Broadspectrum's Manus contract in doubt
The future of Broadspectrum’s contract running a detention centre on Manus Island has been thrown into question after Papua New Guinea’s Supreme Court ordered Australia to end the detention of asylum seekers.
The ramifications of the Supreme Court’s decision remain unclear, but could reduce how much money Broadspectrum receives from its contract managing asylum seekers on the island if the centre is closed down or is changed to an “open entry” system that allows refugees to come and go.
Broadspectrum’s job running the Manus Island detention centre is in question after the PNG Supreme Court decision. Photo: Andrew Meares
Broadspectrum acknowledged the Supreme Court ruling and said it was waiting on instructions from the Department of Immigration and would update the market on any impact on the company.
The PNG decision comes at a tricky time for Broadspectrum, because the contractor is trying to withstand a hostile takeover bid from Spanish suitor Ferrovial.
Broadspectrum’s stock fell 13.5¢, or 11 per cent, to close at $1.11 on Tuesday amid expectations that an $813 million hostile takeover bid will not succeed.
The stock fell because only 16.14 per cent of Broadspectrum’s shares have been tendered in favour of the $1.50-per-share offer so far, and Ferrovial warned investors on Friday night that it would not extend its offer beyond the deadline of May 2.
Ferrovial’s offer is conditional on it acquiring at least 50.01 per cent of Broadspectrum’s shares, so if it does not reach this level, it will return the stock tendered into the offer to Broadspectrum investors and walk away.
But more investors may be inclined to accept Ferrovial’s bid if they believe Broadspectrum is now more likely to lose some of the income it generates from its detention centre contracts on Manus Island and Nauru.
The company’s defence, social and property (DSP) division, which includes the detention centre contract, generated 70-80 per cent of the company’s underlying earnings before interest, taxation, depreciation and amortisation (EBITDA) in 2015-16, according to Broadspectrum.
Broadspectrum is tendering to renew the Manus and Nauru contracts for another five years.
Separately, the Foreign Investment Review Board’s review of the $9.05 billion Asciano takeover is likely to be delayed by a double-dissolution election, potentially delaying closure of the long-running deal to July.
The prospect of further delays on the takeover, which took nine months to arrive at a joint bid from former rival suitors Qube and Canada’s Brookfield Infrastructure, is understood to be frustrating for Asciano chief executive John Mullen and chairman Malcolm Broomhead, who have taken on new jobs.
Mr Mullen is succeeding Catherine Livingstone as chairman of Telstra and Mr Broomhead became Orica’s chairman at the start of the year.
Qube and Brookfield, which have teamed up with six international pension funds to acquire and split up Asciano, had previously expected the deal to be closed by the end of June.
The Australian Competition and Consumer Commission (ACCC) is planning to complete its review of the deal by May 26, and Asciano shareholders are due to vote on the transaction on June 3.
FIRB typically makes its final decision on takeovers after the ACCC finishes its review. But if an election is formally announced in early May, putting the government into caretaker mode before an election on July 2, FIRB’s review process is expected to slow down immediately before the election.
And although Treasurer Scott Morrison is not required to consult with shadow treasurer Chris Bowen, it is considered good protocol for the Treasurer to liaise with the opposition before making a decision, which may not emerge until after the election.
While the takeover is not expected to be blocked by FIRB, the Treasurer needs to review submissions from Brookfield as well as each of the international pension funds involved in the deal: Singapore sovereign wealth fund GIC, the British Columbia Investment Management Corporation, the Qatar Investment Authority, Global Infrastructure Partners, the Canada Pension Plan Investment Board and China’s CIC Capital.
Further delays could be incurred if the ACCC releases a so-called “statement of issues” on the transaction on May 26 instead of approving the takeover.
West Australian farmers have flagged the potential privatisation of the Port of Fremantle as a likely threat to competition if the takeover of Asciano goes ahead.
The farmers have raised concerns that the proposed new ownership of Asciano’s Pacific National rail haulage and Patrick ports businesses could change over time, and be combined with future infrastructure investments, lessening competition.