Why Did WorleyParsons Ltd Shares Jump more than 30%?

On 28 February, WoleyParsons Ltd [ASX:WOR] traded up 31.81% to $10.65. It was a massive jump for the billion dollar design consultancy company. In just one day, investors added $810 million to the company.

Not a bad day of trading, hey?

What happened?

Before WOR’s spike in shares, the press rumoured a takeover. The takeover would be between a private architecture and engineering firm and WOR.

Well, it turns out the rumours were right.

On 27 February, WOR said they had received a confidential, highly conditional, indicative proposal from Dar Group. The proposal of $11.80 per share was made on 4 November, 2016.

That means Dar Group was willing to pay $2.93 billion when WOR was worth $1.98 million at the time.

The offer was ‘highly conditional in relation to financing, due diligence, process, regulatory and other conditions,’ WOR said. This ‘created significant execution risk and uncertainty for the Company.

Also on the same day, Dar Group became a substantial shareholder of WOR. The private firm bought 13.35% of WOR’s outstanding shares.

What happens now?

Will the takeover happen? It doesn’t look that probable in the short-term.

Since the offer in November 2016, WOR’s Board hasn’t engaged with Dar Group. They haven’t discussed further purchase of stocks or any other takeover for that matter.

One of the conditions for a WOR takeover was unanimous support from the board. Since this hasn’t happened, Dar Group hasn’t sought to pursue negotiations. Instead they have a ‘long-term strategic perspective [on WOR] and looks forward to being a supportive shareholder’.

This doesn’t mean they will give up on acquiring WOR. Dar Group obviously like the business, and believe it is potentially worth more than it trades for. Its why WOR’s share opened so high on 28 February. Investors bought on Dar Group’s valuation of WOR.

If you’re looking to make a quick buck off WOR you may have already missed your chance. Its unlikely WOR’s share price will run up 30% in the short-term. Even if Dar Group acquires WOR, the price they will pay won’t be dissimilar from WOR’s current share price.

But WOR could be attractive based on a long-term view. Earnings are low on a five year basis. But the company could be turning the business around. From 2012–current, shares have slipped 64.43%. This is likely due to falls in earnings.

If WOR can build earnings back up to levels of around $450 million, the stock might be worth holding for the long-term.

Regards,

Harje Ronngard,

Junior Analyst, Money Morning

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