Sweeter bid puts Macmahon in a Leighton bind

SEMBAWANG Australia has cranked up the pressure on Macmahon Holdings by lobbing a hostile counter-bid for the contractor's construction business - which is already in the process of being sold to Leighton Holdings.

The subsidiary of Indian conglomerate Punj Lloyd upped its original offer to buy Macmahon's construction arm from $25 million to $38 million. Alternatively, it has offered to trump Leighton's separate offer, to acquire the major projects within the business, by $5 million.

The aggressive move puts Macmahon's management in a tight spot, obliged to consider a financially superior offer, while risking turning its back on its major shareholder in doing so.

Sembawang has also threatened legal action against the sale of the business to Leighton, alleging it approached Macmahon in November - before it signed the memorandum of understanding with Leighton which prevents it from granting a third party due diligence.

"Sembawang has been eyeing Macmahon's construction business for over four years now and believes that the time is right to make this offer given the fit in strategies for both companies," said Sembawang chief executive Richard Grosvenor - himself a former Leighton executive.

Leighton owns 24 per cent of Macmahon, and has shown strong financial support in a difficult time for the contractor.

With cash-strapped Macmahon hit by a major profit downgrade, Leighton stumped up for its full entitlement in a heavily discounted equity raising last month, as well as participating in the institutional shortfall bookbuild.

In return, Leighton and Macmahon signed a memorandum of understanding for major projects within the construction business, which has since progressed to a purchase agreement. Leighton says it expects the purchase agreement to be honoured. But the deal remains subject to shareholder approval at an extraordinary general meeting to be held next month.

Shares in Macmahon closed 0.5¢, or 1.8 per cent, higher at 28¢ on Thursday.