Australia's Lend Lease to buy Bilfinger unit for A$1b

SYDNEY: German construction firm Bilfinger Berger has sold its Australian unit to property developer Lend Lease for at least A$1.055 billion (RM3.3 billion), cutting its exposure to the volatile construction sector after pulling a planned initial public offering (IPO) of the unit earlier this year.

The acquisition of Valemus Australia will make Lend Lease the country's second-largest contractor after Leighton Holdings and will help it expand market share, keep skilled workers in tight labour market and boost earnings, analysts said.

Shares in Lend Lease jumped as much as 6% on the deal.

Bilfinger canned an initial public offering of Valemus in July, citing weak stock market conditions, just as Greek sovereign debt worries roiled global markets. Bilfinger has been looking to shrink its operations in the highly cyclical construction sector to focus on service activities and had hoped to raise up to A$1.1 billion in a float.

UBS real estate analyst John Freedman estimated the acquisition could boost Lend Lease's earnings per share as much as 17% in fiscal 2012, faster than the company's own estimate for a 15% rise.

"It would seem to me they certainly got it for a price at reasonable margin below what the value of the IPO was," he said. "From that point of view, they have been very patient and it's a good deal. It's 15% plus accretive for Lend Lease. So that's strong upside to earnings."

With the deal expected to close in the first quarter of 2011, the final price could be between A$1.055 billion and A$1.7 billion, depending on the timing and a variable component.

Ken Atchison, managing director for Melbourne-based consultant firm Atchison Consultants, said the acquisition reflected the Australian tight labour market, where keeping skilled workers rather than heading off to resources projects in the Western states poses a challenge for many construction firms.

"There are a whole a lot of variables sitting in there. It requires quite a skill to be involved in construction," he said. "They are buying skills and the market share."

"If you can get two dominant participants, you can also get pricing power," he added.

Australia's unemployment rate fell to 5.2% in November while the employment rate rose to a record 66.1%, indicating the economy is not far from full employment. Employer groups have repeatedly warned that tight labour markets and particularly a shortage of skilled labour could lead to wage inflation.

The Lend Lease deal comes just a day after Australian plumbing and building suppliers firm Crane Group rejected a takeover offer from New Zealand's Fletcher Building.

Valemus has a 4% share of an estimated A$120 billion in Australian construction and engineering work up for grabs each year. The deal makes Lend Lease Australia's second-largest contractor after Leighton Holdings .

It said it will fund the deal from existing cash reserves and a new 5-year A$225 million debt facility. Lend Lease said its gearing after the deal would be about 5.8%. — Reuters