May 28, 2005
Multiplex is one of Australia's best-known construction companies, but a series of problems is rocking its very foundations. Kate Askew reports.
It's the seedy underbelly of the country's construction industry - corrupt former police, extortion threats and none-too-subtle reworkings of Mario Puzo's Godfather series in the form of severed kangaroo heads.
The more prosaic financial business pales in comparison.
But it's bad enough - litigation on three continents, a rash of property sales in the space of a month, waning broker support, and the Australian Securities and Investments Commission breathing down your neck.
The combination would be enough to leave the Roberts family wondering why they bothered taking their private company, Multiplex, public in the first place.
Investors were left wondering the same thing yesterday, when the Multiplex board acknowledged it had no idea how much money, if any, it would earn this year.
Executives and directors have bunkered down this weekend to sort out the mess.
It appears that company founder and family patriarch John Roberts, 72, had little choice but to take responsibility. The internal report delivered at Thursday's meeting on what is proving to be Multiplex's vice - the Wembley Stadium project - left the Multiplex board publicly exposed for the second time in three months. Not only were the Wembley losses burgeoning but astonishingly it couldn't say to what extent.
With the corporate watchdog already investigating Multiplex's disclosures over the past six months, the board decided that it, and therefore the market, was uninformed. It called a trading halt.
Roberts senior had "voluntarily resigned" from the executive chairmanship at a marathon board meeting on Thursday. That was in stark contrast to previous weeks when, in spite of health problems as a result of his diabetic condition, he had been "very much back in control", according to a company insider.
Roberts took the blame, and the lesser role of a director. Another boardroom casualty was Noel Henderson, head of the company's construction division with projects that include Wembley.
The board, which had already discussed appointing deputy chairman Allan McDonald as independent chairman, as well as another independent director, decided it was time to act.
Multiplex's problems at Wembley date back to last year with the start of litigation with a sub-contractor, specialist bridge engineering company Cleveland Bridge.
The fallout was so extensive that John Roberts offered to personally kick in $50 million to reimburse the company for any losses. Yesterday it admitted it couldn't be sure that the indemnity would cover the losses.
And all in the face of a British press that has been in uproar over whether the stadium will be delivered on time.
Multiplex's hard-ball tactics with sub-contractors have won it a tough reputation. But in Britain the rules of the game are different. A decade ago, a year-long government and industry-funded inquiry resulted in a construction bill being introduced in the British Parliament that protected sub-contractors.
And beyond Wembley there have been other simmering issues in Britain with concrete sub-contractor PC Harrington.
Henderson, a Multiplex director until Thursday, who retains the chair of its construction division, admitted earlier this week: "We've had a few issues there, but the issues there weren't enough to stop the contract on White City." White City, supposedly one of the jewels in the crown, was sold last week for what appeared to be a loss. The market was spooked and the company's securities tumbled to a record low.
But it is not only in Britain that Multiplex's relationships with sub-contractors have gone awry.
In Dubai, seven sub-contractors were suing the Nasa Multiplex/Al Futtaim Carillon joint venture responsible for the Dubai marina project, claiming more than ££10 million ($A24 million). In an interview last August with the trade magazine Construction News UK, Ashwani Sharma, managing director of one of the sub-contractors, Convergent, said the group would not work with Multiplex again "at any price".
"The report that we had two weeks ago was that it (the litigation) was inactive," says Multiplex's Henderson. "We have only one contractor that has an issue with us and we're still attempting to negotiate a settlement with him."
Henderson wants it known that Multiplex doesn't ever litigate against its sub-contractors, preferring to negotiate a settlement.
Patrick McMonagle's engineering company, Sun Engineering, is suing the Multiplex-Watpac joint venture over the construction of the roof of Brisbane's Suncorp Stadium.
He says working for a Multiplex-Watpac joint venture was his worst experience in 30 years of business.
The design required re-engineering and, having signed an onerous contract making his company liable for the safety of the construction, McMonagle had to finance specialist structural engineering work. Multiplex claimed damages for the extra time it took for the roof.
Henderson says his group had been "unable to negotiate a settlement" because it had been acting on behalf of a division of the Queensland Government that was also involved in the stadium deal. "That's been the frustration for both Sun and us."
However, it's a source of frustration that McMonagle knows nothing about. "That's news to me," says McMonagle, who has never heard of Henderson and says there had never been any discussions of settlement. The Queensland Government was similarly ambivalent about a settlement.
A smaller sub-contractor, Tony Schepis, has been pursuing Multiplex since the early 1990s over two soured contracts in Sydney worth about $1.6 million.
His experience is a common one across the local building and construction industry, where sub-contractors regularly fall out with the bigger contractors. "Most people do get their lawyer to have a look at it (the contract). My lawyer warned me not to sign it; it was erroneous," Schepis says.
Why did he sign it? Schepis explains that Multiplex executive Jim McGreevy told him the provisions weren't aimed at him.
"We started putting together stainless steel parts to go in the kitchens," says Schepis. "(Then) they started changing the specs on us, different than what the original specifications of the contract were."
In building lingo, it's what they call "variations".
"We got on with the job (but) their programming was so unorganised and delayed that we were unable to take any other contract work on (and) we were facing massive, massive downtime."
In the end, according to Schepis, Multiplex was running 22 weeks late.
"Basically the builder creates a paper trail so it shows all the way along the sub-contractor was to blame - then they can sue for damages caused by delays," says a project manager who has worked for a range of construction companies in Sydney.
That, in the same lingo, is called liquidated damages. And given most builders require sub-contractors to put up bank guarantees (about 5 per cent of the total contract value), the onus is on sub-contractors to prove why they should get their money back.
Multiplex gave Schepis back his bank guarantee, but after he signed a deed of release.
Unlike other contractors who limp away from their experience with big construction companies and can't afford litigation, Schepis' obsession with what he sees as his mistreatment at the hands of Multiplex has seen him bombard the company with letters and emails for the past 14 years.
In 2003, Schepis flew to Perth with the now jailed former detective Roger Rogerson.
Schepis and Rogerson drove to the Roberts family's Swan Valley property and called Roberts on his mobile to announce their arrival. Roberts, says Schepis, said he was in London and couldn't see them.
Schepis won't let up. He and a group of sub-contractors are talking to a Sydney law firm about mounting a class action against Multiplex.
It doesn't take too much digging to find Multiplex has other distractions that most public companies don't.
In March, an extortion threat against Multiplex believed by police to be from a disgruntled sub-contractor became public. But in the inglorious building industry, threats against Multiplex and its employees haven't been restricted to a single occasion.
Multiplex employs an accountant, David Hicks, to audit sub-contractors and undertake mediation between itself and its sub-contractors. Last year, severed kangaroo heads were discovered in the hull of Hicks' catamaran, which is moored at Woolloomooloo Wharf, Sydney.
Multiplex has spent about $30,000 for new digital cameras at the Wharf Terraces following the threat against Hicks.
Multiplex doesn't advertise its relationship with Hicks, who works on a contractual basis for it, but there are myriad links.
Hicks often parks a Multiplex/Hicks sponsored rally car in his two car spaces underneath the Wharf Terraces. The terraces were developed by Multiplex and Walker Corp, and Hicks owns one of the apartments. The body corporate for the marina strata at the terraces paid $4000 in fees to David Hicks & Co in 2004 and the residential strata paid $5200 for services rendered.
Apart from Hicks and his troubles, the Wharf Terraces have been a headache for Multiplex since owners began taking up residence on completion of the development in 1998. Some residents have since been up in arms about defects to the properties.
In another threat of litigation against Multiplex, residents voted at a meeting on May 3 to take legal action within 14 days if Multiplex did not agree to fix the problems.
But it is the bigger financial questions that are distracting stockmarket investors. For all the much-touted plans for growth spruiked at the time of its 2003 float, Multiplex has spent the past month downsizing. Smaller is the new bigger at Multiplex.
Suddenly, after spruiking its growth opportunities in Britain to investors, Multiplex last week offloaded its minority stake in the London project White City, its prize British asset, which rival Westfield had been itching to get its hands on.
As soon as Multiplex announced the sale, its securities crashed. Not helping was the company's coyness about whether the sale was made at a loss. It hasn't just been the shrinking price of Multiplex securities and shrinking size of its property portfolio that has created unrest. The company also has been furiously rejigging its finances.
On May 9, the Multiplex Property Trust came out with a $1 billion refinancing. The commercial mortgage-backed securities are secured over various Multiplex Property Trust assets, from shopping centres to office towers.
"It indicates that none of the banks are happy lending on an unsecured asset," says a leading financier.
After questions were raised over Multiplex's financial security last week, the company's banker, ANZ, came out and defended its finances.
The sale of White City unlocks ££220 million in project retention funds.
And while the company's explanations in the wake of the announcements stemmed speculation of the extent of its financial difficulties, again investors questioned Multiplex's management of the move from private to public.
Not helping Multiplex's woes was the sale several weeks earlier of a swag of office assets in Multiplex Trust. Funds garnered from the sale were used to buy half of the World Square retail precinct from Multiplex's own development arm.
World Square was proving troublesome to fill. Multiplex was offering retailers all manner of incentives to take up space, not in the least helped by Westfield's plans to redevelop its city retail precinct.
If the market's twitchiness at the past month's decisions was unreasonable, as some stockbroking analysts have written, yesterday's announcement only served to prove that Multiplex itself can't be sure of the company's financial standing.
Certainly the press in Britain has not let up on speculation since Multiplex's shock announcement on Wembley that the stadium would not be delivered on time.
Earlier this month, The Guardian carried the headline: "New fears over Wembley delay". The story went on to say: "Wembley executives last night admitted that they are unable to guarantee that the stadium construction will be completed in time for the 2006 FA Cup final to be staged there a year tomorrow."
It based that statement on comments from Wembley's chief executive, Michael Cunnah, who it says "acknowledged there could be a delay in the project".
"Multiplex (the building contractors) tell us that everything is on schedule. If they are late, everyone will be disappointed but it will not really be the end of the world. The main thing is that we are building a magnificent stadium for an agreed price."
Multiplex's Henderson says that Wembley Stadium chairman Michael Jeffries called him personally to tell him that Cunnah had been misquoted.
Come Monday, the market will know if he was misquoted or not.