UPDATE 2-Bilfinger buys MCE to expand services, sells shares

Tue Oct 6, 2009 5:54am EDT

* To buy Austrian industry service group MCE for 350 mln eur

* Part of strategy to move into stable services business

* To sell shares worth 270 million euros to finance takeover

* Shares up 4.3 percent, outperforming European peers, MDax (Adds analyst comment, industry and company background)

By Peter Dinkloh and Michael Shields

FRANKFURT, Oct 6 (Reuters) - Bilfinger Berger (GBFG.DE), Germany's second-largest builder, will buy Austrian industrial services group MCE for 350 million euros ($511.7 million) as part of its strategy to move away from the volatile construction business.

Bilfinger plans to issue new shares worth 270 million euros to finance the takeover, said the builder, which now has a value of around 1.7 billion euros on the stock market.

Companies with a construction business such as Hochtief (HOTG.DE), Vinci (SGEF.PA) or Balfour Beatty (BALF.L) are increasingly building and servicing industrial facilities under contracts than may run for as long as 30 years.

The strategy makes them less dependent on the project-based construction market that is subject to hefty economic swings and where companies are undercutting each other on price.

MCE "is an excellent strategic fit to Bilfinger's existing activities," said Ingbert Faust from Equinet in Frankfurt, who has a "buy" rating on the stock.

"The purchasing price is at 7.8 times earnings before interest and taxes which looks like an attractive price compared to the double-digit multiples that were paid not too long ago."

Bilfinger shares rose more than other builders and more than other mid-sized companies traded on the Frankfurt stock exchange.

They were up 4.3 percent at 49 euros at 0925 GMT, while the DJ Stoxx Construction & Materials index .SXOP climbed 2.1 percent and the MDAX .MDAXI advanced 2.7 percent.

Issuing shares has not been a common way to finance takeovers following the financial crisis, but AB InBev, Deutsche Bank and Qiagen have used that instrument.

Mannheim-based Bilfinger will offer existing shareholders one share at 30.60 euros for four shares they hold, it said.

The price represents a 35 percent discount to its closing share price of 46.99 euros on Monday.

MCE has more than 6,500 staff and generated earnings before interest and taxes (EBIT) of around 45 million euros on an output of around 900 million euros in 2008.

Bilfinger's problems with the construction market were highlighted in September when the builder had to lower its earnings expectations for this year due to a legal dispute about a road construction project in Qatar. [ID:nL9315186]

The builder is buying MCE from Deutsche Beteiligungs AG DBAG.DE and funds managed by the German investment company.

The transaction would add around 15 million euros to the net result of valuation and disposals for the fourth quarter of Deutsche Beteiligungs, the company said on Tuesday in a separate statement.

It said it stood to receive around 43 million euros from the sale, or around 3 euros per share. (Reporting by Jonathan Gould, Michael Shields and Peter Dinkloh; Editing by Rupert Winchester)

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