Train for Downer buy passes for now

Workers inside the Downer Rail Manufacturing Facility at Maryborough. Picture: Lachie Millard

The $3.3bn engineering and services company Downer was understood to be in the sights of Brookfield during 2022 for a buyout proposal — the Canadian private equity firm which bid for Origin Energy in the same year.

However, Brookfield walked away from the opportunity and is not thought to have held talks with the board.

It comes amid speculation about what Brookfield might target next, after Origin Energy’s largest shareholder AustralianSuper blocked its $16bn attempt to buy the energy retailer as part of a bid with EIG Group. It had earlier bid for Origin Energy’s rival AGL Energy.

Downer’s shares are up about 48 per cent in the past year after it was sold off on the back of challenges which came after historical irregularities were discovered in its accounts.

They were first brought to light in December 2022 and the irregularities related to its revenue and work in progress, leading it to overstate earnings.

Downer EDI's rail division in Maryborough, Queensland.

Before this time some believed Downer was a break-up candidate, with its parts worth more than the company as a whole, when its share price had almost halved in four years.

Similar claims are now being made about Lendlease and Fletcher Building, and for both Brookfield is seen as a logical buyer if either were to be offloaded.

Brookfield owns the Australian construction company Multiplex, but has been trying to sell the unit, yet it has the expertise for break-up plays across multiple sectors.

Downer comprises the former Spotless business, offering integrated facilities like catering and cleaning for the defence force and government, and healthcare, education and resources industries. It also offers transport, energy and infrastructure services.

Downer is now expected to be far from the minds of any potential buyers as it fights off a class action, and blaming its auditor KPMG over the accounting blunders related to a $600m AusNet Services contract, which was the subject of a major profit downgrade in 2022.

The accounting failures led to three separate class actions, which have now been consolidated into one.

Downer lodged its defence and cross claim this month, and on Monday last week it told the market it was defending the matter, but also lodged a cross claim alleging KPMG was to blame, should blame be apportioned.

Downer is seeking damages and compensation from KPMG.

For the six months to December, Downer reported a 3.8 per cent lift on the previous corresponding period in its net profit to $80.2m as it hopes to improve margins by stripping out costs and operational performance in the year ahead.