TROUBLED outsourcer Mouchel today revealed it had rejected its latest takeover proposal and ended all talks with suitors as it posted a 73% plunge in half-year profits.

The group, which provides consulting and business services for public sector clients, dashed hopes of a deal with rival Interserve after it said the group slashed its approach to £151m after going through Mouchel’s books.

Mouchel, which last month chose Interserve as preferred bidder over Maidenhead-based construction firm Costain, decided it was not in shareholders’ interests to continue discussions with either firm after consulting its biggest investors.

Costain had also reduced its £175m approach for Mouchel after carrying out due diligence, it emerged today.

Mouchel said the advances had been an “unwelcome disruption” to the business as it struggles amid public sector belt-tightening.

Half-year results today reveal the group saw underlying pre-tax profits slump to £4.1m after revenues dived by 13% to £270.3min the six months to January 31. Pre-tax losses were reduced from £3.5m to £1.5m.

Mouchel shares plunged 30% after news it had rejected Interserve’s proposal.

The deal with Reading-based Interserve would have created one of the biggest firms of its kind in the UK.

But Mouchel, which has not revealed the value of Interserve’s initial approach, said the revised proposal significantly undervalued the business.

It added that Costain’s reduced proposal – which had cut the cash element of the deal and offered no final dividend – had an “unacceptably high level of execution risk”.

The announcement comes as another blow to embattled Mouchel, which reported back on a tough six months of trading.

Its turnover took a direct hit from the Government’s deficit reduction programme, given that the firm has clients including Government agencies and councils across the UK, including Liverpool and Knowsley under its 2020 brand.

Demand for management consultancy and highways maintenance in particular have suffered.

Mouchel has slashed its highways workforce by 14% to 3,488 in the past year and said revenues in the division slumped 22% in the first half.

Revenues in management consultancy dropped 10%, but cost cutting action, including a 22% cut in staff numbers, helped the arm report interim operating profits of £2.2m against a small loss a year earlier.

Mouchel has become a takeover target after its shares hit an all-time low of 56.5p in early December, down from a year high of 268p.

Richard Cuthbert, chief executive of Mouchel, sought to assure over the firm’s future as an independent company after the latest takeover disappointment.

He said: “Although we can see some benefit, in the current environment, from being part of a larger group, the significant integration risks and the prospective valuation meant that we were unable to recommend the transaction to shareholders.

“We remain very confident in our prospects as a stand-alone business.”

The group is currently cutting costs at many of its locations and will close its Cunard Buildings offices this summer, transferring staff to other Liverpool locations.

Liverpool stockbroker Panmure Gordon revised its ‘buy’ recommendation for Mouchel shares to ‘sell’ today, and slashed its share price target from 155p to 100p.

Analyst Andy Brown said: “A low bid from Interserve, post due diligence, and weak H1 results means it will be very difficult for the Mouchel share price to advance in the near term in our view.”