UGL chief targets $1b empire split
Outgoing chief executive Richard Leupen has flagged the $1 billion-plus spin-off 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.
Mr Leupen said the division, which has grown to account for half of the group's earnings since the acquisition of global firm DTZ in 2011, should be a separate entity. He said the decision whether to proceed would be made only after a review of the group structure was completed by August.
If he does oversee a spin-off, it would be one of his last acts in a 14-year reign as chief executive.
"We think intuitively these companies at some point stand alone," he told Fairfax Media. "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.
Analysts' views on the value of a potential demerger were mixed, with concerns over tax implications and which entity would bear the brunt of the group's debt.
Moelis & Company analyst Simon Fitzgerald said the property services business could be valued at about $1.2 billion; JP Morgan said it could be closer to $867 million.
Mr Leupen said splitting the group into two listed companies would enable both to have separate strategies and investment plans, bypassing the impasse by which both divisions were competing for finite investment capital allocated within the group.
It would also allow 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, who joined the group in 2000, has been credited for the steady growth UGL has enjoyed while avoiding the 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 disappointed by a weak half-year result last month, reigniting questions over the group's strategic shift towards property services and whether it was too conservative. Questions over Mr Leupen's hefty pay packet - 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 reporting period in August. Mr Leupen's contract ends on March 31 next year, but he will stay on if needed to complete a demerger, if it eventuates.
He did not rule out joining the board of either demerged entity, 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. "The companies will be quite different in the new world order if we progress with a separation. Never say never, but it's something that hasn't occupied my mind."
He said he would prefer a corporate job that did not require too much travel, but insisted that, at 58, he had a lot more left to offer.
"I'm probably a bit too young to put out to pasture," he said.
"I've had people approach me and talk to me about different ideas ... I just like business, it's like a hobby to me."