How Wal King's Spanish fleet took Leighton

Leaving aside the turmoil and mistakes in the Middle East, former long-standing Leighton chief executive Wal King is achieving a type of sweet revenge on the people who removed him as Leighton CEO.

But in the process control of Leighton has changed and its culture has been transformed. Australia’s biggest commercial builder will not find it easy to work in the environment Tony Abbott wants to create in the commercial building industry. But Abbott is also finding the going tough (The making or breaking of Mr. Infrastructure, November 6). 

Sweeping Leighton is the rumour that the major shareholder in the company is now considering changing the Leighton name to ACS (short for Actividades de Construcción y Servicios SA, Spain’s biggest builder). No decision has been made but it is no secret that this has been a long-term aim of the Spaniards. A spokesperson for Leighton today said there were no plans to change the name.  The events in the Middle East have greatly damaged the standing of Leighton and tarnished the name – irrespective of the rights and wrongs.

Over time, the Spaniards will want greater board representation. The prospect of being minority shareholders in a subsidiary of a Spanish company will not fill Leighton shareholders with great joy. Leighton shareholders might prefer a full takeover but the Spaniards would be stretched to undertake such a takeover and, as we have seen in Germany, they prefer creeping takeovers where no control premium is paid.

To understand why Wal King is achieving revenge you have to go into Leighton history and understand that we are looking at final victory in the tribal war that has dominated the company since Wal King transformed Leighton after major acquisitions involving different building cultures.

As I explained two years ago (Leighton's blood let isn't over, Aug 25, 2011), King ran the Leighton construction operation in three tribes, reflecting past acquisitions.  

There was the Thiess tribe, which did co-operative deals with the unions; there was the John Holland tribe, which took a tough line with the unions; and there was Leighton Contractors, which did a bit of both.

At the time Leighton’s major shareholder was the large German builder Hochtief, which built up a stake of more than 50 per cent and Leighton became the major asset of Hochtief. The Germans made no secret of the fact that they favoured the Holland culture, which took a tough line with unions.

Wal King’s three-culture operation worked well for years but it came unstuck at the Westgate Bridge in Melbourne when the unions played hardball against the John Holland tribe. That problem was solved when the Victorian government accepted the Thiess tribe’s tender for the Victorian desalination plant against a lower bid from the John Holland tribe. But the union deal was a nightmare and Leighton lost heavily in the desalination contract. Add to that the losses in the Middle East and the Germans were not happy and blamed King.

The Germans not only engineered King's removal but replaced him as chief executive with a member of the Holland tribe, David Stewart rather than Hamish Tyrwhitt, whom King wanted. Wal King was not happy and did not take this lying down.

It so happened that the largest shareholder in Hochtief was Spain’s ACS. The Spanish became very friendly with Wal King, who encouraged them to embark on a creeping takeover of Hochtief. Step by step ACS lifted its Hochtief shareholding and the Spaniards now control close to 59.9 per cent of the voting rights. Hochtief chief executive officer is now ACS’s Marcelino Fernández Verdes. The Germans, who sacked Wal King, are no longer in charge of Hochtief. The next step is Leighton.

Using its German subsidiary, ACS has also been building up its Leighton shares and now has 55 per cent of the Australian company but is looking to increase that to 60 per cent via creeping share purchases. The Spaniards are in control, although they must be mindful of Australian minority interests. The Middle East events make a change of name possible.

Whereas the German culture aligned with the Holland tribe, the Spaniards are much closer to the unions and equate with the Thiess tribe. Hamish Tyrwhitt replaced David Stewart and most of Stewart’s Holland tribe managers have gone. Leighton now operates in a much more co-ordinated way. Wal King will be smiling, even though the ramifications of the Middle East will be around for a while.