Leighton sells John Holland division to Chinese 11 Dec 2014

Peter Kenyon, TunnelTalk

Australia-based tunnelling and construction giant John Holland is sold by its parent company Leighton Holdings to the Chinese company CCCC International Holding Limited, a wholly owned subsidiary of the China Communications Construction Company (CCCC).

John Holland sale completed 20 Apr 2015

Leighton Holdings announces completion of the A$ 1.15 billion sale of John Holland to Chinese CCCI International Holding Ltd, a wholly owned subsidiary of the China Communications Construction Company.

“The divestment reduces our gearing and strengthens our balance sheet so that we can be sustainably competitive and invest in future growth, particularly PPPs,” said Leighton Holdings Executive Chairman and CEO Marcelino Fernandéz Verdes.

He added: “The Leighton Group will continue to work with John Holland under its new ownership, both through existing joint ventures and through potential collaboration on future opportunities.”

CCCC, which is listed on the Hong Kong and Shanghai stock exchanges, is the fourth largest construction company in the world by revenue and has a market capitalisation of approximately A$23.5 billion. CCCI will purchase John Holland for an enterprise valuation of approximately A$1.15 billion, subject to certain adjustments.

John Holland has been involved in tunnel construction projects throughout Australia and Asia, and is currently a 25% partner in the multi-billion dollar North West Rail Link (NWRL) in Sydney (which is into construction), as well as being part of the JV that has just been awarded construction of the $8.6 billion Melbourne East-West Link.

Leighton Holdings Executive Chairman and Chief Executive Officer Marcelino Fernández Verdes said: “In June 2014 we announced that, as part of our strategic review we were analysing options for our Services, Property, and John Holland businesses, including the potential divestment of, or introduction of new partners to, these businesses.

“The divestment of John Holland demonstrates the progress we have made with our strategic review initiatives over the past six months to strengthen the balance sheet, streamline the operating model and improve project delivery. Following a comprehensive and extensive global sale process we have achieved a value for John Holland which reflects its position as one of the country’s leading engineering and construction companies.

“The sale supports our focus on further reducing gearing and strengthening our balance sheet so that we can be sustainably competitive. Proceeds will also be used to finance future growth, particularly in PPPs2.”

The sale reduces Leighton's gearing by 10 percentage points, but also reduces its annualised revenue of approximately A$3.7 billion and its work in hand of approximately A$5.4 billion. Some 4,100 Leighton employees will transfer to the new business.

Fernández Verdes said: “The existing John Holland management will work closely with CCCI to ensure a smooth transition so that the business continues to safely and efficiently provide services to its clients.”

The sale is subject to customary approvals including by the Foreign Investment Review Board.

TBM launch for Sydney NWRL
TBM launch for Sydney NWRL

Earlier this year (March 2014) the parent company of Leighton Holdings - Germany-based Hochtief - moved to seize tighter control of its subsidiary by removing the CEO and Deputy CEO of Leighton from their offices, increasing its share in the company from 59% to 75%, and replacing an “informal” board arrangement with one in which its (Hochtief's) interests were represented in line with its majority shareholding. Leighton CEO Hamish Tyrwhitt and Deputy CEO and Chief Financial Officer Peter Gregg were sacked, while three other directors agreed to resign from the Leighton board before the company AGM on 19 May (2014). Hochtief CEO Fernández Verdes was installed as Leighton CEO, along with two other Hochtief-nominated directors: Pedro Lopez Jiminez (a member of the supervisory board of Hochtief), and Jose Luis del Valle Perez.

Hochtief immediately stated its intention to carry out “a general review of Leighton's operating model,” largely as a result of that company’s disastrous losses of some $500 million (with sister company Thiess) through involvement in the ill-fated $4.8 billion Brisbane Airport Link project, one of a number of world class road tunnel PPP projects in Australia that ended up leaving the finance and construction partners involved facing heavy losses as a result of overly optimistic traffic forecasts.

End of excavation on Brisbane Airport Link
End of excavation on Brisbane Airport Link

Losses on this and other projects prompted Hochtief to revise the tendering and risk management practices of all of its Australian subsidiaries: John Holland, Thies and Leighton.
Today's sale is the outcome of that review - but it is only the latest in a number of key acquisitions made by Chinese companies in the underground construction industry and related sectors.

Earlier this year (February 2014) the assets of TBM manufacturing giant Caterpillar Tunneling - formerly Lovat - were acquired by the Liaoning Censience Industry Co Ltd (LNSS), a company it had been collaborating with in the months prior to the May 2013 decision of Caterpillar Tunneling to withdraw from the TBM business. 
Another TBM giant, Wirth, sold all its TBM and shaft boring intellectual assets to China Railway Tunnelling Equipment Co (CRTE) in November 2013; the year before that, in 2012, Chinese company Sany took over another of Europe's premier equipment manufacturers, Putzmeister, a leading manufacturer of concrete pumps and shotcreting systems; and in 2008 Italian formwork specialist CIFA was taken over by Changsha Zoomlion of China. In 2007 the Chinese Northern Heavy Industry Group (NHI), acquired a majority stake in the French-based TBM manufacturer NFM from its then owner, Wirth (whose own TBM assets have also since been sold to the Chinese). Since then NFM has become 100% owned by NHI.

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