A senior City source said German contractor Hochtief offered parent company P&O £350m last year and that the WS Atkins bid valued Bovis at £330m. “It’s a steal,” said the source.
In addition to the £285m that Lend Lease paid, P&O extracted £30m from Bovis immediately before the sale, putting the total value of the deal at £315m. P&O says this was a good price for the construction manager. P&O chairman Lord Sterling said: “This is strongly in our shareholders’ interests. Lend Lease’s existing business meant that it was able to offer a good price.”
The City had reacted coolly to P&O’s plans to float Bovis on the stock exchange. City experts said that the flotation would value Bovis at less than £250m.
The disposal took the City and Bovis employees by surprise. P&O was due to publish its flotation prospectus this week, but Bovis chairman Sir Frank Lampl said the deal with Lend Lease offered the best means to preserve the independence of the company.
Sir Frank said: “There will be disappointment among some senior people in the company who shared my vision of being a totally independent company, but the reason Luther [Cochrane] and myself welcomed Lend Lease was that in the current market we wouldn’t remain independent for long. We didn’t care about the price – they had the right chemistry.”
Lend Lease chief executive David Higgins said the acquisition was a further step in its strategy to be a global leader in integrated property services.
Barry Burman, head of Lend Lease UK construction, added: “We are looking at being able to provide a one-stop, more integrated service.”
Burman said Lend Lease wanted to establish partnerships and joint ventures with other developers in Europe. He dismissed fears that blue-chip clients would avoid using Bovis for schemes now that it was owned by a large rival.
He said: “There are more and more developers talking to us about partnerships and joint ventures. We are interested in partnerships with other developers. Bovis has strength in depth and we can offer clients a first-class team.”
However, a number of clients have expressed reservations about a conflict of interest now that Bovis is part of a large developer. One said that it would not use Bovis as a supplier because of its commitments to Lend Lease. But he added that he would have no problems choosing Bovis to tender because it was one of only four companies that could build big shopping centres.
We are looking at being able to provide a one-stop, more integrated service
Barry Burman, Lend Lease
Another developer said: “I think this could be a great opportunity for Mace and Schal to steal some of Bovis’ clients.”
One leading QS said: “I think clients will want to know if they are sitting down with a constructor or a competitor when they talk to Bovis now.”
Paul Morrell, head of QS Davis Langdon & Everest, said: “The deal is private finance initiative- and prime contracting-led. Bovis now has the balance sheet to support the risk involved in PFI and prime contracting, and it has got the skills.
“Bovis is too good not to use, but there a few more questions to be asked. If Lend Lease is successful in establishing a package offer for PFI or prime contracting, that is where its best teams will go. But who will build for my clients?”
Rival construction managers were amazed by the deal. On hearing the news, Exterior director Matthew Giles said: “That’s a bit leftfield.” Schal boss Malcolm Bairstow said: “Well I never. I wonder what it means?” Burman confirmed that Bovis would continue as a separate business, adding that Cochrane would remain as chief executive officer and Sir Frank would stay on as chairman.
“Bovis has successfully operated as a subsidiary of P&O, and structurally, Bovis and Lend Lease will operate in the same way,” he said.
The deal was completed at 6am on Monday after an approach from Lend Lease that led to negotiations last Friday.
Sir Frank said he was informed of the decision only shortly before the deal was closed, hinting that it was as late as the morning that the company formally changed hands.
He said: “I kept out of the negotiations to avoid a conflict of interest. P&O has a responsibility to its shareholders, and as chairman of Bovis I have a responsibility for getting the best benefit for staff. P&O checked with Luther and myself to see if the purchase would be of benefit to the staff and the company, and I said, in my opinion, it would.”
Lend Lease is Australia’s 15th-largest company and is valued at £4.2bn.