Shares in takeover target Norfolk Group were up strongly today after bad news on a contract termination was outweighed by the disclosure that its takeover price could be nearly twice the 38 cents per share announced earlier this week by suitor RCR Tomlinson.
Norfolk announced today that GE Transport had terminated “for convenience” a rail signalling contract for Fortescue Metals Group's rail duplication project.
The termination will debt Norfolk's current-year profit but also has a bearing on the takeover pricing, which is linked to Norfolk's “uncollected working capital” from claims and variations for several contracts for prior periods or current contracts.
At current book value, that working capital is about $74 million.
Norfolk said today it was negotiating a settlement of its claims in relation to the GE contract and forecasts it could impact earnings. As a result, Norfolk has revised down its earnings before interest and tax guidance for the 2013 financial year to between a loss of $20 million and $30 million.
Underlying EBIT guidance from continuing operations for the same period remain at between $20 million and $22 million.
In addition, Norfolk said as it continues to quickly assess and resolve claims - preferably by settlement - it would be unlikely the $74 million uncollected working capital estimate would be reached.
“The company currently expects, after impairment, that the collection of the uncollected working capital will be in the range of $39 million and $49 million,” Norfolk said in a statement today.
It spells possible good news for Norfolk shareholders, who are expected to receive the proceeds from the working capital on top of the 38 cents per share indicative offer price from RCR.
Norfolk said that within the lower uncollected working capital range, shareholders could expect to receive an additional 24 cents to 30 cents per share.
Shares in Norfolk, which came out of a trading halt today, climbed 6c to 51.5c at 1251 AWST.
RCR is currently conducting due diligence on Norfolk, anticipated to finish next week, which could result in a variation of the 38c per share offer price depending on Norfolk’s net debt position (separate from any variation arising from its working capital position).
The debt position is estimated at around $78 million.
