Pan-Asia Catalysts/Events, Quiddity Advisors

David Blennerhassett

HK Type 4 license through Ballingal Investment Advisors Ltd. 

I'm a highly experienced sell-side analyst with in excess of 22 years of covering Asia Pacific equities, the past 19 years immersed in event strategies encompassing M&A risk arbitrage, directional long/short, stub trades and restructuring.  

My background also includes accountancy (liquidation/bankruptcy/receivership) earlier in my career and as a chief financial officer of a global commodity company based in the US and Mexico.

Pan-Asia Catalysts/Events

WorleyParsons Entitlement Offering: Accretive Acquisition at O&G Inflection Point?

Quiddity Advisors

Event-Driven

<p>Following a report in the <a href="https://www.afr.com/street-talk/worley-makes-national-interest-pitch-as-dar-group-looms-20191015-p530ph" target="_blank" rel="noopener">AFR</a> (paywalled), <a href="https://www.smartkarma.com/entities/worleyparsons-ltd" target="_blank" data-smartkarma-citation="entities:178:1" rel="noopener">WorleyParsons Ltd (WOR AU)</a> has confirmed it is in discussions with Australia's Foreign Investment Review Board (FIRB) in regards to creeping acquisition by Beirut-based Dar Al-Handasah Consultants Shair and Partners Holdings Ltd (Dar Group), WOR's largest shareholder.</p>
<p>Some background context - on the 14 November 2016, Dar Group made an <a href="https://www.worleyparsons.com/news/2017/03-03-2017" target="_blank" rel="noopener">indicative proposal</a> to acquire all of the shares in WOR by way of a scheme of arrangement for a cash consideration of A$11.80/share.  WOR viewed the "highly conditional" Offer as materially undervaluing the company and that it was not in the best interests of shareholders. </p>
<p>On the 1 March, Dar Group <a href="https://www.asx.com.au/asxpdf/20170303/pdf/43gjm6p02110sm.pdf" target="_blank" rel="noopener">acquired</a> 13.45% in WOR with a right to increase its overall economic exposure to 19.9% in the near term, which it achieved on the <a href="https://www.asx.com.au/asxpdf/20171127/pdf/43plvjbw8sh67k.pdf" target="_blank" rel="noopener">27 November</a>. </p>
<p>Herein lies the rub - under s611, <a href="http://www5.austlii.edu.au/au/legis/cth/consol_act/ca2001172/s611.html" target="_blank" rel="noopener">item 9,</a> of Chapter 6 of the Corporations Act 2001, investors holding 19.9% can acquire up to 3% every six months - known as the "creep" exception.</p>
<p>Dar Group reached 22.89% on the <a href="https://www.asx.com.au/asxpdf/20180801/pdf/43wzn3sm7869sg.pdf" target="_blank" rel="noopener">31 July 2018</a>. </p>
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<p>WOR subsequently <a href="https://www.asx.com.au/asxpdf/20181022/pdf/43zgvnvh1zkctj.pdf" target="_blank" rel="noopener">announced</a> on the 22 October 2018 the acquisition of the energy, chemicals, and resource division of <a href="https://www.smartkarma.com/entities/3767" target="_blank" data-smartkarma-citation="entities:3767:1" rel="noopener">Jacobs Engineering Group (JEC US)</a>, for a cash and debt-free total enterprise value of US$3.3bn (A$4.6bn). Simultaneously, WOR announced the acquisition would be funded via an A$2.9bn non-renounceable entitlement offer and A$985mm of stock issued to Jacobs at the theoretical ex-rights price or A$16.92, of the entitlement offer (1 share for every 1.47 held), which will itself be done at A$15.56. It also involved WOR taking on new debt.</p>
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<p>As <a href="https://www.smartkarma.com/profiles/travis-lundy" target="_blank" data-smartkarma-citation="accounts:25" rel="noopener">Travis Lundy</a> discussed in his insight (<em><a href="https://skr.ma/u7Fha" target="_blank" rel="noopener">WorleyParsons' Giant Makeover</a></em>) at the time, the question for investors at the time was whether this investment was late economic cycle desperation for growth, an anti-takeover measure (against Dar Group), or was it picking up a decent business with rising backlog at the low-margin point of its cycle.</p>
<p>Regardless, Dar Group has continued to accumulate. WOR has now <a href="https://www.asx.com.au/asxpdf/20191016/pdf/449k0bz5jmy8ys.pdf" target="_blank" rel="noopener">taken its case</a> to FIRB to contain further share acquisitions.</p>
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<p>More detail below.</p>
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<p><em>Please see the <a href="https://skr.ma/vfAwp" target="_blank" data-smartkarma-citation="insights:29174" rel="noopener">Quiddity Australia M&amp;A Guide 2019</a> for more details on the ins and outs (and foibles) of Australian rules, regulations, and practices in M&amp;A. For other guides in the series, click <a href="https://www.smartkarma.com/search?q=quiddity%20M%26A%20guide%202019" target="_blank" rel="noopener">here</a> and scroll down to where the highlighted titles appear.</em></p>
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Following a report in the AFR (paywalled), WorleyParsons Ltd (WOR AU) has confirmed it is in discussions with Australia's Foreign Investment Review Board (FIRB) in regards to creeping acquisition by Beirut-based Dar Al-Handasah Consultants Shair and Partners Holdings Ltd (Dar Group), WOR's largest shareholder.
Some background context - on the 14 November 2016, Dar Group made an indicative proposal to acquire all of the shares in WOR by way of a scheme of arrangement for a cash consideration of A$11.80/share.  WOR viewed the "highly conditional" Offer as materially undervaluing the company and that it was not in the best interests of shareholders. 
On the 1 March, Dar Group acquired 13.45% in WOR with a right to increase its overall economic exposure to 19.9% in the near term, which it achieved on the 27 November. 
Herein lies the rub - under s611, item 9, of Chapter 6 of the Corporations Act 2001, investors holding 19.9% can acquire up to 3% every six months - known as the "creep" exception.
Dar Group reached 22.89% on the 31 July 2018. 

WOR subsequently announced on the 22 October 2018 the acquisition of the energy, chemicals, and resource division of Jacobs Engineering Group (JEC US), for a cash and debt-free total enterprise value of US$3.3bn (A$4.6bn). Simultaneously, WOR announced the acquisition would be funded via an A$2.9bn non-renounceable entitlement offer and A$985mm of stock issued to Jacobs at the theoretical ex-rights price or A$16.92, of the entitlement offer (1 share for every 1.47 held), which will itself be done at A$15.56. It also involved WOR taking on new debt.


As Travis Lundy discussed in his insight (WorleyParsons' Giant Makeover) at the time, the question for investors at the time was whether this investment was late economic cycle desperation for growth, an anti-takeover measure (against Dar Group), or was it picking up a decent business with rising backlog at the low-margin point of its cycle.
Regardless, Dar Group has continued to accumulate. WOR has now taken its case to FIRB to contain further share acquisitions.


More detail below.



Please see the Quiddity Australia M&amp;A Guide 2019 for more details on the ins and outs (and foibles) of Australian rules, regulations, and practices in M&amp;A. For other guides in the series, click here and scroll down to where the highlighted titles appear.


WorleyParsons Ltd

WorleyParsons Gets That Creeping Feeling