Leighton, the majority shareholder in Macmahon with a 19% interest, entered into the $A25 million deal with Macmahon on December 24.

As the construction business became increasingly competitive, Macmahon made the decision to exit that industry in favour of turning into a dedicated full-service mining contractor.

The company will retain roughly $40 million in construction plant and equipment, as well as $5 million worth of rail plant and equipment to either use in its mining business or sell separately.

An independent assessment by Ernst & Young found that the transaction was not fair to non-associated shareholders, but was reasonable.

It estimated Macmahon’s construction businesses were worth between $1.4-$5.2 million more than what Leighton offered.

Despite the discrepancy, Ernst & Young said it believed non-associated shareholders would likely to be better off if the deal with Leighton proceeds.

“In particular, we note that the extent to which we have assessed the proposed transaction to be not fair is comparatively small relative to the market capitalisation of Macmahon and also relative to the potential costs that could be incurred on Macmahon’s exit from the construction business in the event that a sale of the construction assets is not affected,” the report said.

“Based on the results of the analysis undertaken, in our opinion, the proposed transaction is not fair but reasonable to the non-associated shareholders of Macmahon.”

Macmahon’s independent directors have unanimously recommended that shareholders vote in favour of the proposed transaction. Chairman Ken Scott-Mackenzie said the deal will provide future certainty for the company.

“Our construction business was not positioned to be competitive or deliver sustainable earnings in the future due to insufficient scale, high overheads and challenges in attracting and retaining key management personnel,” he said.

“By selling the majority of our construction projects we will be able to focus on building the strength and reputation of our mining operations, which reduces our risk profile and is expected to deliver more consistent and sustainable earnings.”

Macmahon has spent much of the past month fighting off unsolicited offers from Singapore-based Sembawang Engineers and Constructors, including a bid of $38 million for the whole of the construction businesses and an offer to exactly match Leighton’s terms but beat the price by $5 million.

Scott-Mackenzie said the board had given thorough consideration to the Sembawang proposals and unanimously rejected them.

“To walk away from the certainty of the transaction with Leighton in the hope of doing a better deal with Sembawang based on a highly condition, indicative proposal is an unacceptable risk which is considered not to be in the best interests of our shareholders,” he said.

“The actions of Sembawang to date certainly discourage any such leap of faith.”

Sembawang threatened Macmahon with legal action to force the consideration of its proposal.

It also released emails between Sembawang president and CEO Richard Grosvenor and Macmahon CEO Ross Carroll dating to November which indicated Sembawang had expressed interest in purchasing the construction businesses prior to the Leighton deal.

Sembawang has accused Macmahon of acting against the interest of its shareholders when spurning the alternative offers.

“This is an egregious action taken by the board of Macmahon who appear to have something they don’t wish the market to discover and is possibly due to the fact that the company was in financial distress before a capital raising,” Grosvenor said on January 11.

“The minority shareholders of Macmahon are the losers here.”