Lend Lease to Buy Valemus for $1.05 Billion After Bilfinger Drops Unit IPO

Lend Lease Group agreed to buy Bilfinger Berger SE’s Australian division Valemus Ltd. for A$1.06 billion ($1.05 billion), five months after the German construction company scrapped plans to list the unit.

Lend Lease, Australia’s largest developer, shares jumped the most in a year after it paid 24 percent less than the price Bilfinger had sought for the unit in a planned July public listing. The sale, subject to approval from Australian anti- trust authorities, should be completed in the first quarter of 2011, according to a regulatory filing by Bilfinger.

The purchase will help Lend Lease, which is building the A$6 billion Barangaroo South financial precinct in Sydney, expand its road, rail and other construction businesses, the Sydney-based company said in a separate filing. Bilfinger, based in Mannheim, Germany, pulled a planned initial public offering for Valemus to raise as much as A$1.39 billion after investors balked at the price.

“It’s a good strategic move for Lend Lease to increase exposure to Australian engineering construction before the expected large upswing in activities, and the price also looks very good from their perspective,” Will Seddon, who helps manage about $350 million at White Funds Management Pty in Sydney, said in an e-mail. “From Bilfinger Berger’s perspective, whether this was a better option isn’t all that clear. An IPO may have done a lot better in the current market.”

Australia’s S&P/ASX 200 Index has climbed 12 percent since July 6, when Bilfinger said it wouldn’t proceed with the IPO of its Australian unit. Lend Lease shares jumped 5.9 percent to A$8.75 at the 4:10 p.m. close in Sydney, the biggest gain since Dec. 1, 2009.

Cash Reserves

Lend Lease is paying a A$960 million purchase price, plus A$80 million and four A$5 million payments to Bilfinger in lieu of 2010 profits that won’t be distributed, Iwona Polski, a spokeswoman for the Australian company, said by telephone.

The developer said in the filing it will fund the purchase from existing cash reserves and a new five-year A$225 million debt facility. In return, it will gain control of Valemus subsidiaries Abigroup, Baulderstone and Conneq and more than 150 contracts held by the company, Lend Lease said.

Bilfinger will use the net cash inflow, more than 500 million euros ($656 million) after it repays a 125 million-euro loan to Valemus, to fund expansion of its services business, it said. The company, whose projects have included the Sydney Opera House and the city’s Anzac Bridge, has said it wanted to sell the unit to reduce its dependence on construction and build up its services business.

Room to Grow

Lend Lease reported A$1.6 billion in cash and A$700 million in undrawn debt facilities as of June 30, which gave the company “significant capacity to fund growth opportunities,” Chief Financial Officer Brad Soller said in an earnings statement to the stock exchange on Aug. 16.

Standard & Poor’s and Moody’s Investors Service affirmed Lend Lease’s BBB-and Baa3 long-term ratings after today’s announcement. S&P said the acquisition is consistent with the company’s growth strategy, and Moody’s said it will enhance its earnings diversity.

“Although we believe that the debt-funded acquisition will absorb most of the group’s debt capacity at the ‘BBB-’ rating, Lend Lease retains significant flexibility over its capital- expenditure program and has a long track record of capital recycling to minimize the impact of growth expenditure on the group’s balance sheet,” S&P credit analyst Paul Draffin wrote in a report.

To contact the reporter on this story: Nichola Saminather in Sydney at nsaminather1@bloomberg.net

To contact the editor responsible for this story: Andreea Papuc at apapuc1@bloomberg.net

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