The battle to control the country's biggest construction company, Leighton Holdings, will take another turn following a peace deal expected to be brokered this week between Spanish construction giant Grupo ACS and Hochtief.
THE battle to control the country's biggest construction company, Leighton Holdings, will take another turn following a peace deal expected to be brokered this week between Spanish construction giant Grupo ACS and Hochtief.
The move will head off an embarrassing showdown at Hochtief's May 12 annual meeting in Essen in Germany.
The peace deal marks the end of one of the most poisonous cross-border takeover battles Germany has seen. Spain's ACS group, run by Florentino Perez, the billionaire president of Real Madrid football club, is expected to announce today or tomorrow that a satisfactory agreement with Hochtief has been concluded that will lead to significant changes on the supervisory board of Hochtief.
With confirmation of Hochtief's new chief executive, Frank Stieler, at Thursday's AGM, co-operation and an open relationship between ACS and Hochtief will be the new maxim.
For Leighton, which is 54.6 per cent held by Hochtief, the implications are profound. When the Leighton board meets next Monday, its directors, headed by David Mortimer, will be bracing for a showdown with the corporate version of a Spanish-German armada.
Speculation is rife that this will include the return of former Leighton boss Wal King to the Leighton board as a non-executive director. King's retirement plans were accelerated late last year by the Leighton board after a rift emerged between King and the Germans. King wanted to stay on for at least another 18 months, presumably to deal with the underperforming projects that beset Leighton.
Days after King's departure was announced, ACS launched a hostile takeover offer for Hochtief. The talk at the time was that ACS made the move because it was concerned that Leighton, which was the jewel in Hochtief's crown, would go off the rails.
Given the mess that has erupted at Leighton in the past few months, including writedowns in its Middle East business and massive cost blowouts in its Brisbane Airport Link project and the desalination plant project in Victoria, as well as the need to raise equity in a heavily discounted capital issue, Leighton is now in need of strong leadership.
The company needs to stop the infighting by appointing a strong board so that it can start focusing on fixing up the mess and restoring stability.
With a deal struck days before Hochtief's AGM, a showdown has been avoided. Tensions erupted in recent weeks when Hochtief offered ACS one seat on its supervisory board. With more than 40 per cent of the shares, ACS had believed it was entitled to four seats. It threatened to use its shareholding, which is estimated at 45 per cent, along with proxies, to get shareholders to vote on the composition of the supervisory board.
Changes are expected to include the appointment of a new chairman to the supervisory board, Manfred Wennemer, the former boss of tyre giant Continental AG, who will replace Detlev Bremkamp. The departure of former Hochtief managing director and president of the umbrella German industry organisation BDI, Hans-Peter Keitel, is also expected. Keitel fought tooth and nail to derail ACS's bid for Hochtief.
These changes will pave the way for significant changes on the Leighton board.
At its board meeting on May 16, Leighton directors can expect a visit from the new boss of Hochtief, Frank Stieler, and director Angel Garcia Altozano, who is an ACS representative on the Hochtief supervisory board. (German companies have two boards, a supervisory board of independent directors and an executive board of senior management. Australian boards are an amalgam of this.)
ACS will be conscious of the Leighton board's perceived one-sided support for Hochtief's defence against the Spanish.
It will also be cognisant of the Leighton board's role in overseeing massive writedowns, a looming investigation by the corporate regulator and the spectre of litigation as class-action lawyers and litigation funder IMF investigate whether they have sufficient evidence to launch a class action based on misleading information to shareholders.
Leighton chairman David Mortimer has the primary responsibility to run a strong and cohesive board, protect all shareholders and ensure a decent return on investment. On all three counts, Mortimer has floundered.
In the past few months Leighton has lost a string of senior executives, and more are believed to be considering leaving. The decision by the highly respected Bill Wild to leave at the end of next month was a particular blow as he was in charge of sorting out some of the key problem areas at Leighton because of his expertise and corporate memory.
David Stewart took the top job at Leighton on January 1 and almost immediately announced a strategic review.
While a strategic review is sensible, as is looking for cost savings, a concern is that some of the cost cutting might have unintended consequences. For instance an announced cost reduction of $100 million by combining the travel, procurement and IT overheads appears unrealistic. In any event, central control by Leighton of its operating companies is likely to create other problems.
Leighton's bigger government projects have strict probity conditions and so, if there is even a hint that its various competing divisions could access certain information, it would compromise the ability for the operating companies to compete against each other on major projects. This would clearly reduce Leighton's opportunity to secure future work.
It will take strong leadership and deft work to stabilise the company before it gets much worse. King has to take responsibility for some of the problems currently at hand, but he has a proven record of success, and his skills would be best served rehabilitating the company.
Right now the company is struggling with low morale, poor project management and a lack of direction. Leighton has record work in hand, and a strong underlying business, but if it doesn't start concentrating on its business, there may be worse to come.
aferguson@fairfaxmedia.com.au
Frequently Asked Questions about this Article…
What was the ACS–Hochtief peace deal and why does it matter to investors?
The article says Spanish construction group Grupo ACS and German builder Hochtief brokered a peace deal that ended a bitter takeover battle. The agreement avoided a showdown at Hochtief’s May 12 AGM and will bring significant changes to Hochtief’s supervisory board, signalling a shift from confrontation to cooperation — a move that can reduce short‑term corporate uncertainty for investors in both Hochtief and related holdings.
How does the ACS–Hochtief agreement affect Leighton Holdings shareholders?
Hochtief owns about 54.6% of Leighton Holdings, so changes at Hochtief are likely to have direct consequences for Leighton. The deal is expected to prompt supervisory‑board changes at Hochtief and could lead to significant changes on the Leighton board, increased involvement from Hochtief’s new management and an ACS representative, and renewed pressure for stronger leadership at Leighton.
What are the main operational and financial problems at Leighton that everyday investors should know about?
The article highlights several issues: writedowns in Leighton’s Middle East business, major cost blowouts on the Brisbane Airport Link and a Victoria desalination plant project, and a heavily discounted capital raising. It also notes low morale, poor project management and the loss of senior executives — all factors that can affect earnings and shareholder value.
Is Leighton facing any regulatory probes or shareholder litigation risks?
Yes. The article mentions a looming investigation by the corporate regulator and that class‑action lawyers and litigation funder IMF are examining whether there is enough evidence to launch a class action alleging shareholders were misled. These developments pose additional risk for investors.
Who are the key people named in the article and what board changes are expected?
Key names include Hochtief’s incoming CEO Frank Stieler and ACS representative Angel Garcia Altozano. Manfred Wennemer is expected to replace Detlev Bremkamp as chairman of Hochtief’s supervisory board, and Hans‑Peter Keitel is expected to depart. For Leighton, David Mortimer is chairman, David Stewart became CEO on January 1 and launched a strategic review, and there is speculation about the possible return of former boss Wal King as a non‑executive director.
What should everyday investors watch next regarding Leighton and related companies?
Investors should watch upcoming board developments (including the Leighton board meeting noted for May 16 in the article), any appointments or returns of senior directors, progress and outcomes from Leighton’s strategic review and cost‑saving plans, updates on writedowns and major projects, and any regulatory or legal actions that could affect the company’s finances or reputation.
Will the ACS–Hochtief truce automatically stabilise Leighton’s performance?
Not automatically. While the truce removes an immediate corporate confrontation and opens the way for more cooperative oversight, the article stresses that Leighton still needs strong leadership and board cohesion to fix project problems, restore morale and address financial writedowns. The deal is a positive step but not a guaranteed fix.
Could proposed cost cuts and central control hurt Leighton’s ability to win government contracts?
The article warns that centralising control to achieve cost savings could create probity concerns for Leighton’s big government projects. If internal divisions can access sensitive information, it could compromise competition among operating units and reduce Leighton’s ability to compete for and win future major contracts.
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