Kier confirms Mouchel takeover

Kier has stepped up a gear on its road to expansion. On Tuesday, the FTSE 250 building group said it 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, which will include taking on Mouchel's £40m net debt, and £45m of net pension liability.

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

"The combination of Kier and Mouchel, particularly in the provision of UK highways maintenance services, 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 new shares for every seven existing shares currently owned. This represents a 34.3 per cent discount to Kier's share price before today's announcement.

Kier had first approached Mouchel about a possible takeover in December, as it looked to expand its road 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 the acquisition would enhance its earnings for the coming financial year and that it was expected to deliver synergies of £10m per year by 2017.

Kier is the fifth-biggest recipient of contracts from the UK Highways Agency. In the six months to the end of December, its group revenue rose more than 10 per cent to £1.6bn, and underlying operating 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 its banks 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 £300m to £400m for the business, according to people familiar with their plans.

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Whitman Howard analyst Stephen Rawlinson said: "Strategically, this is a good move for Kier. It provides it with even greater exposure to UK roads, particularly strategic highways rather than with local roads in which it is the UK's largest operator, enhancing its exposure to higher added value work 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, following sharp cuts since the Conservative-Liberal Democrat coalition came to power in 2010.

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