The Shard skyscraper and Saint Paul's Cathedral in London on June 16, 2012.Reuters
Canadian engineering giant WSP Global Inc. WSP-T is weighing its next move after being outbid by U.S. rival Tetra Tech Inc. TTI-N in the planned acquisition of British environmental consulting firm RPS Group PLC. RPSGF
Montreal-based WSP said Monday that it is “considering its options” after RPS struck a takeover deal over the weekend with Tetra Tech at a higher price than that offered by the Canadian company. RPS directors have withdrawn their previous recommendation in support of a deal with WSP and will postpone a shareholders’ meeting convened to consider the WSP bid.
Tetra Tech is offering to buy RPS for £2.22 per share in a deal that values RPS equity at £636-million (or about $942-million at current exchange rates). That trumps WSP’s £2.06 per share offer by 7.8 per cent. Tetra has locked up support from investors holding about 28 per cent of RPS shares.
The competing offer marks a surprise setback for WSP, which has a strong track record for closing pending transactions, ATB Capital Markets analyst Chris Murray said. WSP had seen the RPS takeover as a major step in its effort to bolster its expertise in environmental engineering and consulting services.
“This competing bid underscores just how important the business of climate change and energy transition has become to engineering and environmental consultants,” Raymond James analyst Frederic Bastien said in a note to clients.
Mr. Bastien says WSP has room to top the Tetra Tech offer and still make the transaction accretive to its bottom line. But he says he’s confident the Canadian company won’t overpay, noting that it has ended efforts to acquire other businesses for this exact reason in the past, including Sweett Group in 2016. There are other high-quality targets out there, he said.
To win the support of RPS shareholders backing the Tetra Tech bid, WSP would have to beat the competing offer by at least 10 per cent, TD Securities analyst Michael Tupholme said in a note. That would mean an offer of at least £2.45 per share, he said.
RPS is now trading above the Tetra Tech bid, implying that the market believes there will be a counteroffer made.
The significant decline in the British pound since WSP’s initial offer, the potential for profit-margin expansion at RPS and WSP’s own balance-sheet capacity with its newly completed equity financing point to a higher offer from WSP, said Desjardins Securities analyst Benoit Poirier. A second offer makes sense but a third would be unlikely given Tetra Tech shares are trading at a much higher multiple than WSP’s, which gives it “more legroom for an accretive acquisition,” he said.
“Letting go is never easy but is probably the right thing to do here,” National Bank of Canada analyst Maxim Sytchev argued in a research note. WSP can achieve its growth objectives without RPS, he said. “We also think that having an even cleaner balance sheet is not a bad thing given the likely macroeconomic calamity upon us.”