It's the tug-of-love pulling the industry's heartstrings … Is there a long-term home for Bovis with Lend Lease, or could it be snatched by fast-talking, big-spending Multiplex? We review an Aussie soap with a difference.
Speculation over Bovis' future has been an industry parlour game for years. Remember the possible merger with Atkins discussed in 1998, or its plans to float on the stock exchange the year after? Its acquisition by Lend Lease from former owner P&O, a deal that arrived out of the blue in October 1999, was supposed to end such gossip and put Bovis on firm ground for the future. "We want to be masters of our own destiny. Lend Lease gives us that," declared then chairman Sir Frank Lampl after completing the £285m deal.

If only it was that simple. After a big push towards integration in 2000 – when Lend Lease installed 38-year-old Ross Taylor at the helm at Bovis and produced a five-year plan for the firm – doubts have arisen as to whether the two really are destined for a long-term relationship. Speculation reached a head this May, when Lend Lease announced a £3.6bn takeover bid for General Property Trust, which owns a £2.7bn portfolio of shopping centres, offices and hotels, largely in Australia. In the wake of the bid, Sydney-based analysts questioned how Bovis would fit into the newly enlarged business. And when GPT shareholders voiced concerns over the bid, they cited doubts about Bovis' risk profile. All this speculation has travelled across the globe to the UK, leading to speculation after the GPT bid was announced (28 May, page 11) that fellow Australian contractor and developer Multiplex – currently on the acquisition trail in the UK – could be appraising GPT, Bovis or even Lend Lease itself (see "What is Multiplex up to?", page 27). "There are lots of different scenarios out there," says one former Bovis staffer, who has regular contact with old colleagues. Lend Lease boss Greg Clarke acknowledged the level of interest surrounding his firm to Australian journalists last week. "The trouble is you can tie yourself up hypothesising. Speculation is fun if you're not involved."

Speculation stems from the mixed fortunes of Lend Lease since its takeover of Bovis. In 2002, after several years of disappointing results, rumours grew of a split in the business between development and construction on the one hand and property investment on the other. The option of a management buyout at Bovis was also floated, but this appeared to sink without trace when a week-long Lend Lease board meeting in November 2002 decided to sell a different part of its business, US financial services arm Real Estate Investment. At the time, Bovis could have fetched £600m. Given that a large part of Lend Lease operated from these shores, the strategic shift left the distinct possibility of the group, which is quoted on the Australian stock exchange, seeking a UK stock exchange listing.

Just a month after the reprieve of the REI decision, Lend Lease had a new boss. It was not, as had been widely expected within the firm, Ross Taylor, the man who came up with the strategy to sell REI and keep Bovis. Instead, the new appointee was an outsider, former Cable & Wireless director Greg Clarke. His strategy combined pruning and purging. There was a 30% reduction in overheads, a management shake-up when ex-C&W colleague Adrian Chamberlain came in to take over in Europe, 600 job cuts and a £391m write-down in the value of the firm's REI business in America, Asia and Europe.

Bovis feels unloved. They think someone else could make a better job of it

Industry source

This left Bovis looking like a strong part of the business, having posted a pre-tax operating profit of £86m for the year to 30 June 2003 compared with Lend Lease's £234m loss for the same period. At the time, it looked as if contracting and PFI would become the centrepieces of Lend Lease's strategy, a turnaround which led to some self-satisfaction at the firm. "Bovis is like the cat that got the cream," a source at Bovis said at the time.

Everything augured well, but lingering doubts resurfaced when the GPT deal raised its head. These centre on whether Lend Lease has created the integrated property and construction business it aspired to when it bought Bovis. Last June, Clarke himself admitted the ambition had failed. "It is clear that the global strategy has eluded successful execution," he said.

We want to be masters of our own destiny. Lend Lease gives us that

Former Bovis chairman Sir Frank Lampl, speaking in 1999

The property part of Lend Lease has now pulled back into Australia and Europe, while Bovis has established a worldwide spread throughout Europe, America, the Middle East and Asia. "The son has outgrown the father," as one source close to Bovis puts it. "The problem is all the events surrounding Lend Lease have the potential to hold back Bovis." He adds that Bovis' clear brand – which some may say amounts to an arrogant corporate swagger – is an asset or a liability for its parents. "You have to let them be Bovis. P&O had to leave them alone as well and it seems no different under Lend Lease." The boss of a major construction consultant agrees. "I don't think Lend Lease knows what to do with them."

Lend Lease itself has described speculation over Bovis as "unfounded", and Clarke set about reassuring Australian investors last week Bovis was not a high-risk business. He argued that Bovis brought a "valuable set of benefits" to Lend Lease. "To be frank, you don't get 7% growth without a business like Bovis in there," he said. Yet Clarke's decision to decamp to Australia from the UK in order to sell the GPT deal has created pique at Bovis. "They feel unloved. They think someone else could make a better job of it," is one informed comment.

So far, the rumours have not bred mass panic among Bovis staff. "Most people are just getting on with their jobs right now. Events in Australia always seem a long way from the coalface in the UK," one source says. Some in the market claim that the rumours have been deliberately hyped by UK contracting rivals keen to undermine Bovis, especially after it won a string of juicy contracts worth £186m in May alone.

What is Multiplex up to?

A facinating parallel story to the Bovis saga is the unstoppable rise of Multiplex, the Australian contractor which entered the UK market the same year Bovis was sold to Lend Lease. In just five years, the firm has established itself as one of the three or four largest players in the UK, vying with home-grown firms such as Sir Robert McAlpine, Laing O’Rourke and Bovis itself for £100m plus contracts.

Multiplex is currently on site with two of the biggest contracts in the UK: the £357m Wembley stadium (pictured) and the £700m White City retail development in west London, due for completion in 2007. The firm, set up in 1962 by current chairman John Roberts, has already picked up a reputation as a tough player in the marketplace, and has further expansion plans for the UK and Europe. As reported on 25 June (page 11) it has just parachuted in an Australian, Noel Henderson, to take over its UK operations. A company insider last week confirmed to Building that it was looking at acquisitions.

Despite such speculation, a senior source at a construction rival is not convinced about the seriousness of Multiplex’s interest in Bovis. “I don’t think they’re interested in Bovis. I think they are looking at a smaller investment arm of Lend Lease as opposed to its construction interests.”

Others in the market agree. “I think John Roberts would be overstretching himself considerably by trying to swallow Bovis,” one senior commercial client says. “They have enough on their plates.” Meanwhile, other names such as Mowlem, which was stung by a profit warning last week (ironically after problems emerged in its Australian division), have been mooted as acquisition targets for Multiplex.

So if not Multiplex as a suitor for Bovis, who else? American engineering giant Jacobs had been touted as a potential suitor, but as it is now in talks with UK consultancy group Babtie it looks as if it has already found a match. One construction analyst floats the idea that continental groups such as Germany’s Hochtief or Bilfinger Berger, or French supercontractor Vinci, would be keen to gain PFI expertise from the UK and could emerge as interested buyers.