Independent expert KPMG has declared Spanish-owned German construction giant Hochtief’s $1.2 billion takeover offer for Leighton Holdings as fair and reasonable, but has warned about a number of risks facing the Australian construction group, including its $5.1 billion in outstanding receivables and an ongoing inquiry by the Australian Federal Police.
Leighton’s target statement released today also reveals that Leighton management expects its gearing at the end of the March quarter to be moderately higher than the upper end of the 2014 year end gearing guidance range of 35 per cent. Leighton released its quarterly results early next month.
“However management continues to expect that gearing at year end will be within the guidance range of 20-35 per cent,” the statement says.
Leighton’s board has recommended shareholders accept Hochtief’s proportional takeover offer to increase its stake in the company to around the 75 per cent level.
Hochtief has already released its bidder’s statement, warning that it may make redundancies as it restructures Leighton’s operations under new Leighton chief executive Marcelino Fernandez Verdes.
Leighton’s bidder’s statement notes that Hocthief may take a different approach to collecting $5.1bn in outstanding receivables, which continue to concern investors.
“It is possible that a different approach to the management of receivables may be adopted in future that may result in the ultimate level and timing of recovery of receivables being different than currently expected,’’ the statement says.
It notes that the greater receivables balance in Leighton’s balance sheet will remain until a range of current domestic LNG projects are completed and final agreements negotiated. It says that as at 31 December 2013, these projects totalled in excess of $13 billion and were around 70 per cent complete.
The statement also warns that the investigation currently being undertaken by the AFP could result in charges being brought against any current or former employee, or any entity within Leighton Group.
“Proceedings or any possible fines, compensation orders or convictions that may result, could have a materially adverse effect on the current and future business of the Leighton Group,’’ the statement says.
“For example, such an occurrence may have a material adverse effect on Leighton’s ability to secure future work opportunities, and may also affect its investments and its relationships with suppliers or joint venture partners.”
Former Leighton chief executive Wal King is preparing to be interviewed by the AFP in the next fortnight on allegations that he approved the payment of a bribe on an oil project in Iraq during his time as boss.
Mr King has strenuously denied the allegations.
Leighton’s minority investors have until May 9 to accept the Hochtief offer.