CIMIC Bid Undervalues Macmahon but is Good News for Shareholders

The Australian quotes us this morning as being “angry” at CIMIC about its bid for mining contractor Macmahon (Forager's managed funds own 8.63% of Macmahon) . Quite the contrary, the bid is excellent news. Firstly, CIMIC has given all other shareholders a free put option. The bid is “unconditional” and can only be withdrawn under very limited circumstances. Shareholders can observe the next few months, carefully analyse the response from management, all the while maintaining the right to sell their shares to CIMIC for 14.5 cents. Secondly, we have been pushing the board to do more to realise the value inherent in Macmahon’s business. Defending this bid from CIMIC will force their hands. They have already stated that they think the bid undervalues the company. Now it is time to prove that the value they (and we) see in the business can be realised. Forager Funds base case valuation for Macmahon is around $0.20 per share. CIMIC’s bid provides some nice downside protection and has spurred the board into action. But patient shareholders are likely to do better. (VIEW LINK)