Lendlease Leadership in Question After Possible $2 Billion Metro Tunnel Cost Blowout
Over his ten-year tenure as Lendlease CEO, Steve McCann has steered the business from a measly share price of just $4.87 in 2008 to a $75 billion pipeline of work. However, a disastrous few months for the company – including a failed engineering and services arm, a class action, and rumours of a foreign takeover – have left McCann’s future in the position in question.
Last week, reports surfaced that the $11 billion Melbourne Metro Tunnel project – which Lendlease is delivering as part of the Cross Yarra Partnership, in conjunction with Bouygues Construction and John Holland Group – may incur further costs up to $2 billion.
And the State Government won’t be paying. Victorian Treasurer Tim Pallas said that the contract between the Government and the CYP ensured a “fixed” price for the delivery of works, and had little else to add. “We expect them to deliver the project,” he said.
In an interview with The Age, McCann was hesitant to discuss the speculation. “Melbourne Metro is a very large project with a long way to go. It’s a commercial arrangement that is in confidence and we don’t comment on individual projects,” he said.
McCann was more forthcoming when discussing the group’s troubled engineering arm. Currently facing a class-action lawsuit over $350 million in writedowns last November – which resulted in a market value loss of $2 billion – McCann admitted that the sale of the engineering business was a move to realign the company’s business objectives.
“Fundamentally it’s a market that has a number of risk attributes that are not really consistent with our broader risk profile as a company.”
“I regret the fact that it’s underperformed,” McCann continued. “Clearly, I think the rationale was sound at the time but it just hasn’t worked out the way we had anticipated at all.”
Though Lendlease has had its fair share of issues within the past few months, McCann is quick to balance the discussion with a strong development pipeline.
“Our backlog now sits at $75 billion. So it’s a very significant development pipeline that underpins the business for the next 10 to 15 years,” he said.
This pipeline includes several overseas projects, including a $2.7 billion Birmingham project, a $4 billion development in Milan and a $14.5 billion London contract that Lendlease has secured this year alone.
McCann’s background as an investment banker has helped him shape Lendlease into one of the biggest contractors in the Australian market.
After joining the company in 2005 to run its investment management arm, McCann ascended to CEO in December of 2008 and promptly turned its trajectory around.
As a result, its share prices stabilised, its pipeline steadily grew, and Lendlease came out on the other side of the Global Financial Crisis as a viable business under McCann’s leadership.
But after the events of the past 12 months, it is now a question of whether the positives of Lendlease under McCann can outweigh the negatives – and it seems there are a lot of them.
Ushering in a new chairman last November in Michael Ulmer, the Lendlease board will certainly be considering McCann’s place in the company’s future.
Outgoing chairman David Crawford had been a major supporter of McCann, though admitted in the company’s AGM that the engineering business’ losses came as a surprise to him.
But it seems that McCann will not be going anywhere, as long as he has a say. Speaking on his future at the “great company,” McCann was optimistic.
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