Kier confirms Mouchel takeover

Newdirection: Mouchel employs 6,500 in six countries including the UK, Australia and the Middle East

Kier has stepped up a gear on its road to expansion. On Tuesday, the FTSE 250 building group saidit would acquire Mouchel, which maintains a third of Britain's highways, in a £265m all-cash deal.

Kier said it aimed to raise £340m in a fully underwritten rights issue to fund the acquisition, whichwill include taking on Mouchel's £40m net debt, and £45m of net pension liability.

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Combined, the two businesses will service about 44,000km of all UK roads, and 28 per cent of thecountry's strategic road network.

"The combination of Kier and Mouchel, particularly in the provision of UK highways maintenanceservices, creates a leader in a growing marketplace," claimed Kier chief executive Haydn Mursell.

Under the rights issue, new shares will be offered at 858 pence per new share, on the basis of 5 newshares for every seven existing shares currently owned. This represents a 34.3 per cent discount toKier's share price before today's announcement.

Kier had first approached Mouchel about a possible takeover in December, as it looked to expand itsroad building and maintenance business.

By completing the deal, it will create a new enlarged group with a combined order book of £9.3bn,comprising Kier's order book of £6.5bn and Mouchel's order book of £2.8bn. Kier said theacquisition would enhance its earnings for the coming financial year and that it was expected todeliver synergies of £10m per year by 2017.

Kier is the fifth-biggest recipient of contracts from the UK Highways Agency. In the six months tothe end of December, its group revenue rose more than 10 per cent to £1.6bn, and underlyingoperating profit was £44m -- in line with the prior year.

Mouchel employs 6,500 staff in six countries including the UK, Australia and the Middle East,maintaining roads and managing payrolls for local authorities. But it has been in the hands of itsbanks since 2012, after a £4.3m black hole was discovered in its accounts.

Its owners -- Royal Bank of Scotland, Barclays and Lloyds Banking Group -- had been seeking £300mto £400m for the business, according to people familiar with their plans.

On completion of the transaction in June, Mouchel chief executive Grant Rumbles will stand down.Mr Mursell will become CEO of the expanded group.

Whitman Howard analyst Stephen Rawlinson said: "Strategically, this is a good move for Kier. Itprovides it with even greater exposure to UK roads, particularly strategic highways rather than withlocal roads in which it is the UK's largest operator, enhancing its exposure to higher added valuework with UK Local Authorities and a thriving Mouchel joint venture in Australia with EDI Downer."

Spending on UK infrastructure -- including -- has fallen by at least £15bn from its peak, followingsharp cuts since the Conservative-Liberal Democrat coalition came to power in 2010.

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