Investors back demerger UGL chief targets $1b empire split
Outgoing chief executive Richard Leupen has flagged the $1 billion-plus spinoff of UGL's growing property services empire as he seeks to prove his aggressive foray into property - and away from the group's traditional engineering business - will pay off.
In one of the last acts of what will be a 14-year reign as UGL's chief executive, Mr Leupen said the property services division, which has grown to account for half the group's earnings since the acquisition of global company DTZ in 2011 but had little in common with the broader group, belonged as a separate entity. But he said the decision to proceed would only be made after a review of the group structure was completed by August.
"We think intuitively these companies at some point stand alone," he told BusinessDay. "The question we're asking is, is it now?"
Investors reacted positively to the news, sending shares in UGL 12.2 per cent higher on Tuesday, to $10.58, valuing the group at about $1.8 billion.
But analysts were mixed at the value of a potential demerger, concerned over tax implications and which entity would bear the brunt of the group's debt.
Moelis & Co analyst Simon Fitzgerald said the property services business could be valued at $1.2 billion, but JPMorgan said it could be closer to $867 million.
Mr Leupen said by splitting the group into two listed companies, it would enable both to have separate strategies and investment plans, bypassing the current impasse where both divisions were competing for finite investment capital allocated within the group. It also enabled investors to choose whether they wanted exposure to resources and engineering, or to property services.
"My goal is to place both assets in their right homes with good management to take them into the future, where they can be properly supported and properly valued and properly managed," he said.
Mr Leupen has been widely credited since he joined the company in 2000 for the steady growth UGL has enjoyed, while avoiding dramatic write-downs suffered by some of its peers.
Having been among the first to call the slowdown in the resources boom, he has sought to grow the property maintenance side of the business to secure steadier, if potentially more modest, returns.
But UGL's earnings growth has slowed markedly in recent years, and investors were left particularly disappointed with a weak half-year result last month, reigniting questions over the company's strategic shift towards property services and whether it was too conservative. Questions over his hefty pay - relative to UGL's size - also persist.
UGL has hired Goldman Sachs to advise on the structural review, which will be completed by the full-year results in August. Mr Leupen's contract ends on March 31 next year, but he will stay on if needed to complete the demerger, if it eventuates.
Mr Leupen did not rule out moving onto the board of either of the two demerged companies, but said he would not be tempted to stay on as chief executive.
"I think 13, 14 years in a chief executive job is a long time," he said.