Bell tolls for John Laing: Infrastructure champion has rolled over too quickly for private equity predators, says ALEX BRUMMER
Private equity pioneers KKR, the original ‘Barbarians at the Gate,’ want stakeholders to believe they are doing them a huge favour by offering £2billion for British infrastructure giant John Laing.
As with so many recent private equity deals for FTSE 250 companies, the premium to the current share price of 33 per cent looks generous.
But when one takes account of the hit from Brexit and the pandemic, the discount starts to look much thinner.
Takeover bid: Private equity pioneers KKR, the original ‘Barbarians at the Gate,’ want stakeholders to believe they are doing them a huge favour by offering £2bn to buy John Laing
The strength of John Laing is its ability efficiently to deliver big infrastructure projects through public-private partnerships.
Among its tangible achievements in the UK are the second Severn crossing and some of the UK’s big motorway projects.
In recent times, as public-private partnerships have found less favour in Whitehall, Laing has taken its engineering and project management skills overseas, working on projects in Australia and North America.
With the Biden Administration aiming for a big upgrade of US infrastructure from bridges to airports and railways, the opportunities for John Laing skills could be considerable.
The overseas earnings capacity for the UK, as it looks to put its expertise to work globally, looks considerable.
KKR’s infrastructure arm says nothing will change after the deal and the company founded in Carlisle in 1848 will remain rooted in Britain.
Headquarters and management will remain intact. All that will happen is that John Laing will be de-risked by having greater access to capital, allowing it to manage more and bigger projects. It sounds like an enticing prospect.
Chairman Will Samuel and the board look to have accepted this at face value and short of rolling out the red carpet could not be more welcoming.
Samuel argues that while the board has faith in management it worries that many ‘initiatives are at early stage development’ and have execution risk.
If every engineering and construction group showed so little confidence in the ability of its executives and project managers to bring infrastructure to fruition nothing would be built.
Because Laing will become part of an infrastructure fund, the theory is that it will be left untouched. That’s a proposition which is hard to swallow.
We know from many other private equity-backed deals that pledges made at the time of takeover rarely are enforceable.
The object of the buyer is to use leverage, or debt, to the best effect and to use the privilege of opaque ownership to strip out costs and jobs.
John Laing has rolled over too quickly and hasn’t bothered with the pretence of conducting a public auction to encourage a higher price.
As a former director of Schroders, Samuel is presumably confident that his former employers, who hold 9pc of John Laing equity, will do what he wants and help the deal over the line. But you can never tell.
The emergence of British Steel owner Jingye as possible buyer for Sanjeev Gupta’s Liberty Steel plants in the UK could be a life-saver for Business Secretary Kwasi Kwarteng.
He rightly has refused to have any direct dealings with Gupta, whose business and financial affairs are the subject of a Serious Fraud Office investigation.
Kwarteng’s approach has been to let the constituent companies fall into the hands of the Official Receiver and financially support trading until a suitable buyer can be found.
Even though there is a global steel shortage, which has forced up the price of speciality metals, there is no queue of buyers.
The difficulty is that the backlash against China on the Tory benches from foreign policy hardliners such Tom Tugendhat makes for some uncomfortable decisions.
At the very least one would expect Kwarteng to invoke the new National Security & Investment Act, since steel must be regarded as strategic industry.
Jingye’s involvement will be a real test of resolve for the Government.
City regulator the Financial Conduct Authority warned of the risks of consumers piling into bitcoin in January.
Its worst fears of citizens nursing heavy losses are being borne out before our eyes with the price of the cryptocurrency plunging more than 50 per cent in the last two weeks.
Elon Musk’s sudden reversal on bitcoin payments followed by China’s curbs have triggered an implosion. Not before time.