LEI Stalks MAH

By Glenn Dyer | More Articles by Glenn Dyer

Back in March, in a little-noticed interview on margin enhancement and growth, the retiring CFO and deputy CEO of Leighton Holdings, Dieter Adamsas, had this to say about expansion and growth, especially of new contracts:

"We've been able to garner the people resources to get the company running at about $12 billion in revenue annually, but to take it significantly above that in the short term is a tough challenge unless we bought another company.

"Our balance sheet is robust to the inth degree and we can generate facilities to allow us to take on work way in excess of where we are. The financials aren't the issue; the issue for us is people. That's our only constraint at the moment."

That interview was the corporatefile open briefing on the ASX and came after the company's interim earnings and surprise acquisition of 40% of Queensland property developer, Devine.

But the key point in the interview was the remark about growing above $12 billion in annual revenue without buying "another company".

Well Leighton is there now at annual revenues of at least $12 billion, but probably growing at a rate faster than that figure.

And yesterday there came the news that Leighton had made advances to smaller WA based engineer, Macmahon Holdings Ltd, about developing "a closer relationship", but had been spurned.

Macmahon told the ASX it had rebuffed the offer and then Leighton confirmed to the ASX yesterday morning that it had taken "a small stake" in Macmahon, which the target put at 4.9%.

So, Macmahon's shares rose by around 13c to $1.35 on turnover of more than 42 million shares as punters, hedge funds and other opportunists hopped into what looks like becoming a corporate play: and not at the current price. Most of those were bought by Leighton which now holds around 12 per cent.

Leighton shares rose 52c to $37.42.

With the market a bit rough and uncertainty the story of the day, a nice cash play with the probability of a profitable outcome will do wonders to steady the nerves in quite a few dealing rooms and board suites.

But you'd have to wonder if there's some desperation among the punting shareholders because Leighton made clear it wasn't interested (at the moment, mind you) in making a bid for Macmahon: that would cost more than $700 million, which isn't really much for a company capitalised more than $10.2 billion.

"It is not Leighton Holdings' current intention to make an offer for Macmahon," LEI told the ASX.

Fund managers Hunter Hall, with 11.4% and Acorn Capital of Melbourne (associated with Australian Unity and Goldman Sachs JBWere) with 11.29% will determine if the Leighton approach goes any further. The AMP has 7.4% but has been a seller recently. Oh, drat!

Leighton really wants the corporate and management structure to build new streams of business. It bought HWE from the receivers to get mining contracts, staff and managers and has grown the business. Devine is about doing the same in property and it acquired John Holland and Thiess over the years with the same objective in mind.

It is the first big deal for the new chairman, David Mortimer, who took over this month from Geoff Ashton.

"We have also put a proposal to Macmahon regarding the development of a closer relationship through the issue of new capital to Leighton Holdings to accelerate growth and to jointly pursue opportunities in the resources and infrastructure markets, where they make sense for both parties," Leighton said in its statement yesterday.

"The proposal would see Macmahon remain completely independent."

But Macmahon said its directors "have determined not to pursue the proposal any further.

"The Directors are of the view that the proposal is not, on the basis of the indicative terms presented, in the best interests of Macmahon shareholders," Macmahon said in its own statement to the ASX.

Macmahon said the two companies had had discussions in relation to the unsolicited proposal, under which, it said, Leighton sought to acquire a significant stake in Macmahon by way of a share placement.

Macmahon has appointed UBS, with Freehills and Azure Capital, to advise it.

Leighton said it looked forward to "continuing to have a positive relationship with Macmahon …

"It is not Leighton Holdings' current intention to make an offer for Macmahon and we will deal with our shareholding in the ordinary course of business," the company said.

"Leighton Holdings actively manages its investments which includes buying and selling assets on a regular basis."

Glenn Dyer

About Glenn Dyer

Glenn Dyer has been a finance journalist and TV producer for more than 40 years. He has worked at Maxwell Newton Publications, Queensland Newspapers, AAP, The Australian Financial Review, The Nine Network and Crikey.

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