SYDNEY--As talks to decide the fate of Leighton Holdings Ltd. on
Wednesday ran past midnight, Germany's Hochtief AG came under
pressure to bid for all of Australia's biggest construction company
and end years of boardroom infighting.
Hochtief resisted, however, and the tactic worked. By dawn, the
company had several big demands met in return for a sweetened offer
of around 1.21 billion Australian dollars (US$1.09 billion) to
increase its stake in Leighton from nearly 59% to 74%.
Gone were Leighton's senior management, with Hochtief's chief
executive, Marcelino Fernandez Verdes, put in charge. The German
company had also won the right to appoint the majority of directors
to Leighton's board, conditional on support for the deal from
minority shareholders and regulators.
"We pressed hard for a full takeover because we thought it
resolved all the issues for everybody," said Leighton Chairman Bob
Humphris. "While we pressed hard, we didn't press for very long
because it became clear that wasn't a possibility."
Sydney-based Leighton has been grappling with long-standing
issues such as an ill-timed move into the Middle East just before a
construction downturn in 2008. More recently, it has been hurt by a
sharp slowdown in mining investment in Australia as a long boom in
resources fades. Leighton shares have fallen around 40% since the
start of 2010, against an 11% rise in the wider Australian
market.
Hochtief, controlled by Spanish builder Actividades de
Construccion y Servicios SA, or ACS, said Thursday it would now
offer A$22.50 a share for three of every eight shares held by
Leighton's minority shareholders. That is up from A$22.15 a share
earlier this week, and represents a 26% premium on the company's
share price in the month leading up to the offer.
Leighton said Chief Executive Hamish Tyrwhitt and Chief
Financial Officer Peter Gregg had left the company, as demanded by
Hochtief. Mr. Tyrwhitt had worked for the company or its
subsidiaries for nearly three decades, having started at its John
Holland Construction business in his early 20s.
"I find it gut-wrenching," Mr. Humphris said. "I have been in
tears today."
Hochtief took majority ownership of Leighton by buying up its
stock in 2001, but relations with the board have often been tense.
Mr. Humphris was appointed chairman last year after three members
of its board quit because of differences with Hochtief. Leighton
had also reshaped its board in August 2011, after its then chairman
and chief executive departed within 24 hours of each other.
"It is no surprise Hochtief has looked to increase their stake
and put its senior management in--everyone knew that was a highly
probable outcome," said George Boubouras, Melbourne-based chief
investment officer at Equity Trustees Ltd., which doesn't own
Leighton stock. "But nevertheless the events of this week and how
quickly it all played out was amazing."
By stopping short of a full takeover, Hochtief avoids triggering
refinancing of debt through change-of-control provisions. The
company is also eager to maintain a free float to support
Leighton's listing on the Australian Securities Exchange, which
could be looked on favorably by government entities awarding
contracts.
Still, the increased board representation will give Hochtief
more strategic control of the company, including a wide-ranging
review under way that has the potential to deliver cost
reductions.
Leighton, which is valued around A$7.5 billion and is the
world's biggest contract miner, has been working to rebuild its
balance sheet and bolster its flagging share price after
problematic infrastructure projects in Australia led it in 2011 to
report its first annual loss in decades. Its order book has been
increasingly filled by deals to build projects from casinos in
Macau to airports in the Middle East, as revenue from contracts to
move earth at mine sites such Australia's vast iron-ore pits
falls.
Analysts worried the latest reshuffle of top management could
damage the business. "Given the importance of people and expertise
in a construction business, this does risk eroding some of the
franchise value of Leighton's businesses," Macquarie wrote in a
research report.
Mr. Fernandez Verdes gave few hints about his plans for the
group. "I need to know, I need to understand, I need to talk to my
colleagues' before publicly disclosing any new strategy for
Leighton, he said.
Write to Rhiannon Hoyle at rhiannon.hoyle@wsj.com
Subscribe to WSJ: http://online.wsj.com?mod=djnwires