Liberum downgraded its recommendation on shares of John Laing to ‘hold’ from ‘buy’ after the infrastructure investor confirmed it was in talks with private equity firm KKR about a possible takeover.
The broker, which lifted its price target on the stock to 380p – the price at which it expects a bid – from 350p, said it was not surprised that KKR sees value in the company.
“They could be accused of being opportunistic,” Liberum said, adding that “others may gate-crash the party creating a competitive tension”.
However, it said that low risk assets generally get low returns. “Normal take-over premia across the market might be 30%,” the broker said. “But we agree with an industry insider who told us ‘20% would be a great result for Laing’s shareholders’. Similar companies tend to trade at circa 10% of NAV.”
Liberum said a higher price might be achievable if the buyer can generate synergies.
“The likely buyer of John Laing would probably provide deep pockets, flexible finance and a low cost of capital. A buyer could pay a bigger premium if it believes that John Laing’s management team provides the rare skills to access significant investment opportunities in the infrastructure market.”
At 1000 BST, the shares were down 3.8% at 365.40p, having surged a day earlier on news of the deal talks.