BREAKFAST DEALS: Leighton gripe

Leighton Holdings may have found a short-term solution to its leaky balance sheet but convincing the market that it has learnt some hard lessons may not be that easy as some investors bay for chairman David Mortimer's head. As for the construction giant's former boss Wal King, he is busy laying the boot into the government's NBN, with grave warnings of severe cost blowouts. Meanwhile, litigation funder IMF looks to spearhead a legal fight over RiverCity Motorway's Clem 7 tunnel, Fortescue boss Andrew Forrest revives talk of a Hong Kong float and Glencore edge closer to it mammoth IPO – but not everyone is convinced about the Swiss giant's corporate governance record. Elsewhere, Rio Tinto runs into some trouble in India, and just what's holding up the mooted merger between Foxtel and Austar?  


Leighton Holdings

Leighton Holdings shares took a dive as the construction giant returned to the market yesterday but the main thing is that the company has managed to raise the money it needed to ride out the current slump. Leighton's management may have found a short-term solution to heal its balance sheet but they now face a much tougher task of convincing the market that there isn't more pain on its way and that it has finally learnt some lessons on PPP projects like the Airport Link and the Wonthaggi Desalination plant. That may mean some changes to its corporate ranks and The Australian Financial Review reports that Leighton chairman David Mortimer could be the man under fire. According to the paper, some shareholders are clamouring for Mortimer's departure, which makes sense given that former CEO Wal King left before the extent of the writedown was made public. Targeting Mortimer as a scapegoat, for his failure to rein in King, may be a little unfair but the kneejerk reaction is wholly understandable under the circumstances.

Wal King, NBN

Speaking of Wal King, the revelations of Leighton's leaky boat have put the spotlight on his legacy but the construction industry veteran obviously isn't too concerned, as he put his two cents' worth on the national broadband network. Actually, given his experience it was probably more than just two cents and his straight shooting style would have no doubt pleased his listeners in Sydney yesterday. King was addressing a lunch hosted by the Liberal think tank Menzies Research Centre and reports say the industry veteran has warned of severe cost blowouts for the network due to the difficulty of taking the fibre from the street to the home. The numbers presented were pretty impressive, with the cost of connecting an average house possibly reaching as high as $20,000.

RiverCity Motorways, IMF, Aecom

There's an interesting twist to the troubles surrounding collapsed toll road operator RiverCity Motorway, with investors set to take legal action against the company that provided the traffic projections for RiverCity's Clem 7 tunnel. Litigation funder IMF is spearheading a $700 million class action against traffic modelling forecaster, Aecom Australia (formerly called Maunsell Australia), which accuses Aecom of provided misleading information about the projected traffic flows for RiverCity's project. According to Fairfax papers, Aecom had estimated the average daily number of vehicles using the Clem7 tunnel to exceed 100,000 a day by 2011; however, an earlier study by the forecaster for Brisbane City Council's Environmental Impact Study had thrown up a traffic volume figure of 57,000 a day by 2011. The number had a critical bearing on RiverCity's successful listing in 2006 and the IMF alleges that had Aecom revealed them at the time in the product disclosure statement, investors would have had a fair picture of the viability of the project. The actual traffic numbers for Clem7 average a dismal 24,000 vehicles a day – nowhere near the forecasts peddled by Aecom.  This is the first time a forecaster has been chased by angry investors for providing inflated figures and it will be interesting to see if IMF has enough ammunition to take Aecom to task.

Fortescue Metals, Glencore

Fortescue boss Andrew Forrest has again flagged a possible listing on the Hong Kong exchange. Forrest has reportedly told the AFR that he is looking to list the miner's magnetite iron ore resources to raise funds for the expansion at the Pilbara. He has also played down talk that he was thinking of stepping back from running the day-to-day operations of Fortescue. At this point there is no guarantee that a float will take place. Moving to listings that are very much on the cards, Swiss commodity giant Glencore has filed for a $US9 billion to $US11 billion float in London and Hong Kong next week. However, it's not all smooth sailing, with some raising concerns about transparency and corporate governance. According to Reuters, not everyone is happy with the way in which Glencore filed for the IPO without a chairman in place and many were even more annoyed by the haphazard way in which former Hutchison Whampoa chief, former French Legionnaire and polar explorer Simon Murray was installed as the chairman. The appointment of former BP boss Tony Hayward has also caused a fair share of consternation, as has the appointment of former Minara Resources and Xstrata Coal boss Peter Coates.

Wrapping up

The mooted merger between pay TV operators Foxtel and Austar United looks to have gone into hibernation and while the market has attributed the delays to the rather complex set of negotiations between Foxtel's shareholders – Telstra, Consolidated Media and News Limited – and Austar's major shareholder Liberty Global, The Australian suggests that there may be whole different reason for the hold-up.  According to the paper, Telstra and Foxtel are locked in talks on a side deal over use of Telstra' hybrid fibre coaxial (HFC) cable to deliver Foxtel's content to homes. Foxtel has previously raised the issue of switching all of its customers over to satellite to save the $80 million or so it pays the telco for use of the cable, which will be rendered useless by the NBN anyway. However, the paper reports that Telstra is trying to keep Foxtel hooked on the cable for as long as possible to gain some leverage in its talks with the government. Meanwhile, grocery giant Woolworths is reportedly eyeing a piece of New South Wales pub owner, the Laundy Hotel Group, in a move similar to its existing deal with Bruce Mathieson's ALH Group. According to the AFR, Woolworths has approached the Laundy family to take a stake in their growing hotel portfolio. Elsewhere, Goodman Group and its Dutch partner APG may have a fight on their hands if they are serious about going after ProLogis European Properties. PEPR's majority stakeholder US-based ProLogis has now lobbed an offer of its own to scoop up the remaining shares in PEPR. ProLogis is currently in merger talks with rival AMB Property Corp in a deal which will give AMB a large presence in the United Kingdom and Eastern Europe. Finally, Rio Tinto's diamond dreams in India have come to a temporary halt with news that the miner has fallen foul of the government. According to The Sydney Morning Herald, Rio's plans to start exploration at the Bunder mine in Central India, however, the miner is being challenged at the Indian High Court for breaching local environmental laws.