WOR - Worley Group - what to do?

[stephen]

I hold a bunch of WOR and have been pretty happy - a 20% rise in share price in the last 9 months since I bought, and a wee dividend as well.

Today it seems they will be acquiring another, equally large company, paying for it in three ways: issuing debt, an "institutional placement" of shares, and a rights issue. They say the debt ratio of the new entity will be about 25%.

So: there has to be a way to figure out whether the rights issue is worth taking up, and what the value of shares in the new entity will be. But I don't feel I have the finance-fu to work this out properly. Any suggestions on a working approach would be much appreciated.

Stephen

[OldRider]

At this stage I haven't seen that it is to be a rights issue,possibly will be another SPP, up to A$5000 per shareholder,I guess we will find out soon enough.Can't remember where I got this impression from,but as well that price would be near or at $3-60 which apparently was the placement price to institutions.

This was one of my picks for the ASX comp so has been worthwhile,just a little concern over their involvement in Iraq though.

My own valuation is $3-99 which is close to the current price with a sell at $4-73 so they are not a real bargain.If the price is set close to $3-60 I guess I will buy more.

PE=19, EPS 20.6, price 7.88 * NTA, DY 2.99%
My relative value 24.97 - over 25 is a buy

DISCL: Holder or WOR

[SEC]

Oldrider, did you peruse the presentation sent to the ASX? It stated the SPP allotment would be 2 for 9. No monetary maximum.

Also, I find historical PEs worthless when estimating fair value. Forecast PE for WOR was 14 prior to the acquisition. If the bookbuild price is 360 odd, this won't change much due to the dilution effect of the new shares.

I intend to take up the maximum allowable amount. It's a case of damned if you do, damned if you don't. If I don't, UBS will get them for 360 and sell them to the market straight afterwards, suppressing the price.

Hopefully the bookbuild proves popular and something like 380 is obtained.

SEC (WOR holder)

[OldRider]

SEC:I have not seen the ASX presentation,if as you say, then it is to be a tradeable rights issue not an SPP. I can't recall the source of my information, but certainly from internet,most probably a news item. I also got the impression the bookbuild had been completed at $3-60.Though seems possible I have got it wrong. Won't be long before we know for sure,but I agree with your view.

Both revenue and operating margin have been growing over the last few years,so your forward PE of 14 could easily be conservative if this is maintained.

[SEC]

Oldrider, I don't know if it's a rights issue as such. Here's the relevant section from the presentation:

Up to 15% placement and 2 for 9 Entitlement Offer

Entitlement Offer is non-renounceable and Entitlements are nontransferable

Institutional offer via bookbuild on 7th and 8th October

Bookbuild underwritten at $3.60

Founder shareholders already committed
Total founder subscriptions for approximately $39 million
John Grill will participate for $13 million, approximately 56% of Entitlement

Balance of founder shares to be offered into the bookbuild

Applications under a
Public Offer can only be satisfied to the
extent there is a
shortfall in subscription under the Entitlement
Offer


I read it as a SPP up to a maximum of 2:9, non-transferable but underwritten.

SEC

[OldRider]

SEC: Thanks for that,you seem to have got it better then me. Slightly unusual way though, and it doesn't give much choice whether to pay up for some more.Just as well there have been a lot of divvies both last and this month so bank can manage.

[SEC]

I think it's a compromise between a rights issue where the right to purchase discounted shares is fully transferrable and a SPP, non transferrable but usually capped at $5K. I prefer this system since a rights issue always sees the share price drop, and at 2:9 I can purchase more than $5K worth of shares in the SPP.

SEC

[SEC]

Holy **** the placement price was 410!!!!!

This sort of demand should see the market price up at least 10% on Monday to 430 - 440.

Apparently JP Morgan now values the stock at 485.

SEC

[OldRider]

I presume there was a trading halt,as I noticed
bids well above offers late yesterday, near $4-30
if I recall correctly, but thought it was only someone making sure they got some on open.

Seems this could well be round the trading level next week - what price now for the SPP?. Apparently expected growth is higher than even than last year, makes my ideas of value a bit silly,but I can live with that seeing I already hold the stock.

[SEC]

Oldrider, the SPP will be at the same price as the placement - 410.

For the instos to pay 410 for the placement and expect to take up their 2:9 entitlements they're expecting the market price to open well north of 410 on Monday.

SEC