(Update) Shares in John Laing Infrastructure (JLIF) have soared over 18% after the company revealed it was prepared to accept a cash offer from fund managers Dalmore Capital and Equitix.
Shareholders, who include wealth managers, multi-asset fund managers and private investors, could receive 142.5p per share in cash and a 3.57p dividend before the transaction completes, if negotiations with the consortium are successful.
JLIF shares jumped 21.4p to 139.6p just short of the total offer price of 146.07p which has been pitched at 23.6% more than the investment company’s closing price of 118.2p per share on Friday.
The offer also represents a 19.8% premium to JLIF’s last published net asset value of 121.9p per share on 31 March.
Today's spike takes the 5.9% yielding stock back to the 12-month high it reached last September before Labour shadow chancellor John McDonnell upped his attack on the use of private finance initiatives (PFI) in the public sector.
In a statement JLIF said: ‘Following a period of negotiation with the consortium, the board of JLIF have indicated to the consortium that it is minded to recommend a firm intention to make an offer for JLIF if made by the consortium on the terms set out in this announcement.’
It follows a year in which JLIF and other listed social infrastructure funds have fallen in response to Labour’s hostility to PFI financing, which most of the funds invest in, and from the costly collapse of Carillion, a public sector contractor which several of them used to manage some of their hospital and public sector facilities.
HICL Infrastructure (HICL) shares bounced 5.5% higher on the news but subsided to close 4% or 6p up at 150.5p.
By contrast International Public Partnership (INPP) extended its early gain to advance 6.4p or 4.5% to 148.8p at Monday's close.
Analysts said the bid approach underlined the value in the high-yielding infrastructure funds whose shares have de-rated, shedding their previous premiums to trade at discounts of between 2% and 4.5% below their estimated net asset values (NAV).
There was immediate speculation over whether a counter bidder could emerge for JLIF or if the bid approach was a knock-out blow that would deter rivals.
Emma Bird of Winterflood Investment Trusts said while the near-21% premium of the main offer to Friday' closing price might seem high, it was less generous against the 10% premium at which the shares traded at just a year ago.
Nevertheless, she was surprised the board seemed prepared to take the first offfer so quickly. 'The rationale for this will no doubt become clearer with time, but we suspect that the fact that the premium is equivalent to several years of returns while removing political risk to shareholders is not insignificant,' Bird said.
Matthew Hose of Jefferies said HICL could in theory mount a bid given the overlap its UK, PFI-weighted portfolio shared with JLIF. However, to do so would require its shareholders to stump up a significant amount of cash having supported two big fund raisings last year and with its own shares having only regained a modest premium rating today from today's bid speculation
'More likely would be other private capital funds or pension funds,' he said. 'However, we shouldn't underestimate the knowledge base of the incumbent bidders Dalmore Capital and Equitix as both parties are already highly active participants in the UK PFI sector, and so will have bid for many of JLIF's contracts at an earlier stage.'
Dalmore and Equitix are both infrastucture fund managers serving institutional investors and local authority pension schems. Their bid would be made through a new, jointly owned company.
Equitix is owned by Tetragon Financial Group (TFG), a global alternative investment company that has built a platform of specialist fund managers.
John Laing (JLG), the construction group that owns JLIF’s fund manager, John Laing Capital Management, gained 2.3% to 28op even though it could lose lucrative management fees if JLIF is swallowed up.
JLIF lists its main sectors of investment as health, education, justice & emergency services, transport and goverment buildings. For example, it owns 26% of Modus Services which has a 30-year contract to run the Ministry of Defence headquarters in Whitehall.