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COMPANY NEWS Hochtief seizes control of troubled Leighton 13 Mar 2014
Peter Kenyon, TunnelTalk
The CEO and Deputy CEO of Australian construction giant Leighton Holdings - which owns tunnel specialists Leighton, Thiess and John Holland - are removed from their positions as part of a move by parent company Hochtief to seize control of the board and implement "restructuring."
End of excavation on Brisbane Airport Link - a construction success but a financial failure for the Thiess/John Holland construction JV

End of excavation on Brisbane Airport Link - a construction success but a financial failure for the Thiess/John Holland construction JV

The measures, revealed this morning (Wednesday March 13), follow announcement earlier in the week that Hochtief is to make an unconditional share offer for three out of every eight Leighton shares at a market premium of 35.1% above its three month volume weighted average price. The move, once ratified, will increase Hochtief's holding in Leighton from 58.77% to 74.23%. Hochtief announced Monday its intention to end the "informal" make-up of the Leighton board and reconstitute it in line with its majority shareholding, regardless of the outcome of the share offer. Two days later Leighton CEO Hamish Tyrwhitt and Deputy CEO and Chief Financial Officer Peter Gregg were sacked, while three other directors agreed to resign before the AGM on 19 May.
Hochtief CEO Marcellino Fernandez Verdes, current CEO of Hochtief, is installed as Leighton CEO, along with two other Hochtief-nominated directors: Pedro Lopez Jimenez (member of the supervisory board of Hochtief) and Jose Luis del Valle Perez. After securing an increased share offer a Leighton board of independent directors is now recommending the offer be accepted.
Over recent months Hochtief has been revising procurement and risk strategy across all of its subsidiaries following a series of disastrous losses on high value fixed price PPP projects in Australia. Involvement of Thiess/John Holland (both part of the Leighton Group) in the $4.8 billion Brisbane Airport Link is estimated to have cost those companies $500 million after the BrisConnections operating company they formed with Macaquerie to finance, construct and operate the tunnel toll road on a 45-year concession, collapsed into administration. Under the terms of its successful bid for the project BrisConnections assumed all construction and usage risk, but the asset became one of a number in Australia to hit financial trouble when traffic projections used as part of the bid proved to be grossly inaccurate.
Hochtief stated its intention to carry out a "general review of Leighton's operating model," including the possibility of "restructuring" businesses that it owns. These businesses include tunnel construction companies Thiess, John Holland and Leighton, which have been responsible for construction of many large tunnel projects in Australia and Asia.
IN: Marcellino Verdes

IN: Marcellino Verdes

IN: Pedro Jiminez

IN: Pedro Jiminez

Current and future contracts include construction of 15km of twin running tunnels for the North West Rail Link in Sydney (with Dragados); design and construction of Springleaf Station and associated tunnels for Singapore Thomson Line; construction of Jalan Besar Station and associated tunnels on Singapore's Downtown Line 3; and a 7.5km section of the Hong Kong HATS mega-project. Leighton and John Holland are also part of a JV (with Dragados) that is prequalifed for construction of the $6.8 billion eastern section of the Melbourne East West Link highway, a project that will be let on the availability PPP model and therefore less dependent on traffic volumes.
Increasing its stake in Leighton at the improved offer price of $22.50 per share will represent an additional Hochtief investment in its subsidiary of $1.35 billion, which it will fund through a loan facility.
In Monday's statement to the market Leighton said: "As previously communicated to Leighton and the market, Hochtief has reserved its right to depart from the informal and non-binding governance principles that had arisen between it and Leighton over time. Hochtief intends to increase its representation on Leighton's board to reflect its current shareholding.
OUT: Peter Gregg

OUT: Peter Gregg

OUT: Hamish Tyrrwhit

OUT: Hamish Tyrrwhit

"Hochtief intends to work with the Leighton board to complete the broad-based general review of Leighton's operating model that is currently being undertaken by Leighton management. A particular forus of the review is whether existing operating businesses of Leighton can be more effectively structured."
Leighton Independent Chairman Robert Humphris, who remains, said: "The Leighton Group remains one of the world's leading international contractors with a heritage of successfully delivering infrastructure, resources and property projects across Australia and overseas. Hamish and Peter leave the Group in a significantly enhanced position and well placed to grow as we leverage our footprint across Asia."
"I am personally grateful for the dedication, drive and leadership Hamish has shown during his 27 years of distinguished service with the Group and for Peter's excellent contribution to our financial and strategic direction through a challenging time in the Company's history. I am proud to have worked with them and I wish them every success."
As part of the deal Tyrwhitt will receive a severance package of 12 months pay, dependent on the share offer being accepted. He will also be paid the $1.135 million bonus he was entitled to be paid next month, plus a deal worth $10.2 million for his unvested equity and dividend holdings. Gregg will also receive a 12-month severance package plus his $908,000 bonus for 2013 and $8.19 million for his unvested equity and dividend holdings.
References
Australia suffers toll concession failures - TunnelTalk, July 2013
Sydney awards billion dollar rail mega-project - TunnelTalk, June 2013
Singapore rolls out Thomson Line packages - TunnelTalk, November 2013
Melbourne contracting model to minimize risk - TunnelTalk, November 2013
Brisbane completes Airport Link excavation - TunnelTalk, July 2011
Hong Kong confirms HATS contract awards - TunnelTalk, August 2009

           

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