UGL considers DTZ spin-off - FT.com UGL, the Australian support services company that maintains the Sydney Opera House, has launched a strategic review that could result in the demerger of its DTZ property business Chairman Trevor Rowe said Sydney-based UGL would examine several options from maintaining its current corporate structure to a spin-off of DTZ. "The review will assess the optimal corporate structure under which UGL should operate to deliver the best outcomes for all shareholders," he said. Various alternatives from maintaining the current corporate structure, reviewing a possible structural separation or demerger of the company, as well as UGL's M&A strategy will be considered. Shares in UGL rose 12.2 per cent to A$10.58, the best performance in the ASX 200 as investors responded positively to news of the review. UGL, which with a market value of A$1.76bn (US$1.8bn) is one of the biggest engineering and maintenance contractors to the Australian resources industry, has been under pressure to consider a demerger. Investors believe the DTZ business would command a higher multiple than the existing company. The property services business has enjoyed strong growth since UGL acquired in 2011 London-listed DTZ for A$120m. The deal helped cement UGL's position in Asia, provided entry into the European property market and gave the business global reach. The division now accounts for almost half of group earnings and is valued by analysts at up to A$1bn on a debt-free basis. By contrast UGL's traditional engineering and maintenance businesses have been struggling. The company reported a 53 per cent fall in half-year net profit last month and lowered earnings guidance which chief executive Richard Leupen blamed on delays and cancellations of major projects in the resources and infrastructure sector. In the past year several big Australian mining projects have been shelved or put on hold in response to a weaker outlook for commodity prices and spiralling costs. The Reserve Bank of Australia expects the level of resource investment to peak at a little over 8 per cent of GDP sometime in the next few quarters. Mr Leupen said on Tuesday the DTZ business, which generates over A$2bn of revenue and employs 47,000 people, was now big enough to be spun off. "Given the substantial scale both businesses have now reached, it is the right time to review UGL's corporate structure to fully capitalise on the strong growth opportunities across the engineering and property services sectors," Mr Leupen said. Analysts said they were surprised by the timing of the review given that UGL is only halfway through a cost cutting programme at DTZ. "Having said that, any potential demerger is still at least nine months away and there is no guarantee that this course of action will be decided on," said John Purtnell of Macquarie Securities. But the potential for a re-rating of the property business was clear, said Mr Purtnell, noting that DTZ's two closest peers, Jones Lang LaSalle and CBRE, trade on prospective price earnings multiples of 15.1 and 16.7 respectively versus UGL on 10.2. "However, this needs to be balanced against the potential derating of the less attractive engineering and operations and maintenance businesses," he cautioned. Goldman Sachs is advising UGL on the review. The company will provide an update by the time of its annual results in August, if not earlier.