Temasek sells CPG to Downer EDI

Singapore''s promised divestment process stays on track with the sale of CPG Corporation to Australia''s Downer EDI.

Temasek, the Singapore government investment agency, has announced the sale of CPG Corporation to Downer EDI of Australia. CPG Corporation was formerly the Public Works Department of the Singapore government before it was corporatized in 1999 and re-named in 2002. Downer EDI is Australia's second largest engineering, infrastructure and resource services company.

Last November, the government announced it had hired JPMorgan to find a new buyer for the company, the first such divestment to happen under the newly published Temasek Charter. The 100% sale of CPG is expected to be finalized on April 1.

There were six bidders - including a bid by the management - and Downer's bid of S$131 million was said by Temasek spokeswoman Rachel Lin to be the most attractive. It is unclear if Downer offered the most money, or if it was the combination of price and strategic fit which made the offer compelling. It is also unclear who the other five bidders are.

At S$131 million CPG is being valued at about 3.7 times enterprise value to EBITDA, according to Stephen Gillies, managing director of Downer EDI in Sydney. That assumes an enterporise value of S$124 million and estimated EBITDA at March 31, 2003 of S$33.5 million. According to statements from the two companies, CPG had a net asset value in 2002 of S$94 million and net fee income of S$181 million. In the last three years the company has consistently made profits in excess of S$22 million. Its future revenue streams are backed up by a gross order book of S$500 million.

Key to CPG's future is a five-year agreement it signed with the Singapore government in 1999 called the Master Agreement. This sees CPG being given a whole raft of project consultancy work for the government up until 31 March 2004. After that date it will compete on a standalone basis for new projects, but it will still have the business that it won during the five year operation of the Master Agreement to support it.

But since 1999, CPG has, like many Singaporean companies, made a real push to go regional and wean itself off home market dominance. It now has offices in China, the Philippines, India and the Middle East. It is involved in the services side of the business - architecture, civil engineering, property and facilities management, IT services and consulting. It does not do building work or contracting.

This is what makes CPG attractive to Downer. "The addition of CPG will reposition Downer EDI in Asia as a service company and significantly expand out existing, well established operating base in Singapore," says Gillies. "CPG is a longstanding and reputable provider of high value-adding engineering services and will enable Downer EDI to provide turnkey end to end solutions to its clients."

It is undecided at this stage if the two companies will operate under a combined name in Asia or retain two separate identities. It is thought that Downer is keen to retain the management team of CPG despite their unsuccessful bid for the company.

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