The trading halt for embattled and debt-laden engineering contractor Bradken Limited (ASX: BKN) couldn't have come soon enough.
The stock was trading at its lowest levels since the darkest days of the global financial crisis in March 2009 before management called a time out following reports that the company may have been thrown a lifeline.
It last traded at $1.72 and has shed more than $1.2 billion in shareholder value since 2011 as demand for engineering services dried up.
Those hoping for a fresh takeover bid will likely be disappointed as the trading halt was called in the wake of the Australian Financial Review report that management is close to finalising a deal with CHAMP Private Equity to recapitalise the group.
Bradken has received at least two takeover offers in the past six months and had rejected a $2.50 a share bid from Pacific Equity Partners and Koch Industries as recently as April.
The potential deal with CHAMP will probably involve a debt facility and an equity placement to help Bradken refinance $433.8 million in debt.
Debt wasn't an issue when Bradken was a $1.5 billion plus market cap company but shareholders have been rushing for the exits after the debt burden become bigger than its market value.
I am reserving judgement on the CHAMP deal until we see the details but I think management have lots to answer for as it didn't do anyone any favours by not putting in more effort to engage with potential suitors.
The capital raising with CHAMP will likely be highly dilutive given how low the current share price is and is likely to prevent Bradken from receiving further bid interest as CHAMP becomes a major (and possibly blocking) shareholder.
This could prove to be a big disservice to investors as takeover interest in the struggling sector is high with a number of contractors under the merger and acquisition spotlight. These include UGL Limited (ASX: UGL) and Cardno Limited (ASX: CDD), just to name a few.
Bradken's white knight could turn out to be a dark cloud.
The relationship between Bradken and CHAMP may also be a little too close for comfort. CHAMP owned Bradken before it sold the company to investors via an initial public offer in 2004 given that Bradken's chairman also sits on a CHAMP's advisory panel.
Like I said, it's too early to pass judgement as no deal has been finalised, but I would be lying if I said I wasn't nervous about the possible, if not probable, outcome.
Bradken will make an announcement before its share resume trading on Monday. Watch this space.
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