Outgoing chief executive Richard Leupen has proposed spinning off UGL's growing property services empire as he seeks to prove his aggressive foray into property – and away from the group's traditional engineering business – will pay off.
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In what will be one of the last acts of a 14-year reign as UGL's chief executive, Mr Leupen said the property services division belonged as a separate entity. This division accounted for half of the group's earnings since the acquisition of global firm DTZ in 2011, but had little in common with the broader group.
"We think intuitively these companies – at some point – stand alone," he told BusinessDay. "The question we're asking is, is it now?"
Investors reacted positively to the news, sending shares in UGL as much as 10 per cent higher on Tuesday to $10.38, valuing the group at about $1.8 billion.
But analysts had mixed opinions about the value of a potential demerger, raising concerns over tax implications and which entity would carry the bulk of the group's debt.
Moelis & Co analyst Simon Fitzgerald valued the property services business at around $1.2 billion, but JP Morgan said it could be worth closer to $867 million.
Mr Leupen said by splitting the group into two listed companies, it would enable both to have separate strategies and investment plans, bypassing the current impasse where both divisions were competing for finite investment capital allocated within the group. It also enabled investors to choose for themselves whether they wanted exposure to resources and engineering, or to property services.
"My goal is to place both assets in their right homes with good management to take them into the future, where they can be properly supported and properly valued and properly managed," he said.
Mr Leupen has been widely credited for the steady growth UGL has enjoyed since he joined the company in 2000. It avoided dramatic write-downs suffered by some of its peers.
Having been among the first to call the slowdown in the resources boom, he has sought to grow the property maintenance side of the business to secure steadier, if potentially more modest, returns.
But UGL's earnings growth has slowed markedly in recent years, and investors were left particularly disappointed with a weak half-year result last month, re-igniting questions over the company's strategic shift toward property services and whether it was too conservative. Questions over his hefty pay packet – relative to UGL's size – also persist.
UGL has hired Goldman Sachs to advise on the structural review, which will be completed by the full-year results in August. Mr Leupen's contract ends on March 31 next year, but will stay on if needed to complete the demerger, if it eventuates.
Mr Leupen did not rule out moving onto the board of either of the two demerged companies, but said he would not be tempted to stay on as chief executive.
"I think 13, 14 years in a chief executive job is a long time," he said. "The companies will be quite different in the new world order if we progress with a separation. Never say never but it's something that hasn't occupied my mind."
He said he would prefer a job in corporate Australia that did not involve too much travel, but insisted that at 58, he had a lot more left to contribute after finishing at UGL.
"I'm probably a bit too young to put out to pasture," he said. "I've had people approach me and talk to me about different ideas ... I just like business, it's like a hobby to me."
