The boardroom and share register instability hitting Leighton Holdings hasn’t, so far, impacted on the company’s ability to win big contracts here and offshore.
In the first five trading days of October, the group has reported a massive $1.3 billion in new contracts in Australia, the Middle East and in Hong Kong.
So clearly there’s been no loss of focus on the company’s lifeblood, winning new contracts or retaining existing ones where they involve businesses like contract mining or services.
The wins have been through groups like John Holland (a $348 million contract to move overburden and mine in Queensland), a $666 million contract for a sewerage sludge facility in Hong Kong through Leighton Asia and the 45% associate, Al Habtoor Leighton Group winning a $234 million contract to build infrastructure for a new industrial zone in Abu Dhabi.
That was after more than $780 million contracts were won in September, and over a billion in the month before.
So clearly there hasn’t been any disruption from the boardroom battle to get Wal King to retire, as planned, from the CEO’s role and replace him with David Stewart, or the latest distraction, a bid by a Spanish shareholder for Hochtief, Leighton’s controlling German shareholder, which was also very involved in the CEO succession brawl.
The annual report, issued this week confirms that Leighton’s work in hand at 30 June 2010 reached a record high level of $41.5 billion, with 65% coming from Australia and the Pacific, and 35% from off shore markets.
"The work in hand is 8 per cent higher than the $38.4 billion as at 31 December 2009 and 12 per cent higher than the $37 billion as at 30 June 2009.
“The value of work in hand was negatively impacted by approximately $700 million due to the strengthening of the Australian currency."
Chairman David Mortimer said: "The Group remains positive for the 2011 financial year and expects to report an increased revenue and operating profit.
"The long-term outlook for the Group remains positive based on a record level of work in hand, a strong competitive position, and continuing economic recovery in its major markets.
"Australia’s resilience, and its proximity to its major trading partners in Asia, leaves Leighton well placed to respond to new opportunities," he said.
CEO Wal King warned that "the road ahead may be rocky as governments, corporations and markets work their way through the residual effects of the global financial crisis."
"Reduced Federal Government stimulus spending may impact the overall construction market, primarily at the smaller end of the scale, but private sector investment in infrastructure and resources is expected to increase as a level of certainty returns to the market.
“Managing this transition will be a critical factor for maintaining Australia’s economic growth."
But while the company remains on track, and the succession in the CEO’s office has been settled, the ownership remains uncertain.
Hochtief, the big German contractor that controls 56% of Leighton (which is Hochtief’s best and most profitable asset), is under takeover attack in Europe from a 19% shareholder, the indebted Spanish construction group Grupo ACS.
As part of its takeover defence, Hochtief has attempted to involve the Australian Securities and Investments Commission.
Hochtief argues that as it controls Leighton with more than 50%, Grupo ACS should be required to make a ”downstream” bid for Leighton in the event that it gains control of Hochtief.
That would add about $5 billion to ACS’s acquisition bill, which it can’t afford because the offer for Hochtief is being made with ACS shares. (If it was serious about buying the German group, it would pay cash).
While a downstream bid for minority investors is required in most circumstances where an Australian ”upstream” company changes hands, the Corporations Act does not require a ”downstream” takeover bid where the ”upstream” (i.e. Hochtief) company is listed on an approved foreign exchange, such as the Frankfurt Stock Exchange.
It sounds complicated, it might not happen, but it is an attempt from the German company to make the bid from the Spanish group as hard as possible to complete.
And, if ASIC doesn’t agree, Hochtief can go to the Takeovers Panel to seek relief, further delaying and complicating the offer.
In a statement on Wednesday, Leighton chairman, David Mortimer said the company "noted the statement overnight by its largest shareholder, Hochtief AG (Hochtief) regarding its planned application to the Australian Securities and Investments Commission (ASIC)."
"Spanish company Actividades des Construcción y Servicios (ACS) announced a public takeover offer for Hochtief in September.
"Hochtief is now applying to ASIC for modifications to the Australian Corporations Act which would, if granted by ASIC, result in ACS being required to make a "downstream" takeover bid for Leighton in the event that ACS gains control of Hochtief.
"However, Leighton notes that there can be no certainty that ASIC will grant the relief sought by Hochtief, or, if granted, what the terms and conditions of any such relief might be.
So far, ACS has publicly indicated that it does not intend to make a bid for Leighton.
"Leighton has established special governance arrangements under my chairmanship. The Company has appointed UBS and Macquarie Capital as joint financial advisers and Allens Arthur Robinson as legal adviser to assist it with this. "<
