Clough remain poised to become a substantial shareholder in Forge regardless of the outcome of a shareholder meeting originally slated to occur this morning before being postponed to the end of the month.
Under the original deal Clough planned to invest almost $19.5 million through a share placement of 10.25 million Forge shares, at a discounted $1.90 each, and then intended to make a proportional takeover of $2.10 per share to Forge shareholders for 50 per cent of their shares in Forge, subject to shareholder approval and completion of the placement.
"Clough has entered into call option agreements with the Major Shareholders in respect of 19.99 per cent of the issued shares of Forge at a price of $2.10 per share," the strategic alliance announcement stated.
Last month Forge's board seemingly favoured the placement as directors and certain major shareholders, holding a 41.9 per cent interest in Forge, indicated their intention to vote in favour of the placement and accept the takeover offer, giving Clough the 31 per cent stake in Forge and triggering the strategic alliance.
At the time Clough chief executive, John Smith and Mr Hutchinson were both excited by the potential of the new strategic alliance.
"Forge has grown substantially in the two and a half years since listing on the ASX and the time is right to partner with a major contractor to take our business to the next level," Mr Hutchinson said.
"We have considered a number of alternatives and believe that Clough is the best fit for the Forge business."
Mr Smith said Forge and Clough would work together, on a case by case basis, providing clients with greatly enhanced engineering, procurement and construction capability and capacity relative to the oil and gas market, in particular for domestic, conventional LNG and coal seam gas projects.
"The potential of this win-win relationship will accelerate the opportunities for both parties, individually and in partnership, to participate in future project spend," Mr Smith said.
Forge's share value has been catapulted as much as 33 per cent by these recent announcements, climbing from $2.25 at the end of February to close at $2.95 last Thursday.