Engineering arm sale in focus as Lendlease faces shareholders at AGM
Construction giant Lendlease is expected to face questions about the sale of its engineering business at is annual general meeting on Wednesday, amid mounting speculation a deal for the troubled unit could soon be announced.
Lendlease announced plans to sell its engineering division in 2018 following a series of delays and cost blowouts to major projects that resulted in multimillion-dollar write-downs.
Market sources have speculated that Lendlease is on the brink of announcing a deal with a European buyer for the business. Lendlease declined to comment.
The company has previously confirmed shortlisted bidders had moved into due diligence on the business. A host of companies have been linked with the division. Many Australian engineering and infrastructure firms have been acquired by offshore buyers in recent years.
Spain’s Ferrovial acquired infrastructure giant Broadspectrum in 2016, while another Spanish group, Acciona, is active in Australia and frequently competes against Lendlease to win major projects.
Another of Lendlease main rivals in Australia, CIMIC, is majority controlled by Spain’s ACS, while in September, Italy’s Salini Impregilo was also mentioned as a possible bidder for the business. Several groups out of Asia – including Japan’s Sumitomo and Korea’s Daewoo – have also been reported as interested.
Last year, Lendlease denied Japanese conglomerate Mitsui was looking at a takeover of the entire group. John Holland’s parent, China Railway Construction Corporation, has also been linked with a bid for the engineering business.
At its full-year results in August, the group reported its engineering division recorded a loss of $461 million before interest, depreciation and amortisation (EBITDA), more than double the previous year’s $218 million.
The speculation over the deal comes as company watchers become concerned about the financial viability of the $11 billion Melbourne Metro project, with expectations the cost overrun has extended to $3 billion. The Age and The Sydney Morning Herald have previously revealed a $2 billion cost blowout for Melbourne Metro.
A legal fight is now brewing between the consortium over the blowouts, which are caused in part by delays and overly optimistic estimates of the costs involved in the massive project, the largest currently underway in Australia.
It is unclear whether the government will wear some of the additional costs, however, if there are defects in the contract it could result in the state government having to stump up some of those costs.
Lendlease’s infrastructure arm has been plagued by cost-overruns on major projects including NorthConnex in Sydney. Over the past 12 months, the construction company has booked impairments of between $800 million and $900 million on the value of the projects held by its engineering business. It is yet to formally detail any additional costs it might incur from the Melbourne Metro.
Any additional cost for the Melbourne Metro project is expected to be worn by the consortium running the project, known as the Cross Yarra Partnership. The Cross Yarra Partnership is led by Lendlease and includes French group Bouygues and John Holland.
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