Bidders eye Jarvis' stake in TubeLines

Potential bidders for Jarvis have started circling, with Dragados, Bouygues and Skanska tipped as the front-runners. Their focus is on the group's lucrative stake in the TubeLines consortium, which is seen as the jewel in Jarvis' crown.
Jarvis put up £60m to take a one-third stake in TubeLines, which won the PPP contract to upgrade a third of the London Underground. Similar amounts were invested by Amey and Bechtel, its partners in the consortium.
Jarvis has already put half of its stake up for sale, a move that could generate a windfall profit of £60m. Jarvis is now thought to be prepared to part with the other half in order to meet mounting financial pressures.
"Jarvis's debt is far too high - £100m too high," an analyst said. "Last week's profit warning was inevitable because the group's accommodation services division hasn't won any contracts since the last profits warning."
The year-end trading update from Jarvis said its accommodation services division "continued to disappoint". Market expectations were that the accommodation services division would generate an operating profit of £5m. In fact, Jarvis expects a £5m loss.
Furthermore, the group could dive into the red when it unveils its latest set of financial results in mid-June as a result of exceptional costs thought to be running at between £50m and £70m. These could overwhelm a pre-exceptional profit figure of £50m, resulting in either break-even at best, or a £20m loss .
After shares in Jarvis plunged 48p to 130p in the 24 hours following Jarvis' latest trading statement, one analyst warned: "They could fall further. It has simply got to win work in accommodation services to hit market forecasts. On top of that, there is a lot of restructuring still needed.
"Jarvis faces an uphill struggle to claw back its reputation, especially in the schools and university sectors."
The latest casualty at board level is finance director Robert Kendall, who has resigned. Stepping into the firing line as Kendall's replacement comes Alistair Rae, who joined Jarvis in 2002 as director of strategic and corporate affairs.
Rae's upgrade has not given the City much comfort. "It's an interim move," said one analyst.
The sale of equity interests in the group's PFI/PPP investment portfolio has led to a further £6m loss. Jarvis had them on the books at £11m, but the buyer paid just £5m.
Other construction groups have made handsome profits on the sale of PFI equity, with values typically trebling. "The explanation of how Jarvis made this loss is that it continually refinanced its equity interests, stripping out cash, so what is left is not profitable," an analyst said.
n Jarvis will remain in the health sector. See page 3 for the full story.