Hochtief: the next step

Stomping through the reception lounge at Heathrow Airport’s business centre, Dr Hans-Peter Keitel pauses to help himself to a handful of mints from a bowl on the counter. “I’ll just take some of these,” murmurs the giant German.

Keitel, like his company Hochtief, is on the look-out for tasty morsels. Since Keitel was made chairman and chief executive in 1992, the contractor has picked up small stakes in construction firms in Asia, Australia and Europe. In the case of Dutch contractor Ballast Nedam and Australia’s largest contractor Leighton, Hochtief has taken its shareholdings up to 48%.

Appetising as these small portions are, rumour abounds that Keitel is hungry for more. Hochtief’s closest German rival, Philipp Holzmann, was the target of a failed bid by the contractor last year. However, after the £800m corruption scandal that led to Holzmann’s bankruptcy and then rescue by the German chancellor, it could be up for grabs again. Building interviewed Keitel before the Holzmann revelations. Its attempts to speak to him since have been stonewalled by public relations officers who insist that “Hochtief has no interest in buying either all or part of Holzmann”. Some analysts think differently.

UK contractors are watching their backs, too. Last year, Hochtief was believed to have offered P&O £350m for Bovis, and in recent months, rumours have flown around the City that it could buy stakes in Carillion, Balfour Beatty and even workhorse contractor Birse. As it turned out, Hochtief went across the pond and bought US construction manager Turner for £140m, and it is now busy pushing through a lightning 100-day integration programme.

So, how did Keitel end up with such a mish-mash? Sitting back in his chair and popping another sweet in his mouth, he stresses for at least the third time that he is and will always be “an international man”. After joining Hochtief in 1988 from German engineering consultant Lahmeyer, for two years he was responsible for the renovation of the international business, a strategy he continued when he was made chairman.

“In 1992, there was a big boom in eastern Germany. At the time, I warned that we should be very careful not to end up looking back one day and saying we missed an opportunity worldwide because we were looking in our own back yards,” he says.

So, while rivals like Holzmann and Bilfinger & Berger focused on the easy pickings in the east, Keitel looked elsewhere. The end result is an international business that now accounts for 53% of Hochtief’s earnings – and that figure does not take into account the Turner acquisition. If Turner’s £2.48bn turnover was added to Hochtief’s £4.2bn, Hochtief would leap to second place in the top 300 contractors league.

The Turner acquisition came about because Keitel wanted to win more business from global clients. “You cannot be international and convince clients you can follow them worldwide if you haven’t got a good presence in the North American market,” he insists. “And if I do business with Anglo-American clients, they are used to the Anglo-American way of doing business –such as construction management – so we need to be able to do it, too.”

It is this reasoning that has led to the rumours that Keitel is keen to grab a slice of the British market, although Keitel says he has no specific target. “There are always several UK companies on the market, and we are always offered them,” he says, matter-of-factly. “But we are trying to find out whether we can build a presence through Ballast Nedam [parent of UK firm Ballast Wiltshier. If this does not happen, we will do something else.”

There are always several UK companies on the market and we are always offered them

Keitel admits to a certain respect for his UK rivals. “I admire how my British counterparts handle their businesses with a stretched balance sheet. This is something I am not used to.”

Hochtief has gained a lot of clout from the formidable balance sheet of its parent company, German utility-based conglomerate RWE, which has a 56% stake in the contractor. This has helped it to stay relatively healthy while most of its competitors have suffered in a depressed German domestic market - in 1998 construction output fell 4.1%. Keitel agrees that the market is showing signs of picking up, but says: “We still have overcapacity and the price war has not ended yet.

“Margins have been squeezed terribly,” he continues. “If we had not changed our strategy completely, we would not have survived.” This strategy involved considerable downsizing. Staff numbers have fallen from 20 000 to 12 000 since 1994 as Keitel has moved the company away from the German tradition of employing all staff full time, rather than using subcontractors.

While Keitel is busily pulling together his international interests, analysts eyes are fixed on Berlin, where Hochtief has come under a cloud over allegations of industrial espionage on a bid for the privatisation and expansion of Berlin Airport, Europe’s biggest infrastructure project since the Channel Tunnel.

Hochtief has moved into new business areas such as airport management in a bid to boost profit, but now a shadow has been cast over this strategy. Rival bidder IVG alleged that Hochtief’s £1.95bn winning tender awarded in May was corrupt. The Berlin authorities told both companies to rebid for the job.

A response to the company’s second bid is expected before Christmas but three of Keitel’s senior employees are still under investigation over the affair.

Keitel admits that he has found the scandal embarrassing, but insists: “I am pretty confident. We won it first time, so why shouldn’t we win it second time?” He continues with typical doggedness: “If we do not, we will not stand there and cry.”