A planned $692 million takeover of detention centre operator Broadspectrum hangs in the balance amid uncertainty about its federal government contract.
Spanish infrastructure and services company Ferrovial is considering whether to pursue its takeover of Broadspectrum due to concerns over how long it will continue to operate Australia's detention centres on Nauru and Manus Island.
Broadspectrum, the company formerly known as Transfield, has been told by the federal government that it is no longer the sole preferred bidder for a new, five-year contract to run the centres.
Instead, the Department of Immigration and Border Protection has extended the current contract by 12 months to give it time to increase the scope of the tender for the new deal.
Ferrovial, which has made a $692 million offer for Broadspectrum, on Tuesday described the change to the contract status as a "significant and negative" one that adversely impacts the value of the takeover target.
"Ferrovial will now consider the implications of this change on Broadspectrum's business and Ferrovial's offer for Broadspectrum," Ferrovial said on Tuesday.
Broadspectrum declined to comment on Ferrovial's statement, reiterating instead its statement from Monday.
On Monday, Broadspectrum upgraded its annual underlying earnings guidance to between $280 million and $300 million as a result of the new 12-month contract. That compares to its previous earnings guidance of $265 million to $285 million.
The company also said its underlying earnings for fiscal 2017 should be in excess of $300 million.
Broadspectrum reiterated its advice to shareholders to reject Ferrovial's $692 million takeover offer as neither fair nor reasonable, issuing a supplementary target statement with the updated guidance.
Independent adviser Ernst & Young has previously valued Broadspectrum shares at between $1.71 and $1.98, well above Ferrovial's $1.35 per share offer.
As a result of the government news, Ernst & Young on Monday cut its valuation to $1.60-$1.85, but maintained its view that the offer is not fair.
Ferrovial's announcement triggered a sharp sell-off in Broadspectrum shares on concerns the company will either lower or abandon its bid.
Ferrovial could be playing some psychological game with Broadspectrum and its shareholders, said a Sydney-based market analyst, who didn't want to be identified.
Broadspectrum shares closed down 16.5 cents, or 13.15 per cent, at $1.09 in a sharply lower market.
The government contract extension takes effect on March 1 and will last past the 2016 federal election, due later in 2016. Broadspectrum has operated the detention centres since September 2012.
The Nauru centre has been plagued by problems amid allegations of child abuse and rape.
As a result of the contract development, Ferrovial's takeover offer has been extended by two weeks, until March 7.
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