Richard Leupen

14 August 2013 — The world of facility management is about to get another shake up, with the long mooted demerger of the engineering business of UGL and its DTZ FM business.

Financial commentators said the move was welcomed by institutional investors and that markets were hopeful that the shares of each of the new entities would be valued more highly than that of the current structure.

DTZ, in particular, is expected to reap the rewards of a recovering global corporate market and growing demand for real estate management services.

The move will take until 2015 to complete and comes after a corporate structure review this year concluded that a structural separation of DTZ and engineering through a demerger provided the best corporate structure for both businesses.

UGL said the demerger would maximise long term value for shareholders by:

  • Enhancing the focus of each of DTZ and Engineering on their distinct business strategies, core competencies and growth opportunities, while providing greater flexibility to pursue their individual strategic objectives
  • Allowing DTZ and Engineering to adopt independent capital structures and dividend policies appropriate for their operational and financial requirements
  • Providing greater investor choice through the creation of two companies each with a single industry focus
  • Increasing clarity thereby allowing investors to independently value DTZ and Engineering
  • Ensuring the long term interests and future opportunities for employees in both DTZ and Engineering are maximised.

UGL managing director and chief executive officer Richard Leupen said following the establishment of the global headquarters for DTZ in the United States, UGL was “increasingly seeing the benefits of operationally separating DTZ and Engineering”.

“A demerger will recognise the fundamentally different markets, geographic focus and strategic requirements of the two businesses and we believe that further benefits will result from a complete separation.”

However some commentators were concerned that deteriorating business in engineering and infrastructure will dampen the value of the UGL share price, while the DTZ component is expected to trade well.

Merrill Lynch analyst Duncan Simmonds said in media reports that profit margins for DTZ were at about 5.8 per cent in 2014, lower than the 9 per cent of competitors CBRE and Jones Lang LaSalle.

The group lacked scale in the United States, where property markets were rebounding, but would focus on China, where it has forecast growth of 20 per cent in 2013.

Goldman Sachs will assist UGL through the demerger.

Mr Leupen told The Australian Financial Review that, “in the last six months I haven’t seen any big project cancellations or deferrals,”  after delivering a 70 per cent drop in net profit for 2013.

“There have actually been some positive signs. I certainly wouldn’t be saying we’ve reached definitely the bottom but for us, we’re not expecting [the market] to go much further down.”