Australia's Leighton Holdings unveiled a profit warning and plans to sell part of its Indian business, sending its shares down by 10 percent and hurting its parent Hochtief's valuation.
Leighton, whose German majority owner Hochtief is fending off a takeover bid from Spanish builder ACS, announced the impending sale of 35 percent of its India business in the context of wanting to make up for a quarterly profit stumble.
It said in a statement, which appeared as investors were distracted by a local interest-rate decision, that cost blowouts at an Australian airport road-link project and a strong local dollar had contributed to the September-quarter earnings shortfall.
Leighton's stock fell by as much as 10 percent and closed down 7 percent at A$33.75. Hochtief's shares were down 1.1 percent at 60.95 euros at 1033 GMT. ACS's all-share offer currently values Hochtief at 59.36 euros per share.
"Due to its sum-of-parts valuation, the decline in Leighton's share price is felt by Hochtief, which owns 54.5 percent of Leighton," WestLB analyst Ralf Doerper said.
Leighton said after-tax operating profits for the year to end-June 2011 would come in at around A$510 million ($504 million), short of market expectations for around A$664 million -- unless Leighton can sell the stake in its Indian business.
"Negotiations for the sale of a stake in the group's Indian business are also expected to be finalised in the next few weeks which should allow the company to report a full year profit result in line with market expectations," Leighton said.
Operating profit had also been hurt by a separate recent profit warning from one of Leighton's listed affiliates, mining services firm MacMahon Holdings, Leighton said.
MORE MUSCLE THAN EVER
Hochtief, mindful that a decline in its share price would make it easier for ACS, which already owns 29.9 percent of Germany's largest builder, to take control, issued a statement reaffirming its 2010 forecast.
According to the forecast, new orders and order backlog are seen above the prior-year level, sales roughly on a par with 2009, and pre-tax profit and consolidated net profit slightly above last year's figure.
"We have more muscle than ever. Our corporate divisions are growing," Hochtief Chief Executive Herbert Luetkestratkoetter said in the statement, adding that since Sept. 30, Leighton has been awarded more than A$3 billion of work.
Hochtief said it made a provision in its 2009 accounts for the Airport Link in Brisbane, whose cost overruns hit Leighton's earnings, and that effects beyond this would be offset by the strong Australian dollar and other parts of Hochtief.
Leighton did not specify the gain expected on the impending sale of the India stake, but said this would more than offset the combined A$85 million hit to earnings in the September quarter. Details of the terms, including the profit, will be released when the Indian sale is completed, Leighton said.
The Indian business accounted for just 2.4 percent of the group's operating revenues in 2009/10.
Hochtief failed in its first attempt to use Australian regulators to thwart ACS's low-ball bid, as the Australian Securities and Investments Commission declined to force ACS to make a takeover bid for Leighton.
Australia's Takeovers Panel said last week that Leighton had requested the panel to take action that would limit ACS's voting rights in the Australian firm or else force the Spanish construction firm to buy out Leighton's minority investors.
Hochtief is also seeking white knights, including the state of Qatar, that would help it block ACS, and on Monday German government sources told Reuters that Chancellor Angela Merkel has quietly signalled backing for its efforts to find new investors.