The action continues in the mining services and contracting industries.
United Group is showing some strength with its share price up 5% last week but down around 3% yesterday, Downer EDI provided another disappointment last Friday and lost heavily, and yesterday its shares were unchanged at $5.79 in the very choppy market conditions.
And Macmahon Holdings and its larger suitor, Leighton Holdings, have signed a 'de-facto' partnership agreement that corrals Macmahon into Leighton's sphere of influence and with news the shares go different ways.
Macmahon ended up 6c at $1.74, above where they were after the bullish AGM a couple of weeks ago and Leighton shares plunged $1.63 to $60.62 at one stage before rising to close down 60c at $61.60. The shares tumbled from the record levels of late last week as investors unwound much of last week's big surge in the stock.
Leighton shares have become increasingly volatile with 56% of its issued capital not available to trade: that makes for big swings in the price when sentiment goes positive or negative.
But Leighton has achieved with Macmahon what it set out to do in August, but in a different way. Then it snapped up 11% of the shares and pressed Macmahon to allow it to build to a 30% stake where it would have de-facto control.
Macmahon said 'go away' and Leighton built its stake up and kept the pressure on Macmahon to come to the negotiating table.
That has now happened and Macmahon is going into partnership with Leighton for joint projects, and shareholders in Macmahon have lost any chance of getting a change of control premium that would fairly reflect the value of a full takeover offer.
The partnership includes a two year "standstill" agreement which limits Leighton to a maximum of 19.9% of Macmahon without the target's consent.
Leighton currently holds 14.9% of Macmahon. Leighton, which is 55% by Germany's Hochtief, will need Foreign Investment Review Board approval to lift its stake in Macmahon above the 14.9% level.
Macmahon chairman, Dick Carter, said in a statement yesterday that his board's support for the agreement was unanimous.
"We have been involved in detailed discussions for some time and are very pleased that those negotiations have delivered such a successful outcome for the Group," Mr Carter said.
The companies' agreement is for an initial two-year period and Leighton says it will treat Macmahon as a "partner of choice" to joint venture for large infrastructure and resources-related construction projects, except in contract mining.
"This agreement is very important, as it delivers an additional boost to our east coast momentum," Macmahon chief executive, Nick Bowen, said.
"It will allow Macmahon to fast track its move to the next level by taking on larger construction projects, including public private partnerships.
"We believe it will lead to a bigger, stronger and expanding Macmahon, which will be good for our shareholders and customers."
Leighton's CEO, Wal King, said in a statement that "having a partner of choice relationship with Macmahon increases the Leighton Group's ability to take on and execute work, while boosting Macmahon's ability to take on major projects," Mr King said.
"This relationship also gives Macmahon opportunities to participate in projects in regions and industry sectors where it does not currently have a significant presence."
"It will strengthen Macmahon's position as a vigorous and expansive competitor in the Australian construction, engineering and contract mining industries."
As part of the deal, Leighton representative Vyril Vella will join the Macmahon board.
Leighton has been searching for another construction 'partner' for much of the past year as it wins more and more contracts in Australasia, Northern and Eastern Asia, India and the Gulf.
It has made a major acquisition in the Gulf where it is growing business towards the $1 billion a year mark. It has more than $500 million of work in India.
This is in addition to the strong order books it has in Indonesia, The Philippines, Hong Kong and Singapore.
Leighton said late yesterday that its HWE Mining subsidiary had been awarded a two year contract extension at the Area C mine in Western Australia's Pilbara region. The value of the contract is approximately $700 million.
"The two-year contract extension at BHP Billiton's Area C mine will see HWE Mining provide complete mining services at the operation from the current completion date of June 2008 until June 2010," HWE said.
Area C presently produces 23 million tonnes of iron ore per year. Currently in a major expansion phase, Area C is ramping up to almost double production to over 42 million tonnes per year.
