Lendlease’s strategy update in late May is drawing closer and there’s some chatter that the company has to make a decision now on which way it will go.
Apparently, there have been differing views among top decision makers within the global property investor, developer and builder.
The broad consensus among those that know the company well is that the update will probably reveal one of two outcomes – a demerger of its international operations or retaining the current structure with a number of asset sales.
Lendlease has made it known it wants to bring more capital into Australia, which may involve some further exits from offshore operations.
The company’s disappointing performance has left shareholders frustrated, and chief executive Tony Lombardo is under pressure to announce something transformational to show he is righting the ship.
Activist shareholder John Wylie, whose fund Tanarra is an investor, has written to the company’s board,demanding it consider carving off the company’s underperforming international operations, with a slew of assets worth about $4bn to eventually be sold off.
The plan would see Lendlease become a local developer and builder, along with a funds management unit and a successful Singapore operation, in an attempt to regain value after heavy losses in recent years.
But many real estate analysts, deal makers and investors are not convinced this will do anything, and it may be a lengthy and costly distraction.
Market experts believe much of the focus should be on Lendlease’s costs, arguing it has too many jobs in too many departments.
For instance, the company – described by one real estate expert as “a giant octopus” – has an entire sustainability leadership team with five executives.
Some major real estate institutional investors steer clear of the company, claiming it’s too complicated.
Some think hundreds of millions of dollars of costs can be cut.
The challenge for Mr Lombardo is that he is part of the old guard at Lendlease, promoted from within its ranks. Observers say he needs to prove he’s willing and able to make the hard decisions investors are calling for.
Many believe a key marker will be the share price reaction.
If shares fall beneath $5 after the update then management and the board will be nervous (they’re currently at $6.17).
Meanwhile, while Mr Wylie is anxious for a major improvement in the Lendlease share price, so is another activist investor, David Di Pilla, whose HMC Capital owns 0.51 per cent.
There’s a lot riding on the success of Lendlease for Mr Di Pilla too, but the understanding is that he has a differing view to Mr Wylie’s on what should happen.
He needs a win – in addition to the Chemist Warehouse backdoor listing into Sigma (of which HMC Capital is an shareholder) – to demonstrate HMC Capital can make money for its investors.
Until then, there’s likely to be an eerie silence around Lendlease, as bankers (probably Macquarie Capital and Flagstaff) think long and hard about how to improve the iconic Australian construction and property business and restore it to its former glory.
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