UGL opens its chequebook to engineer growth by acquisitions

Yet it seems that in the shadows of the financial crisis, chief executive Richard Leupen has pondered all avenues to transform the scale of his $2 billion business. Speaking at the time of the group's annual results last year, Leupen hinted that a healthy balance gave UGL the firepower to make a major acquisition if the right deal emerged.

Since then, sources say that UGL's strategy team has been working overtime, assessing strategic fit and valuation of a range of targets.

Close to the top of the list was Transfield Services, where UGL's analysis is believed to have progressed beyond the desktop, with Leupen opening dialogue with the target. Transfield's market capitalisation of $1.6 billion means it would be the junior partner in any merger; although not by much, as both groups have about 28,000 employees.

Talks look to have been terminated at an early stage when the Belgiorno-Nettis family, holder of a strategic 14 per cent shareholding in Transfield, was lukewarm on a combination with UGL.

Since then, sources say UGL has run the rule over long-time rival Downer EDI, but any plans for a combination with the larger Downer didn't get much beyond the drawing board, and are believed to be at an end.

Leading sector consolidation could position UGL as a more formidable rival to the much larger Leighton operation, but it seems Leupen is yet to identify the right opportunity.

However, with at least one deal in the construction and engineering sector slated to take place in coming months, the float or trade sale of Bilfinger Berger's Australian operations, further jockeying for position may result.

In the meantime, murmurs suggest that UGL has a US rail business in its sights.

PIPE's dreams

SCHEME documents have been released for the recommended $6.30-a-share TPG Telecom acquisition of PIPE Networks and, combined with market jitters, have hushed pre-Christmas speculation that target shareholders were set to squeeze a few more cents out of the bidder.

Ernst & Young has done the honours as independent expert, valuing PIPE at $6-$6.72 a share after applying a 9.5-10.5 multiple to maintainable EBITDA.

A swing factor in any valuation of PIPE is treatment of the undersea cable to Guam that the company commissioned last year; and PIPE's more vocal supporters are sure to argue that the expert has not recognised the potential of this cable. However, the Ernst & Young report is generally uncontroversial.

More curious is the revelation, tucked deep in the expert's report, that PIPE punted $10 million buying shares in listed companies in December 2009. With a recommended offer at a fixed cash price on the table, the PIPE board was in caretaker mode at the time the purchases were made, rendering remarkable any deviation from normal business operations. PIPE has given no clue as to which companies are involved in the investment activity, and a spokesman did not return calls.

Tarnished Crown

HALF-YEAR results for Crown look set to be dragged down by poor results at Melco Crown Entertainment, the casino group's 32 per cent-owned Macau joint venture.

Melco Crown's December-quarter earnings plunged as changes to its arrangements for sourcing high-rolling gamblers dragged earnings down to $US2.7 million ($A3 million) from $US22.4 million in the same quarter the year before.

While a pick-up is expected, Melco Crown's poor profitability has seen Macquarie analysts cut 2010 profit forecasts for Crown by 27 per cent to $255 million despite continuing strong performance from Crown Melbourne and Burswood.

Macquarie has also cut its price target for Crown from $8.70 to $7.94, slightly above yesterday's closing price of $7.65. The reduced share price target follows movement in the value of the group's Macau interests as Nasdaq-listed Melco Crown shares have declined from $US6.21 to $US3.52 since Macquarie's previous valuation.

No aid to rumour

THE odds of Cochlear emerging as the owner of Siemens AG's hearing aid unit must have lengthened after management did nothing to fuel speculation that a major acquisition was on the cards at the company's results briefing yesterday. This rumour quickly gathered currency after surfacing in the slow news days of January.

Having neither completed an acquisition, nor issued shares outside of employment incentive programs since listing in 1995, it would be unlikely that the highly regarded Cochlear would proceed with a $2.8 billion acquisition without sounding out market support for a change in strategy. Without entirely ruling out an acquisition, chief executive Chris Roberts played up Cochlear's organic growth outlook and played down the level of synergies between hearing aid and implant businesses.