Sale of construction leaves Laing to concentrate on housing and PFI business, but City remains unconvinced.
City analysts are already questioning Laing's long-term prospects as management began the daunting task of rebuilding its reputation after the sale of its construction division for £1.

Laing believes the sale, to subcontractor Ray O'Rourke, will allow it to concentrate on its housing operation and PFI projects, but some City and industry insiders remain unconvinced.

The City is still taking in the full impact of Laing's construction losses, announced last week, which were bigger than expected. Analysts are concerned about the knock-on effects on the parent company.

Laing's construction arm posted an operating loss of £82.1m for the six months to 30 June, bringing the total loss to £195.7m in three-and-a-half years.

As one insider commented: "It's been far worse than anyone realised, and that's hurt Laing's standing in the City even more. It's a real shock and will hurt it for a long time."

The scale of the losses has resulted in a 50% fall in the firm's share price – to 112p – and forced Laing to restructure its finances. Executive chairman Sir Martin Laing also announced he was stepping down next January.

"Really, what has Laing got left? It got rid of construction but there are also big question marks over the rest of the firm," said an insider. "There is also a lot of debt – and who will run the business?"

Every potential buyer will know that Laing has to sell assets

City analyst

Laing said it had refinanced loans because reserves had been seriously depleted by the losses and by its acquisition of Hyder Investments for £58m in February.

But the Hyder buy is another sore point with investors, who are questioning management competency. "The Hyder deal was a mistake. It sucked up the cash when it was needed in construction," said one shareholder.

Laing is implementing a three-part rescue package to raise funds. First, it has renegotiated the terms of a £180m bank facility and £74m of loan notes; second, it plans a rights issue to raise another £76.8m; and finally, it aims to sell assets to raise another £120m. The plan is to have all three operations completed by the middle of next year.

Yet analysts are sceptical about how much Laing will raise from a sale. "Every potential buyer looking at these assets will know that Laing has to sell them and will have a gun to Laing's head – much like Ray O'Rourke did when he was buying construction," said an analyst.

Laing needs funds in the next two to three years to finance its PFI business; this in turn will create a cash squeeze until revenue from the completed schemes starts coming through. In addition, analysts fear that a housing downturn will hurt Laing more than most.

The deal at a glance

Laing retains its housebuilding and PFI businesses, but has been hit hard by the £1 sale to Ray O’Rourke. Not only has it booked a £30m loss on the sale, it has also set aside £64.7m to cover further losses on 13 contracts. When the sale is finalised Laing will also have to pump in enough money to keep the construction business going. If the deal had gone ahead on 30 June, the amount would have been £104.1m. As one analyst said: “Usually in a £1 sale the buyer takes the liabilities, but not here. Laing is carrying it all.” O’ROURKE
For his £1 O’Rourke acquires the country’s most famous contracting business, liability for 50 contracts and an order book of £700m. Construction turnover for the year to 30 December is expected to be about £700m. About 1800 highly-trained staff and 2500 operatives will come across. There are also utilities, civil engineering, plant hire and international divisions. Assets worth £27m are also included in the sale. The industry is convinced that O’Rourke got the better deal. The agreement has been under negotiation for about 10 months and will be finalised at an emergency shareholders’ meeting this month.

Laing sale