The CIMC Group Ltd (ASX: CIM) share price is pushing notably higher on Monday morning.
In early trade the engineering company’s shares are up a sizeable 5% to $21.90.
Why is the CIMIC share price charging higher?
Investors have been buying the company’s shares after it announced that it has entered into an agreement with Elliott Advisors regarding the sale of a 50% equity interest in Thiess, the world’s largest mining services provider.
According to the release, Elliott Advisors is one of the oldest fund managers of its kind and manages more than US$40 billion in assets. This includes equity positions in private and listed companies in Australia and globally.
Thiess is a mining services provider that delivers open cut and underground mining in Australia, Asia, Africa, and the Americas. It provides services to 25 projects across a range of commodities.
The business has a diverse fleet of plant and equipment of more than 2,200 assets, a team of around 14,000 employees, and generates annual revenues in excess of $4.1 billion.
Transaction details.
The release explains that the price for Elliott’s 50% equity interest in Thiess implies an enterprise valuation of approximately $4.3 billion (based on 100% of Thiess). This is subject to certain adjustments.
The transaction is expected to generate a pre-tax gain of around A$2.2 billion for CIMIC, and a post-tax gain of around $1.4 billion.
Management notes that it will strengthen its balance sheet, reduce its factoring balance by approximately A$700 million, and its lease liability balance by approximately $500 million.
The transaction also includes customary future share transfer options. These include a potential initial public offering or sale to a third party, and an option for Elliott to sell its interest in Thiess to CIMIC between three and six years from completion.
CIMIC’s Group Executive Chairman, Marcelino Fernández Verdes, commented: “The sale agreement reflects Thiess’ ongoing strategic importance as a core activity for CIMIC. It capitalises on the robust outlook for the mining sector and, together with Elliott, we will pursue market opportunities in line with Thiess’ growth and diversification strategy.”
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Returns as of 6th October 2020
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Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia has no position in any of the stocks mentioned. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.
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