By Ross Kelly
SYDNEY--When Australia's Tony Abbott last year promised to
become an "infrastructure prime minister"--putting bulldozers on
the ground and cranes in the sky--his ambition roused boards in
cities from Beijing to New York.
Now, following a raft of deal-making among foreign contractors
and private-equity investors, the winners and losers from Mr.
Abbott's call to arms are becoming clearer.
Takeover deals worth more than 2.0 billion Australian dollars
(US$1.6 billion) combined have been agreed t his month by foreign
businesses including China Communications Construction Co. and
Apollo Global Management. Another overseas raider suffered a
different fate Monday, when Spain's Ferrovial SA dropped plans to
buy Transfield Services Ltd. after its sweetened A$1.02 billion
offer was rebuffed.
For some of the bidders, Australia offers a bright spot in a
world where many governments are trying to balance their books by
reining in spending, including on big new infrastructure
projects.
Mr. Abbott's government has also outlined austerity measures
including cuts to education and health care spending, but sees new
roads and repairs to creaking infrastructure as a way to offset the
slowing in resources investment that has powered the economy for a
decade.
When it released its May budget, Mr. Abbott's conservative
government said it planned to spend A$28.5 billion on
infrastructure projects across the country between fiscal 2015 and
fiscal 2018. Most of that has been allocated to road projects, with
much of the rest dedicated to rail.
Shares of many Australian construction and engineering companies
have come under pressure as resources investment slows and the
country's economy weakens, opening the door to opportunistic
bids.
Acquiring a local operator can have several strategic advantages
for foreign companies. It can knock out a competitor for work being
tendered, while providing immediate access to a local workforce and
management with expertise in bidding for infrastructure contracts.
In a vast country such as Australia, where the terrain can range
from tropical wetlands to the arid Outback, acquisitions can give
foreign companies a national network of operation centers from
which to manage major projects.
Still, foreign companies may find Australia an unhappy hunting
ground as bidding for infrastructure contracts will be fierce.
"Companies could be disclosing big contract wins, but you may find
there will be very little impact on profits." said Simon Mawhinney,
a portfolio manager at Allan Gray Australia, which is Transfield's
biggest shareholder with an 18.5% stake.
In the biggest deal so far, Leighton Holdings Ltd. sold its John
Holland construction business to China Communications Construction
Co. this month for around A$1.15 billion, giving the Chinese firm a
solid foothold in Australia.
Days later, Leighton agreed to sell half of its construction and
mining services arm to U.S. private-equity firm Apollo Global
Management for A$700 million. Bradken Ltd., a manufacturer of
equipment for the mining and construction sectors, and closely-held
construction group Tenix, have also become takeover targets for
local and foreign buyers in recent months.
Not all efforts to gate-crash Australia's infrastructure
carnival have been successful. Ferrovial's revised bid for
Transfield Services was rejected as too low. Back in July, the
Spanish firm dropped a separate offer for Leighton's John Holland
unit after it too was knocked back.
Ferrovial said it had differing views to Transfield of the
businesses' value, as it confirmed Monday that talks had ceased. A
person familiar with the matter said Ferrovial wouldn't be raising
its revised A$2.00 per share offer and wasn't planning to take the
bid directly to Transfield's shareholders.
"We're definitely disappointed it wasn't possible to get a
little bit more," said Mr. Mawhinney, who was seeking an offer
closer to A$2.15 per share. "For us the concern isn't that
Ferrovial have walked away, it's that they've seen something that
we don't know about."
A key stumbling block, the person familiar said, was how to
value a A$1.22 billion contract Transfield holds that is up for
renewal in October 2015. The contract is to service detention camps
on the Pacific Ocean islands of Nauru and Manus, where Australia
runs an offshore visa-processing system for immigrants who try and
enter the country without authorization, often by boat.
Write to Ross Kelly at ross.kelly@wsj.com
Access Investor Kit for Leighton Holdings Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=AU000000LEI5
Access Investor Kit for Transfield Services Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=AU000000TSE7
Access Investor Kit for China Communications Construction Co.
Ltd.
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=CNE1000002F5
Access Investor Kit for Ferrovial SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=ES0118900010
Access Investor Kit for Ferrovial SA
Visit
http://www.companyspotlight.com/partner?cp_code=P479&isin=US3154371039
Subscribe to WSJ: http://online.wsj.com?mod=djnwires
