Bids expected for rest of Alfred McAlpine

by John Leitch



With the £440m sale of Alfred McAlpine's housebuilding division to George Wimpey moving rapidly towards a successful conclusion, reports are already surfacing of an imminent bid for the remaining part of McAlpine - the profitable and well-managed construction services division.

Graeme Summers, construction analyst with stockbroker Brewin Dolphin, said on Monday: "It would make Oliver Whitehead, McAlpine's chief executive, a superstar performer."

McAlpine's construction services division last week announced record margins of 5.6% in the first six months of 2000, a staggering figure when most of the construction industry is still struggling towards 2% margins. McAlpine's construction business is run by Ian Grice who has now turned in three years of outstanding results.

Wimpey's bid for the housebuilding division is worth 420p a share. Over the past two years, Whitehead has turned down bids of 235p and 260p for the entire McAlpine group, arguing that shareholders deserved more.

The City expectation is that the £440m from Wimpey will be used to pay off debts of £120m, with a further £100m being returned to shareholders, leaving £220m available for a "spending spree" on service-type companies.

"But institutions are saying that someone will step in for McAlpine before that," said Summers. A quick move for the rump of McAlpine would capitalise on the fact that the group's share price has been held down by its housebuilding division.

Names in the frame are Serco and Mitie, major players in the support services sector, as well as Amey and Interserve, former construction groups that transformed themselves into service providers ahead of the pack.

"The rump looks very attractive," said Summers. "And even without a bid, the cash could fund spectacular growth.

"A bid would make Whitehead a superstar performer: he would have cashed in the housebuilding division at the top end of the market, returned funds to shareholders, and then either bolstered the support services side or seen it sold. It will either merge or grow."

McAlpine announced its interim results (six months to 30 June) last week. Turnover of £440m generated a pre-tax profit of £25m, a rise of £4m. The profit was a result of a 50:50 contribution from housebuilding and construction.

Grice said: "We obtained a 5.6% construction margin by getting into our customers' requirements. Some 40% to 50% of clients allow our teams to work in the same office as their staff." Whitehead added: "We are good at construction."

The City was further impressed with McAlpine's push into the support services sector with Monday's announcement that it had formed a joint venture with Scottish Power, the energy company.

The jv is expected to achieve an annual turnover of £100m - the market for electricity connections being valued at a total of £1bn. "The regulator is turning the screw on everyone," said Whitehead. "This is a business opportunity for us. We will move forward."