Macmahon's takeover offer

CIMIC, formerly Leighton Holdings, has made a takeover offer for Macmahon Holdings, a member of our mining services mini portfolio. CIMIC is offering 14.5 cents for each Macmahon share in an unconditional bid.

That's a 30% premium to Macmahon's previous traded price and values the business at $170m, a near 20% discount to the company's net tangible assets. Ordinarily, we would expect such a modest bid to be met with resistance or a rival bidder but this might be an exception.

Still recovering from a debt-induced implosion and near collapse, Macmahon has been through several managers. The board is considering the bid and hasn't yet made a recommendation, but it could make sense to sell out while commodity prices are high.

As CIMIC already has a 20% equity stake in the business, a rival bidder is unlikely to disrupt proceedings either. CIMIC itself cannot increase the offer unless a rival bid is made.

For the moment, this is the best price on offer even if it does value Macmahon at less than six times earnings before interest, tax, depreciation and amortisation (EBITDA).

The business is hardly a growth engine but it does hold over $50m in net cash, has several secure contracts and many of its clients are again opening their wallets. It's a shame to let the stock go so cheaply but options are limited. We're also cognisant that several recent bids have failed – Ozforex and Bradken shareholders are still bruising heavy losses after takeover bids fell through.

Macmahon is a fragile business in a volatile industry. It's probably not worth risking a large fall for a slight gain especially when the share price matches the offer price. SELL. 

Disclosure: The author owns shares in Macmahon.