Concern was building late last week that the leadership at Lendlease might be divided over what to announce in its strategy day on Monday.
If the Lendlease share price is anything to go by, investors in the company are anticipating a disappointing outcome.
It has been drifting lower in the past 10 days, closing down 4c on Friday to $5.89 after trading at more than $7.80 a year ago.
While a buyback is usually a lever companies pull to get some support for the share price, there’s a view that this could put further downward pressure on the Lendlease stock, with investors questioning how it will pay for the returns with its net debt at $3.7bn at December and a $4.1bn market value.
Speculation has been mounting that there has been strong disagreement within Lendlease management about the best way forward, and that exactly what was to be presented to shareholders was still being finalised as late as Friday.
Various activist investors, management and directors are all believed to have slightly differing views about how to address the builder and developer’s challenges, and chief executive Tony Lombaro has been working to appease investors.
While Lendlease is expected to announce a global retreat from construction, leading to thousands of job cuts over time, the fear is that the company will not take the hardline approach needed to reduce bloated head office costs and hive off enough of its unprofitable projects to place in run-off mode.
The China operations may be hard to sell.
Lendlease is keen to sell its retirement business.
Not sidelining unprofitable projects could lead to further distractions for management.
If such projects are not run by the right people, provisions could be worse.
It is expected that the initial financial hit from the construction retreat will be between $500m and $700m on Monday, but further costs will need to be accounted for down the track.
Hiving off construction or global operations to focus on the Australian operations may highlight the limitations of what has been considered the best part of the Lendlease business.
While it’s not disputed that Lendlease builds first-class projects worldwide, the Australian unit has its problems.
Sources have suggested that tensions have been mounting among its senior ranks.
One of its top performers, David Paterson, who runs construction in Australia, has jumped ship to rival Built.
Some think a number of his team members will follow him to his new employer.
And then there’s the elephant in the room – the Victoria Cross office project in North Sydney, which Lendlease is proceeding with largely unleased.
Lendlease lowered the value of the asset lower in February, triggering a $28m hit to earnings.
Major developments include the $4.9bn Elephant Park in Britain., which is in partnership with the government, the $4.2bn Milano Santa Giulia mixed use development in Italy and the $11.2bn Euston station in the UK.
It has halted its Van Ness office tower in San Francisco.
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