Hochtief offers $1.05 billion to raise Leighton stake to 74 percent, steer strategy

SYDNEY Mon Mar 10, 2014 3:57am EDT

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SYDNEY (Reuters) - German builder Hochtief AG (HOTG.DE) plans to spend over $1 billion to lift its majority stake in Australia's Leighton Holdings Ltd (LEI.AX), seeking to push through restructuring at a business that already delivers most of Hochtief's profit.

Hochtief, which currently owns 58.77 percent of Leighton, said on Monday it aims to raise its holding in Australia's biggest builder to 74.23 percent for A$1.155 billion ($1.05 billion) in an off-market offer that requires regulatory approval. Leighton's shares jumped 11 percent on the news.

Germany's biggest builder said it wants more seats on Leighton's board to reflect the bigger stake. Hochtief said it would work with the board to review operations, focusing on "whether existing businesses of Leighton can be more efficiently structured".

The offer comes a year after Leighton's former chairman quit in a row with Hochtief, saying he felt the German builder no longer supported his company's independence. [ID:nL3N0CE15A] Leighton reported a 30 percent jump in its full-year profits last month, benefiting from a building recovery in Australia, and also has a strong pipeline of projects in Asia.

The Hochtief move also echoes the gradual acquisition strategy adopted by its own largest shareholder, Spain' ACS (ACS.MC), in its drive to become a major global player in the construction industry. The Spanish firm owns 49 percent of Hochtief and is expected to gain more control at Hochtief after the German builder announced plans to cancel shares.

Since ACS took control in 2011, Hochtief has since launched a wide-ranging transformation that includes cost cuts and the sale of airports and other non-core assets, which brought proceeds of 1.8 billion euros ($2.5 billion) last year. Leighton contributed about 90 percent of Hochtief's group pretax profit in 2012.

Despite the broadly positive reception among Leighton shareholders, credit rating agency Moody's said it would be placing Leighton's Baa2 issuer rating under review for a possible downgrade, citing uncertainty regarding its future financial and business profile.

"The review also considers Moody's view that Hochtief and its majority owner ACS have lower credit quality than Leighton," Maurice O'Connell, a Moody's Vice President and Senior Analyst, said in a statement.

BELOW 75 PCT

In a telephone interview, Hochtief chief executive Marcelino Fernandez Verdes said the German company would keep its holding in Leighton below 75 percent.

"The reason is because we wish that Leighton's business operations to continue as normal, and we want to avoid possible disruptions into our aligned finance arrangements," he said. The CEO declined to specify how many directors Hochtief ultimately aims to have on Leighton's board.

Under terms of the offer, Hochtief plans to make a conditional off-market offer to acquire 3 out of 8 shares not already owned by Hochtief for A$22.15 cash per share.

The offer is subject to the approval of Australia's Foreign Investment Review Board, it added. Hochtief will dispatch a detailed bidder's statement by the end of March.

Having touched a one-year high of A$23.15, Leighton shares closed 11 percent higher at A$23.09. Analysts said the move could boost ACS and Hochtief's global expansion plans.

"They see it as a really good opportunity to consolidate the business and gain greater access to those markets," said Morningstar analyst Ross Macmillan.

"That (74 percent stake) puts them in a very strong position on Leighton's board ... so it gives them almost virtual control of basically everything that occur at Leighton," Macmillan said.

Leighton said in a statement that its independent directors would consider the bid, but declined to comment further.

Hochtief said it has reserved its right to "depart from the informal and non-binding governance principles" now in place at Leighton, although it added it continues to support the current independent chairman Robert Humphris.

($1 = 1.1016 Australian dollars)

(Reporting by Maggie Lu Yueyang; Additional Reporting by Matt Siegel; Editing by Kenneth Maxwell)

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