BRS Broad Spec Fpo

Broadspectrum Ltd., which manages Australia's detention centers for asylum seekers, rejected a hostile takeover bid from Spanish infrastructure group Ferrovial SA as it played down the risk of lawsuits by detainees.

Broadspectrum's directors wrote to shareholders Thursday recommending they reject the offer made in December—692 million Australian dollars (US$478 million), or A$1.35 a share—as too low. It included a report by independent adviser Ernst & Young valuing the shares at A$1.71 to A$1.98. They closed Wednesday at A$1.24.

Broadspectrum Chief Executive Graeme Hunt said feedback from investors holding a significant part of the company's stock suggested they support the board's decision.

"It seems to me pretty clear that a majority of our shareholders will reject the offer," Mr. Hunt said in an interview.

A Ferrovial representative declined to comment on the board's rejection. It is Ferrovial's second swipe at Broadspectrum. Late in 2014 it offered A$1.95 a share and then A$2 for the company, then called Transfield Services Ltd., only to be rebuffed by the board and abandon the bid.

Broadspectrum's share price fell by more than half in the 12 months before Ferrovial's latest bid, which the board said was opportunistically timed to take advantage of a short-term slump. Investors have been worried about one of the company's biggest moneymakers, its contract to run detention centers on the remote Pacific islands of Manus in Papua New Guinea, and Nauru, where Australia runs an offshore visa-processing system for immigrants trying to enter the country without authorization.

Broadspectrum also builds telecommunications infrastructure and does maintenance work for mining companies, as well as working for the country's defense department and providing social housing in Australia.

The detention centers have been under scrutiny for several years over allegations of abuse and sexual misconduct by staff. In early 2014, Reza Berati, a 23-year-old Iranian asylum seeker, was killed in rioting at one center. This has made Broadspectrum the subject of an aggressive divestment campaign. Institutional investors including industry-pension-funds Hesta and NGS Super have recently sold their stakes.

Mr. Hunt played down warnings from human-rights activists that the company could be sued over its treatment of refugees.

"We are very confident that we are doing a very competent job in the activities that we undertake in these centers," Mr. Hunt said. "And while it is always possible in any parts of our business that legal challenges are brought or compensation is sought, I don't believe that that's a material risk to the company."

In August Broadspectrum denied media allegations that it had been lax in reporting incidents at its detention centers or had misled a Senate inquiry into the subject.

In its bidder's statement Wednesday, Ferrovial called the company's earnings outlook "highly uncertain." Broadspectrum, which in 2014 was awarded a 20-month, A$1.2 billion contract to run the detention centers, is now negotiating a renewal.

Analysts say it is likely to win one, but have warned that revenue and margins are likely to fall with the drop in the number of asylum seekers reaching Australia. In recent years the government has adopted tough policies, including turning back some boats to neighboring Indonesia.

Mr. Hunt said given the drop in volume, the work Broadspectrum does for the Department of Immigration and Border Protection will become a smaller part of its business.

"I think Ferrovial continue to overstate that [offshore detention] is such a significant part of our portfolio," Mr. Hunt said.

Write to Rebecca Thurlow at rebecca.thurlow@wsj.com

(END) Dow Jones Newswires

January 21, 2016 04:05 ET (09:05 GMT)

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