Broadspectrum : Letter to shareholders in relation to Takover Offer

8747a80b-e8c0-41e3-acb1-d88c7362157d.pdf

21 January 2016 The Manager‌

Markets Announcements Office Australian Securities Exchange 20 Bridge Street

SYDNEY NSW 2000

Dear Sir/Madam,

Broadspectrum Limited | ABN 69 000 484 417

Page | 1

Letter to Shareholders in relation to the unsolicited Takeover Offer from Ferrovial

Attached is a letter to be sent to the Company's shareholders in relation to the unsolicited Takeover Offer from Ferrovial.

Yours faithfully,

Angelique Nesbitt Company Secretary

Investor Enquiries Media Enquiries
Chris Jeffrey Executive General Manager Strategy, Markets and Investments P: [phone] M: [phone]	Chris Gordon Executive General Manager, Corporate and Public Affairs P: [phone] M: [phone]

Broadspectrum provides innovative solutions to clients across the social, defence, property, infrastructure, resources and industrial sectors. Our skilled workforce drives ingenuity and collaboration with clients and is backed by market-leading processes and systems delivered via a state-of-the-art technology platform. Our ability to generate true value and growth for our clients is complemented by an uncompromising commitment to safety and social responsibility.

For more information on how Broadspectrum can assist your business, visit: www.broadspectrum.com

21 January 2016

Dear Broadspectrum Shareholder

REJECT THE OFFER - DO NOTHING AND TAKE NO ACTION

Level 10, 111 Pacific Highway

North Sydney Locked Bag 917

North Sydney NSW 2059 Telephone: [phone]

Facsimile: [phone]

You have recently received a Bidder's Statement from Ferrovial outlining a highly conditional offer to acquire your Broadspectrum Shares for $1.35 per share (the Offer). This Target's Statement sets out Broadspectrum's formal response to the Offer.

Our turnaround journey is progressing well and our strategy has sustained a three year positive trend across key financial metrics, while providing for further strong growth. Since FY2013 Broadspectrum has increased revenue and Underlying EBITDA, improved Underlying EBITDA margin, ROCE and underlying cash conversion, and reduced net debt and our total funding requirement.

Your Board has carefully considered the Offer to assess whether it is in the interests of Broadspectrum Shareholders and your Directors unanimously recommend that you REJECT THE OFFER.

Each of your Directors who own or control Broadspectrum Shares intends to reject the Offer in respect of all the Broadspectrum Shares they own or control.

THE OFFER SIGNIFICANTLY UNDERVALUES YOUR BROADSPECTRUM SHARES Your Broadspectrum Shares are worth a lot more than Ferrovial is offering. This is the unanimous view of your Directors and is supported by the Independent Expert who has concluded that the Offer is NOT FAIR AND NOT REASONABLE.

Your Directors commissioned Ernst & Young Transaction Advisory Services Limited (Independent Expert) to prepare an Independent Expert's Report in response to the Offer (attached in full in appendix 1 to this Target's Statement). The Independent Expert has assessed the value of Broadspectrum to be in the range of $1.71 to $1.98 per Broadspectrum Share. The Offer represents a 27% discount to the mid-point of this valuation range ($1.845 per Broadspectrum Share).

The valuation metrics implied by the Offer also represent a significant discount to those of other similar transactions, as well as against Broadspectrum's longer term share price, as summarised below1:

1 Please see sections 2.1 and 2.2 of this Target's Statement for further discussion on these valuation metrics.

• Broadspectrum's longer term share price: Broadspectrum Shares have traded above the Offer Price for extended periods in the last 12 months and as recently as 22 July 2015 prior to the announcement of the Offer. The Offer represents a 16% discount to Broadspectrum's closing share price on

  5 June 2015 ($1.60), being the last trading day prior to six months before the announcement of the Offer

  
  

• Comparable transaction multiples: the EV implied by the Offer represents a 6.9x2 multiple of Broadspectrum's FY2015 Underlying EBIT, which is substantially less than the average multiple of Underlying EBIT of comparable transactions which resulted in a change in control in both Australia (9.9x) and overseas (15.2x)3, and

  
  

• Broadspectrum's average trading multiple: the EV implied by the Offer represents a 6.5x4 multiple of Broadspectrum's FY2016 Underlying EBIT, which is also a discount to Broadspectrum's average trading multiple across both FY2014 (9.0x) and FY2015 (8.0x)5, noting of course that trading multiples do not include a premium for control.

Reasons for the Broadspectrum Directors' recommendation

Section 2 of this Target's Statement sets out in full the reasons for your Directors' recommendation, which include the following:

1. the Offer significantly undervalues your Broadspectrum Shares

2. the Offer is opportunistic

3. the Offer is highly conditional

4. Broadspectrum is in a stronger position now than in December 2014, when Ferrovial indicated a willingness to pay significantly more for your Broadspectrum Shares

5. the outlook for Broadspectrum is positive and the Company continues to pursue strategies and initiatives to increase shareholder value, and

   
   

   
   

   
   

   2 EV/EBIT multiple implied by the EV of the Offer (itself calculated based on the equity value implied by the Offer Price and Broadspectrum's last stated Net Debt position) and Broadspectrum's FY2015 Underlying EBIT.

   3 Refer to section 2.1 of this Target's Statement for further discussion of comparable transaction multiples.

   4 FY2016 EV/EBIT multiple implied by the EV of the Offer (itself calculated based on the equity value implied by the Offer Price and Broadspectrum's last stated Net Debt position) and the mid-point of Broadspectrum's FY2016 Underlying EBITDA guidance of $265 million to $285 million less the average broker forecast FY2016 depreciation and amortisation for Broadspectrum ($98 million). A summary of the selection criteria, number of broker forecasts comprising the average, range and date of the broker forecasts is provided in appendix 3 to this Target's Statement. The Directors do not adopt the average broker forecast of Broadspectrum's depreciation and amortisation. The broker forecasts have been included solely as an indication of market views.

   5 Refer to section 2.1 of this Target's Statement for further discussion of trading multiples.

   
   

   
   

6. Broadspectrum is a diversified portfolio business, providing flexibility to deliver sustained performance and earnings through industry and sector cycles.

THE OFFER IS OPPORTUNISTIC

The Offer is opportunistic in its timing and is seeking to take advantage of the current disconnect between the recent weakness in Broadspectrum's share price and the ongoing strengthening of Broadspectrum's business. Broadspectrum's closing share price of $0.856 immediately prior to the announcement of the Offer was the lowest closing share price in more than 18 months.

Your Directors believe the recent trading performance of Broadspectrum Shares has been influenced by a number of factors unrelated to the strengthening fundamentals of the underlying business. The Offer was opportunistically announced prior to the expected signing of major contracts. Since the Offer was announced, Broadspectrum has signed new contracts worth over $1.1 billion in revenue, including a material contract with NSW Land and Housing Corporation (NSW Housing) that could be worth up to $950 million in revenue over the initial five year period. In addition, Broadspectrum has signed contracts with AGL Energy Limited (AGL)7 and Queensland Urban Utilities (QUU)8 through our joint venture operations, for which Broadspectrum's proportionate share of revenue could be worth $185 million in aggregate over the life of the two contracts.

Broadspectrum is also the preferred tenderer and is in discussions with the Australian Department of Immigration and Border Protection (DIBP) in relation to the execution of a new five year contract to provide facilities maintenance and welfare services in Nauru and Manus Province.

Broadspectrum's portfolio of businesses continues to perform strongly in aggregate, as evidenced by the changing composition of our earnings base, with continued growth in profitability. In your Directors' opinion, this does not appear to be reflected in the trading performance of Broadspectrum Shares prior to the announcement of the Offer. Our turnaround journey is progressing well and our strategy has sustained a three year positive trend across key financial metrics, while providing for further strong growth.

THE OFFER IS HIGHLY CONDITIONAL

6 Broadspectrum's closing share price on 4 December 2015.

7 The contract is for five and a half years and was won by Transfield Worley Power Services Pty Limited, a joint venture in which Broadspectrum holds a 50% interest.

8 The contract is for five years and was won by Broadspectrum in a 50:50 unincorporated joint venture with Downer, Utilita Water Solutions.