Hochtief seeks to increase Leighton stake
Hochtief’s A$1.2bn (US$1.1bn) bid to tighten its grip on Leighton Holdings, Australia’s biggest construction company, formally opens this week amid concerns among shareholders, analysts and trade unions about the impact of greater foreign control.
The German building group’s dramatic ousting of Leighton’s chief executive and chief financial officer this month, and its bid to raise its 58 per cent stake to 74 per cent sent shockwaves through Australia’s tight-knit business community.
ACS, the Spanish construction giant that won control over Hochtief in a hostile takeover in 2011, masterminded the coup.
The bid represents a change in strategy at Hochtief, which until recently was a passive investor prepared to let local managers run Leighton.
“The Madrid group has ridden roughshod over the rights of minority shareholders and has not got a good record on corporate governance,” said the Australian Shareholders’ Association.
Formal bid documents, due to arrive in shareholders’ postboxes on Monday, offer A$22.50 a share to acquire three out of every eight shares that Hochtief does not own.
The German group rebuffed a request from Leighton’s board to make a full takeover offer.
A partial offer for shares, rather than a full offer, would leave minority shareholders stranded holding 26 per cent of the group, said the ASA.
“They have shown disregard for a long line of independent directors in Leighton by disposing of some of the best in Australia. This is culturally insensitive when the Australian market is where the company makes most of its money.”
Between 1987 and 2010, under chief executive Wal King, Leighton expanded rapidly, becoming a conglomerate with interests spanning mining, construction, telecoms and utilities.
Last year the company generated revenues of A$22.6bn. Leighton is by far the most profitable unit of Hochtief, generating 62 per cent of pre-tax profit and 57 per cent of revenues in 2010.
But since 2010 Leighton has hit turbulence. Marcelino Fernandez Verdes, Hochtief chief executive, who formally assumed the position of Leighton chief executive last week, is the fourth person to hold the company’s reins in as many years.
“After a difficult few years for Leighton Holdings, ACS have decided to take control,” said Simon Fitzgerald, analyst at Moelis.
“Shareholders can expect to see some swift changes, as opposed to changes over time.”
Analysts said a big restructuring and asset sales were likely.
The Construction, Forestry, Mining and Energy Union has sought a meeting with Leighton’s new management on its plans for the company.
Citigroup said the change in control was likely to lead to a rapid shake-up of Leighton’s organisation, from a divisional model towards a more centralised model similar to ACS’s.
This could produce cost savings but would come with risks.
ACS’s debt pile, which stood at €5.3bn at the end of September, prompted Standard & Poor’s to place Leighton’s triple B minus credit rating on negative watch following Hochtief’s bid to tighten control.