Lendlease share price sinks lower on Engineering business sale news

The Lendlease Group (ASX:LLC) share price is sinking lower after announcing the sale of its troubled engineering business…

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In morning trade the Lendlease Group (ASX: LLC) share price is sinking lower.

At the time of writing the international property company's shares are down 3.5% to $18.24.

Why is the Lendlease share price sinking lower?

Investors have been selling the company's shares after the release of a late announcement on Thursday.

That announcement revealed that Lendlease has entered into an agreement with Acciona Infrastructure Asia Pacific to sell its underperforming Engineering business for a purchase price of $180 million.

Management expects the transaction to complete in the first half of calendar year 2020. Though, it remains subject to a number of conditions including client and third party consents and regulatory approvals. The latter includes the Foreign Investment Review Board.

The finer details.

The release explains that Acciona will not be acquiring the NorthConnex and Kingsford Smith Drive projects. These are at least 90% complete and will be finished by Lendlease.

Much to the disappointment of investors, the troubled Melbourne Metro project is also excluded. This project involves the design and construction of the tunnels and stations package of the larger Melbourne Metro Tunnel project. It is being undertaken by a joint venture comprising Lendlease Engineering, John Holland and Bouygues Construction.

Lendlease recently advised that the start of this project has been slower than anticipated and there have been issues in relation to the scope and costs on the project.

The consortium has been working with the government on a confidential basis to resolve these issues while delivering the project to achieve the targeted completion dates. As a result, this project is currently being retained by Lendlease, subject to further negotiation.

This news is likely to be the reason why its shares are tumbling lower today. I suspect investors would have preferred Lendlease to have got rid of this project. Especially after Macquarie Group Ltd (ASX: MQG) warned that the project's costs could negatively impact Lendlease's pre-tax income by upwards of $90 million.

Group Chief Executive Officer and Managing Director, Steve McCann said: "We believe the sale of the Engineering business represents a positive outcome for our people, our clients and our securityholders. Acciona is already a leader in the sector in which they operate. Our skilled workforce, client relationships and existing projects stand to enhance their existing footprint in Australia."

"Today's announcement also represents an important milestone for Lendlease as we continue to focus on the successful delivery of our more than $100 billion global development pipeline," he added.

Motley Fool contributor James Mickleboro has no position in any of the stocks mentioned. The Motley Fool Australia owns shares of and has recommended Macquarie Group Limited. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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