multiplex overarches

  • Date:01 Oct 2005
  • Type:CompanyDirectorMagazine

Multiplex Over-Arches

 

Multiplex, the once private WA construction company went public and went to England. It won the right to build the new Wembley Stadium but it has now discovered that the culture of a private company doesn’t travel well. Editor John Arbouw reports

 

John Roberts must be wondering how it could go so wrong so quickly. Multiplex, the company he started in Perth in 1962 is now fighting battles on several fronts. Almost two years since the intensely private group went public and raised $1.2 billion, the share price is struggling, its major project – Wembley Stadium – has large cost over-runs and some of its shareholders are taking legal action over the accuracy of the disclosure of these costs.
What concerns both investors and ASIC is the prospectus Multiplex used to raise capital to fund acquisitions and its ongoing business last November. Just before the release of the prospectus, investors were taken around the Wembley site and told that the troubles with the sub-contractor building the huge steel arch over the stadium was resolved and things were back on track.
By January, the Wembley scenario was less than rosy – the crucial issue being whether Multiplex knew the seriousness of the situation but didn’t disclose this in the prospectus. In February, John Roberts offered Multiplex $50 million from his own funds as an indemnity against losses on the Wembley project.
While Multiplex will survive, albeit bruised and battered, the story of what lead up to its present problems will become a case study in how a private family company went public, expanded internationally and assumed its Australian-built corporate culture could deal with British unions and contractors.
It is one thing to go public and raise capital for expansion and growth but the downside is that you lose the type of control that made the company successful in the first place. As Roberts found out the hard way, the role of executive chairman, even one who retains a major shareholding, is not the same as that of an owner/manager.
His resignation as chairman a few months ago and that of the Multiplex’s UK managing director Noel Henderson has hardly stemmed the flow of bad news, investor dissatisfaction and regulatory scrutiny. And while son Andrew continues as CEO, the accuracy of the forecasts in the prospectus will ultimately reflect on Andrew Roberts as well.
It was all very different back in 1962. Multiplex, like other construction companies such as Leighton Constructions was born out of the post-war construction boom and the realisation by state governments that their own public works authorities could not keep up with demand.
The need to bring in private contractors to supplement government workforces was also not as simple as it appeared. Politics, influence and favours have always been the winning trifecta of government dealings and in his home state of Western Australia no one played this game better than John Roberts and Multiplex.
   The formula was simple. Understand the politics, secure the contract and then make a deal with the unions to get the job done on time and without disputes. It proved to be a winning formula and crucial to Multiplex’s success and the development of its corporate culture.
   In the 1980s, the America’s Cup, the Perth and Fremantle building boom and a huge eastern states market became the catalyst for the WA construction company to try its luck interstate and start bidding for Sydney jobs.
Multiplex followed the same trifecta in the east with great success. The crowning achievement was building the Sydney Olympic stadium which became the launching pad for international expansion.
And Roberts and Multiplex had also learned a few lessons from the “wise men in the east” as West Australians are fond of saying when referring to eastern consultants.
Multiplex needed growth beyond the construction business and the model it chose was that devised by Lend Lease founder Dick Dusseldorp. Lend Lease and its construction arm Civil & Civic was a successful construction company (Sydney Opera House, Australia Square, MLC building).
It wasn’t until Lend Lease bought out MLC in 1985 that the group diversified into property development, rental and financial services. The concept of a construction group comprised of engineers moving into businesses beyond their obvious discipline was radical for the time.
Lend Lease became very successful precisely because it applied an engineering process and attention to detail to the financial services area and almost all the major construction companies in Australia tried to emulate its success, including Multiplex.
It is the reason Multiplex is now a diversified property business listed on the Australian Stock Exchange, employing more than 1800 people across four divisions: property funds management, property development, construction and facilities and infrastructure management.
However, while it diversified and grew, the culture remained essentially the same. It was still John Roberts’ company and it was still doing business his way.
 Roberts had firmly established his reputation as a tough no-nonsense negotiator who was able to court politicians on the one hand and deal with shop stewards and construction union officials on the other. So why should England be any different?
The construction game is about winning the project by putting in the lowest bid even a loss-making bid. But if you have enough projects on the go then the profits can be smoothed out – and most importantly your reputation is enhanced to provide an edge in the next round of project bidding.
In Australia, you can make a low bid for a contract and then try to gouge out extra cash from state governments using contract variation arguments. You can also squeeze sub-contractors desperate for work but with the Wembley Stadium project this modus operandi came unstuck.
Not only was Multiplex having trouble with its subcontractors but also there was a rash of disputes with the workforce. Costs were blowing out especially with the huge steel arch over the stadium.
In a recent Four Corners story on Multiplex, the editor of UK trade journal Construction News described Multiplex’s entry into Britain as being like the British football team Millwall:
“I think they prided themselves initially when they came over as ... sort of the Millwall of construction ... Millwall is an English football team whose motto is ‘No-one likes us, we don’t care’.”
On August 18, Multiplex announced its annual result. The company told shareholders that is had lost $62 million on its construction division.
Multiplex Group CEO Andrew Roberts said: “The result is very disappointing and has been significantly impacted by the substantial losses experienced at Wembley Stadium. Progress since the introduction of an accelerated works program has been encouraging and we remain on program to hand over at the end of March 2006. However, despite this, the company has made a further $8.6 million after tax provision today as a contingency against residual risks that remain until project completion.”
If the ASIC investigation turns up adverse findings in terms of disclosure, it may well mean the resignation of Andrew Roberts as CEO. If this happens, then the private family construction business that went public to chase growth will most likely be run by accountants while John Roberts sits on the sidelines.
John Roberts and Millwall football club certainly have one thing in common. It was never about the money, it was the game of winning or losing that provides the ultimate thrill.