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Turmoil not over for Leighton board

The sudden resignation of the Leighton Holdings chairman, David Mortimer, signals the start of some serious bloodletting at the troubled construction company, which could come as early as today.

The sudden resignation of the Leighton Holdings chairman, David Mortimer, signals the start of some serious bloodletting at the troubled construction company, which could come as early as today.

A great deal should be read into the announced departure of Mortimer yesterday, who was ultimately responsible for the poorly executed succession planning at Leighton.

This included the extraordinary endorsement of the board in accelerating Wal King's succession plans, the loss of key executives such as Nev Power and Bill Wild, and the poor handling of the write-downs and equity-raising, which was first flagged in this column and took the company another week to announce.

There is also believed to be an ongoing exchange of letters between the corporate regulator, ASIC, and Leighton into whether the company moved early enough in disclosing financial problems on key projects.

ASIC's alleged inquiry into Leighton's continuous disclosure practices, which require the company immediately to inform the market once it becomes aware of information that could affect its stock price, stems from the shock warning that it faced its first full-year loss.

The announcement prompted lawyers to investigate whether they have sufficient evidence to launch a class action based on misleading information to shareholders.

Since the Spanish construction giant Grupo ACS took control of Hochtief in May, Leighton has been waiting for the corporate version of a Spanish-German armada. It has now begun. (Leighton is 54.6 per cent owned by Hochtief.)

It is inevitable a number of other board members will follow Mortimer. Some of the most senior executives will also be feeling that their demise may also be imminent. Mortimer's replacement has not been announced, but it would not be a surprise if Stephen Johns is appointed the interim chairman.

It would be an interesting twist if Leighton's major shareholder, Hochtief, approached Wal King, who is believed to have been sounded out for a role on the board earlier this year. King didn't take the job but with Mortimer gone, the way could now be clear.

Moves towards the departure of Mortimer are believed to have started earlier this week when the Hochtief boss, Frank Stieler, flew into Sydney to meet the senior executive team and board at Leighton. A meeting was held Tuesday night and yesterday Mortimer resigned, effective immediately.

For ACS and Hochtief, the key issue with Leighton is share price, performance and transparency.

In the case of the share price, when ACS made a takeover bid for Hochtief, Leighton's share price was trading at $38 a share. After some shock write-downs, a full-year loss and a hefty capital-raising, Leighton's shares are now trading at $21.37.

ACS launched a hostile takeover offer for Hochtief days after Mortimer announced the retirement of King. The talk at the time was that ACS made the move because it was concerned that Leighton, regarded as the jewel in Hochtief's crown, would go off the rails. Given the mess that has since erupted at Leighton, they were not wrong.

Investors are rightly nervous that the Leighton boss David Stewart's profit guidance for next year of $600 million to $650 million might not be met. There are concerns that further blow-outs in its Middle East business and two of its other troubled projects might derail this guidance.

There are concerns the contract conditions to sell 35 per cent of Leighton India to Welspun this year are not as onerous as some industry sources suggest. Or that the Chennai-Nashi road tunnel project in the lower Himalaya mountain range of Indian Kashmir can be completed.

For ACS, it was always a case that Mortimer would need to resign after the perception that Mortimer sided with Hochtief in the takeover.

Leighton's share price fell yesterday when the resignation was announced. It wasn't so much that he will be missed but more the nervousness among shareholders that there might be more bad news. This is a company that more than ever needs strong leadership and a cohesive board. Leighton needs to get its act together. Hochtief has set the wheels in motion.

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