John Laing to chose between homes and PFI projects

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The Independent Online

John Laing, the 150-year-old construction business that has just gone through a year of restructuring, is preparing for another shake-up that will see the outfit split in two.

The company, which last year sold the construction interests that it has always been known for, is also selling its property development division. Laing has also just been through a refinancing exercise, with a £73m rights issue, and a management shake-up. The company will be left as a housebuilder and an infrastructure business working on Private Finance Initiative-style projects.

However, Laing is reconciled to having to choose between the two remaining businesses, as it is not big enough in these activities to run them both.

The last family executive board member, Sir Martin Laing, announced his intention to step down as executive chairman in September. His replacement, Bill Forrester, will take up the position next month. Mr Forrester's first task will be to perform a strategic review to decide whether to jettison housebuilding or infrastructure.

Adrian Ewer, Laing's finance director, said: "We cannot grow both housing and infrastructure. Strategically we have to work out what we want to be."

As both housebuilding and infrastructure projects are capital intensive, Laing does not have the resources to develop both. Mr Forrester will have to divest one of these businesses. Housebuilding requires constant investment in a land bank, while large infrastructure projects require up-front equity investment.

Laing is not a big player in either market, partly because it has been distracted by problems in the construction business that brought the company to its knees.

Last year Laing built 1,375 houses, a fraction of the output of the market leaders, such as Wimpey or Persimmon.

A series of deals in 2001 saw housebuilders merge and the sector continues to look to consolidate. It is likely Laing could find a buyer for its housing unit from one of its competitors that feels to has been left behind by the consolidation process.

Laing would probably be awarded with a much better rating by the stock market if it focused on PFI and outsourcing activities, following firms like Amey and Jarvis before it. Housebuilders usually get little credit from investors.

Laing was one of the pioneers of privately-financed infrastructure schemes in the UK. It secured the concession to build and operate one of the first such PFI projects, the Second Severn Crossing linking England and Wales.

Laing was forced to sell its construction business, founded in Cumbria in 1849, for just £1 in September, to an Irish contractor O'Rourke. Last week it said it would have to take a £117m charge to cover losses and on-going liabilities from this disposal.

Two large construction projects, the Cardiff Millennium Stadium and the National Physical Laboratories, went very wrong for Laing and led to its decision to quit traditional construction contracting altogether.

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