Letter to Shareholders
6 June 2008
Dear Fellow Shareholder,
REJECT MACMAHON?S INADEQUATE AND OPPORTUNISTIC OFFER
You will soon receive from Macmahon Holdings Limited (Macmahon) a Bidder?s Statement and offer to acquire your shares in Ausdrill Limited (Ausdrill). The Ausdrill Board has reviewed this document and continues to believe the unsolicited offer is inadequate and opportunistic.
Your Directors unanimously recommend Ausdrill shareholders REJECT Macmahon?s offer. Simply ignore the Bidder?s Statement and any other documents received from Macmahon.
Your Directors who control 13.4% of Ausdrill do not intend to accept Macmahon?s offer. Other shareholders, who together hold a further 25.7% of Ausdrill, have confirmed in writing to Ausdrill that they will not accept Macmahon?s offer. This is a total of 39.1%.
On this basis Macmahon will not acquire 100% of Ausdrill and capital gains tax rollover relief will not be available to any shareholders who accept the offer.
Detailed reasons supporting the Directors? recommendation will be set out in Ausdrill?s Target?s Statement, which will be sent to you within 15 days of Macmahon sending its Bidder?s Statement.
In the meantime, your Directors believe it is important that you know the following reasons supporting the Directors? recommendation to REJECT Macmahon?s offer:
Macmahon?s Offer Does Not Fully Value Your Ausdrill Shares
? Macmahon?s offer is materially dilutive to Ausdrill shareholders in equivalent earnings and dividends per share.
? Last financial year, Ausdrill paid dividends of 9.0 cents per share compared to 3.0 cents for Macmahon, which is equivalent to 4.35 cents per Ausdrill share under Macmahon?s offer terms.
? Macmahon?s offer does not reflect Ausdrill?s relative earnings and net asset contribution. Under the offer, Ausdrill shareholders would own 31.3% of the combined group yet Ausdrill would contribute 55% ($254 million) of the group?s combined net tangible assets of $460 million at 31 December 2007 and 47% ($26.6 million) of its pro forma net profit after tax of $56.7 million from continuing businesses for financial year 2007.
? Macmahon?s offer does not reflect Ausdrill?s growth prospects or the potential synergy benefits that Ausdrill may provide.
Macmahon?s Offer Is Highly Opportunistic
? Macmahon?s offer takes advantage of recent strength in its share price relative to Ausdrill.
? In the past five years, Ausdrill and Macmahon?s share prices have performed broadly in line until May 2007, which was shortly before Leighton Holdings started acquiring its 15.6% stake in Macmahon.
? Much of Macmahon?s share price outperformance in the past 12 months has been driven by an increase in its price/earnings ratio rather than underlying earnings growth relative to Ausdrill.
An Independent Ausdrill Offers Strong Future Growth Prospects
? Your Directors consider Ausdrill to be in its best operational and financial shape ever and believe the company is well positioned to continue performing strongly over the coming years.
? This is reinforced by Ausdrill?s recent announcement that it expects operating profit after tax for 30 June 2008 to be $35 million together with confirmation of expected further growth in the foreseeable future.
If You Accept Macmahon?s Offer You Will Receive Shares in a Lower Return Business With Increased Risks
? Ausdrill operates a significantly higher margin business relative to Macmahon and has historically produced superior returns on assets and capital.
? Ausdrill has produced materially higher earnings per share growth and stronger dividend yields for its shareholders.
? Ausdrill also has a more conservative balance sheet than Macmahon.
Acceptance of Macmahon?s Offer Will Expose You to Significant Risks and Uncertainty
? Given that your Directors do not intend to accept Macmahon?s offer and that other shareholders have confirmed in writing to Ausdrill that they will not accept Macmahon?s offer, Macmahon will be unable to acquire 100% of Ausdrill.
? On this basis, Macmahon will be unable to consolidate Ausdrill for tax purposes, capital gains tax rollover relief will not be available and any potential synergies will be more difficult to achieve.
? Macmahon?s offer is conditional on receiving acceptances of at least 50.1% of Ausdrill shares (amongst other conditions) and there is no certainty that Macmahon will receive these acceptances.
? If Macmahon waives its bid conditions but does not acquire control of Ausdrill, shareholders who have accepted will still be issued Macmahon shares in return for their Ausdrill shares.
Your Directors recommend you REJECT Macmahon?s highly opportunistic and inadequate offer.
If you have any questions concerning Macmahon?s offer please call Ausdrill?s Shareholder Information Line on 1800 104 758 or from outside Australia on +61 2 8268 3691.
Yours sincerely
Terence O?Connor AM QC
Chairman
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