Cardno’s (ASX:CDD) stock is trading stronger on ASX today. Here’s why

Highlights

  • Cardno has entered into a share sale agreement with Stantec Inc.
  • The agreement includes the sale of Cardno’s Americas Consulting Division and Asia Pacific Consulting Division.
  • The deal is worth around AU$667 million.

ASX-listed professional infrastructure and environmental services company Cardno Limited (ASX:CDD) shared on 21 October 2021 that the company has entered into share sale agreements with Stantec Inc. The agreement is with regard to the sale of Cardno’ Americas Consulting Division and its Asia Pacific Consulting Division for total aggregate cash consideration of US$500 million (around AU$667 million). 

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In an announcement made yesterday, the company revealed that

  • Under the share sale agreements, the entities are being sold on a cash-free, debt-free basis. The transactions are subject to usual net working capital and net debt adjustment mechanisms.
  • Cardno intends to distribute between AU$567 million to AU$600 million to Cardno Shareholders after completion of the transactions.
  • The proposed distribution will be a mixture of a capital return and an unfranked dividend. Confirmation for a split of the distribution will be determined in the coming weeks.
  • Cardno will communicate the expected characteristics of the distribution to shareholders as soon as it will be finalised.
  • Cardno expects to retain approximately AU$64 million of cash (~$0.16/share) from the transaction proceeds after paying all transaction costs, repaying outstanding company debt, and the distribution to shareholders.
  • This cash will be used to support the remaining International Development and South American operations of Cardno.
  • Cardno will have no external debt following the transactions. US$25 million of the retained amount of the proceeds may be placed in escrow for 12-months if Stantec does not procure a buy-side W&I Policy relating to the Asia Pacific Consulting Division before completing the transaction.

Today, the stock CDD was spotted trading over 17% higher at AU$1.52 per share on ASX at 3.25 PM AEDT.  

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Bottom Line:

Following the sale of both consulting divisions, Cardno will become a focused International Development (IDA) business. In FY21, Cardno IDA generated gross revenue of AU$304.0 million. Cardno will continue the wind-down of its South American operations, which is expected to be completed by December 2022. There is an expectation that further cash flow will be generated from these operations; however, the actual amount at this stage remains uncertain.

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