License article

Macmahon supports 'unfair' asset sale

MACMAHON Holdings will push ahead with the planned investor vote over the $25 million sale of its construction assets to key shareholder Leighton Holdings, even though an independent expert has queried whether the price is adequate.

The finding is likely to put Macmahon's management in a tight spot as it continues to reject an informal approach for the business from India's Sembawang, which has tabled a better offer for the assets.

Ernst & Young labelled the planned sale to Leighton as ''not fair, but reasonable'' as Leighton was offering a discount to the fair value of the construction assets.

Indeed Ernst & Young concluded that the construction assets were valued between $31.3 million and $35 million. Although, after taking into account the all-cash nature of the transaction and the formula to the sale valuation, the discount Leighton seemed to be getting for the assets was between $1.4 million and $5.2 million, Ernst & Young said.

''The proposed transaction is not fair to the non-associated shareholders of Macmahon,'' Ernst & Young found in its assessment of the deal. Even so, it concluded the minority shareholders were likely to be better off if the proposed transaction went ahead.

Sembawang, a subsidiary of Indian conglomerate Punj Lloyd, has said it is prepared to pay as much as $38 million for the construction arm but has not been able to push ahead with due diligence given Macmahon has signed an exclusivity deal with Leighton.


In a statement Macmahon said its independent directors continued to recommend shareholders support the sale of the business to Leighton. The discount was ''comparatively small'' relative to the market capitalisation of Macmahon and the potential costs if the sale did not proceed.

''The proposed transaction is in the best interests of Macmahon's shareholders, providing certain terms, limited conditions and low risk to completion,'' the statement said. The shareholder vote on the planned sale is scheduled for February 26.

Macmahon chairman Ken Scott-Mackenzie said the planned sale to Leighton would provide certainty for the company.

''Our construction business was not positioned to be competitive or deliver sustainable earnings in the future due to its insufficient scale, high overheads and challenges in attracting and retaining key management personnel,'' he said.

''By selling the majority of our construction projects, we will be able to focus on building the strength and reputation of our mining operations, which reduces our risk profile and is expected to deliver more consistent and sustainable earnings.''

He also urged shareholders not to be ''distracted'' by the recent approaches from Sembawang, noting the independent directors had rejected the conditional nature of the transaction.

Sembawang has threatened legal action against the sale to Leighton, alleging it approached Macmahon in November - before it signed the memorandum of understanding with Leighton that prevents it from granting a third party due diligence.

Leighton owns 24 per cent of Macmahon, and has shown strong financial support in a difficult time for the contractor. With cash-strapped Macmahon hit by a big profit downgrade last month, Leighton stumped up its full entitlement in a heavily discounted equity raising and also took part in the institutional shortfall book-build.