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UPDATE 3-Leighton woes hit Hochtief, may help predator ACS

Published 04/07/2011, 06:12 AM
HOTG
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* Hochtief unit Leighton expected to cut profit outlook

* Leighton shares put on two-day trading halt

* Hochtief drops 7 percent; ACS buying might stall fall

(Recasts, adds background on ACS offer, shares, Hochtief comment)

By Sonali Paul and Josie Cox

MELBOURNE/FRANKFURT, April 7 (Reuters) - Hochtief shares fell 7 percent on Thursday on fears its 2011 profit will be hit by problems at Australian unit Leighton -- a setback that may help Spanish predator ACS to move in.

Leighton is expected to cut its profit forecast for a second time this year, analysts said, after Australia's top contractor sought a trading halt on its shares pending an update on its guidance.

Hochtief said it expected a knock-on effect on its own business, resulting in significant adverse effects on its outlook for the year.

By 1000 GMT, Hochtief shares were trading 7 percent lower, underperforming Frankfurt's 0.3 percent weaker mid-cap index and the wider STOXX 600 European Construction and Materials index, which was down 0.4 percent.

German brokers said the drop should be limited as suitor ACS would use the opportunity to snap up shares in a bid to build a stake of more than 50 percent of Hochtief.

In February, ACS's stake in Hochtief passed the 30 percent threshold, allowing the Spanish builder to raise its holding further without another mandatory bid.

ACS wants Hochtief to help it diversify away from Spain's struggling construction sector, and Leighton was seen as the main prize in any deal.

"Leighton was always one of the things that made Hochtief appealing to ACS. A profit warning would be a mixed blessing," said an analyst in Germany who asked not to be named.

An ACS spokeswoman told Reuters last week that the Spanish group -- headed by Real Madrid soccer club president Florentino Perez -- now held 41 percent of Hochtief.

Hochtief shares have gained more then 20 percent in value since ACS first mentioned the possibility of bidding for the company in September as it sought to compensate for its domestic exposure and relieve pressure from its 8 billion euro debt pile.

At the current share price of 71 euros, it would cost ACS almost 500 million euros to reach 50 percent.

HEFTY PENALTIES

Analysts in Australia said Leighton's new profit downgrade was likely to be significant given Leighton put its shares on a halt for up to two trading days.

"It's obviously material," said an analyst who declined to be quoted ahead of the company's update.

Leighton is facing delays on its two biggest projects, the A$4.2 billion Airport Link road in Brisbane and a A$3.5 billion desalination plant near Melbourne.

The company first trimmed its full-year profit forecast in February to a net profit of around A$480 million, after floods in Queensland and Victoria hit work on its projects.

With the company having flagged potential issues in February, the market consensus for Leighton's profit for the year to June 2011 is about 10 percent below Leighton's forecast, at A$429 million, according to Thomson Reuters I/B/E/S.

Other factors that could dent its outlook include further writedowns on its Al Habtoor Leighton construction joint venture in the Middle East and the final outcome on the sale of a stake in its Indian business, analysts and fund managers said.

Leighton wrote down the book value of its stake in Al Habtoor Leighton by 11 percent in February to A$845 million.

Leighton's shares closed on Wednesday at A$28.94, down 1.6 percent, after a newspaper said the desalination plant's contractor faced hefty penalties as the project was six to 12 months behind schedule.

"If Leighton does cut its outlook, Hochtief's earnings before tax goal of 1 billion euros ($1.43 billion) may well have to be cut by 10-20 percent," said a Frankfurt-based analyst, who declined to be named.

Hochtief said there was no sign that its forecasts for 2012 and 2013 would be affected by Leighton's woes. It said it expected more specific information to be available once Leighton had finished reviewing its outlook, no later than April 11. (Editing by Balazs Koranyi, Vinu Pilakkott and Ben Hirschler)

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