The deal achieves Leighton executive chairman Marcelino Fernandez Verdes’ goal of reducing duplication among the various Leighton companies and injects fresh capital into the Australian group, to be used to pay down debt.
The new JV will offer communications, energy solutions, asset, environmental and infrastructure services, as well as the Visionstream communications business.
A binding agreement struck with America’s Apollo, which already has $US164 billion in assets under management, will see it pay out $700 million in cash to earn into the services business.
The services business was collectively valued at $1.075 billion, a fraction of the $US8 billion Apollo reportedly paid out for US pet supplies retail chain PetSmart, but on par with the $1.1 billion Leighton recently secured for the sale of its John Holland business to a Chinese state-owned enterprise, China Communications Construction Company.
“As part of the strategic review announced in June 2014, we have undertaken a thorough analysis of our services business to ensure we maximise opportunities in the growing industrial and civil infrastructure services sector,” Verdes said.
“By choosing to partner with funds managed by Apollo, a leading global investment management firm, we gain access to Apollo’s expertise in creating a single, integrated and efficient business which will be better able to compete in the Australian market place.
“Moreover, we will continue to have exposure to the growing services market with its longer-term contracts and steady cash flows, and we will be positioned to allocate funds to the improvement in our gearing and balance sheet, and to the financing of future growth.”
Leighton’s gearing will be reduced by a further 10%, and is now down 14% over the past few weeks from Septembers from the 33.7% level, with debt slashed by almost $1.5 billion.
Apollo, which is seeking to almost double its assets under management by the end of the decade to $US300 billion, said it was entering “two great businesses" in partnership with Leighton.
“We look forward to working with the services business team to grow a world-class industrial and civil services company focused on continuing to deliver extraordinary results to customers,” Apollo’s Asia-Pacific boss Steve Martinez said.
The new JV business will be one of the largest such services firms in Australia with combined 2014 revenue of more than $A2.2 billion, around $A4 billion of work in hand and some 6400 employees, although it is likely there will be come job cuts as the two businesses merge functions.
Leighton and Apollo believe the business will be best positioned as a focused, independent business, led by a dedicated and experienced board and executive team.
The services business will provide a comprehensive range of operational maintenance, design and construction, remediation, and asset and facilities management services to clients across the resources, telecommunications, transport, energy, water, health and industrial sectors.
“The investment partnership with Apollo funds simplifies and focuses our structure, both the services business and the Leighton group, and supports our goals of delivering sustainable returns to all Leighton shareholders and competitive solutions to our clients,” Fernandez Verdes said.
Thiess and Leighton’s services management will work with the new services business board and executive team to ensure a smooth separation and integration process.
Leighton was originally expected to sell of its whole services business for $1 billion.
Hochtief is controlled by Spanish construction group ACS.
Another Spanish firm, Ferrovial, is believed to be interested in buying up Leighton’s Transfield Services business.
