DOW and UGL dominate the rail scene in Oz. They do it so well...

DOW and UGL dominate the rail scene in Oz. They do it so well even the mighty LEI gets squeezed out. Whilst DOW SP has kept its level for past 6 months, UGL has tanked even after allowing for sale of US business. DOW now an incredible 6x the mktcap of UGL when a few yrs ago UGL's engineering side exceeded that of DOW. What has been the difference? Simple.... far better management at DOW.

3 months ago DOW spent 300m acquiring NZ utilities engineering company Tenix. Mkt seemed to think deal was ok. 2 months ago UGL (finally) got a new CEO who has his hands full with contracts in resource sector that are going bad. Even after months of wrangling the Itchy's contract is not yet settled. The uncertainty has cost shareholders dearly and it will new investors will wait on sidelines for clarity before buying.

But UGL has an order book of about $4,600 million spread across 3 yrs. That's wk booked-in, not pipedream/pipeline stuff. A decent chunk involves UGL's niche in rail maintenance and similar. Stuff they have done for decades. It's highly likely these contracts, many of which are with State govts, will make profits. That's why i have become a holder.

But despite gains over past week, SP remains depressed. Is this an opportunity for DOW to step-in and grab UGL cheaply? Offer $2.50 and most holders (me incl.) will take it imo. Owning UGL will cement DOW forever as THE dominant force re rail in Oz. LEI will probably run bawling to monopolies commission but hardly has a leg to stand on when it dominates so much of the infrastructure sector. A DOW/UGL merger will have mkt cap about 2.35 B still only one-third the size of LEI.

Conceivable or fanciful?