Venetian contractor purchased for $472 mil.

Gary Thompson

Tuesday, Oct. 5, 1999 | 10:50 a.m.

The parent company of Lehrer McGovern Bovis Inc., general contractor for the Venetian hotel-casino on the Las Vegas Strip, has been sold to an Australian real-estate management firm.

The $472 million sale comes in the wake of a Sept. 8 interest rate increase in England that sent British construction stocks tumbling. The stock decline prompted Peninsular & Oriental Steam Navigation Co. to shelve plans to divest its Bovis Inc. construction arm through an initial public offering.

Instead, P&O sold Bovis to Lend Lease Corp., a Sydney-based company that manages real-estate holdings for U.S. pension funds. Lend Lease will merge its Australian and Asian management and construction divisions with Bovis, which will remain based in London.

P&O has been trying to unload Bovis for more than a year as part of plan to focus on its core ferry, cruise and ports business. A tentative deal with a potential German buyer fell through a year ago, when reports of cost overruns on the Venetian project in Las Vegas began to circulate.

Since then, Bovis and the Venetian have been feuding with each other and local subcontractors over who is responsible. The battle has generated widespread publicity in trade publications and piqued the interest of "60 Minutes" producers looking into allegations of fraud in the construction industry, according to one subcontractor contacted last week by the television news magazine.

Some subcontractors who paid union laborers and bought materials and supplies for the Venetian but haven't been paid yet have filed complaints with the FBI and the State Contractors Board, which is investigating whether to revoke Bovis' state license.

As of Sept. 24, contractors have filed 331 mechanics liens totaling $306 million against the Venetian and Bovis. Of that total, $145 million represents claims Bovis has against the Venetian.

The massive number of liens has been consolidated into a single court case, with hearings scheduled for later this month before a special master and a senior judge who are working together to streamline the litigation.

Some subcontractors are seeking foreclosure action against the Venetian, which is trying to "bond around" such liens, thereby erasing the threat of a forced sale and freeing up a bank line of credit.

The Venetian is negotiating with insurance carriers over the premiums for such bonds, which state law mandates must be issued in amounts 1.5 times the face amount of the liens.

Some debt analysts say they believe the Venetian may ultimately be liable for about $50 million of the liens. Collateral for the Venetian's portion of the lien bonds would be the 14 acres next to the Venetian where owner Sheldon Adelson hopes to build another 3,000-room hotel tower, the analysts say.

The potential lien liability hanging over the Venetian prompted Culinary Union attorneys to ask U.S. Judge Philip Pro last week to order the Venetian to post a $160,000 bond in a court case involving workers laid off when the old Sands hotel-casino was closed.

The Culinary won a lawsuit asserting Adelson had violated a federal law designed to protect employees that requires 60 days advance notice of a business closure. Adelson has appealed the verdict, and the union argued successfully that "downturns in the (Venetian's) finances show that delay in this case is likely to make a judgment for the workers uncollectable."

Meanwhile, Bovis has been negotiating with some financial distressed subcontractors, offering them settlements of 30 to 80 percent of the amounts claimed in their liens, according to lawyers involved in the case.

The lawyers say Bovis is offering either a straight buyout of their claims for a discount or a smaller amount of cash up front and a share in any money Bovis might recover from the Venetian if its claims against the hotel-casino are upheld.

The Venetian has asserted Bovis is responsible for the cost overruns due to a guaranteed-maximum-price contract it awarded the firm to manage construction of the $1.5 billion resort.

Bovis has claimed any cost increases were the result of changes in the scope of the project approved by Adelson or his associates.

Attorneys for Bovis and the Venetian recently conducted a secret non-binding "mini-trial" on certain disputed issues to test the strength of their respective cases, lawyers say. Whether the mini-trial resolved any issues hasn't been disclosed.

P&O, the world's third-largest cruise-line operator, is one guarantor of the maximum-price contract the Venetian had with Bovis. The $472 million P&O gets from Lend Lease for the Bovis sale excludes another $50 million in cash the parent took from the construction division.

Bovis was the project manager for Lend Lease's $580 million Bluewater retail and leisure development in southeast England and is working on several projects for Lend Lease in Poland, Spain and the United Kingdom.