Starboard Value LP, an AECOM investor that owns approximately 4% of the company's common stock, is calling on the board of directors to consider selling its construction services unit, according to a letter Peter Feld, Starboard's managing member, penned to AECOM Chairman and CEO Michael Burke this week.
The investment firm said AECOM's construction services unit has experienced earnings volatility and that it is subject to the risks of cost overruns and schedule delays.
A sale, Starboard said, would streamline the AECOM portfolio and allow investors and the company to focus more on the potential of its design and consulting business.
Overall, Starboard said, given AECOM's scale when compared to competitors, there's no reason it should not be able to compete with its peers on margins. In addition, the investment company said that AECOM should use Jacobs Engineering and its "turnaround" during the last several years as an operational model moving forward.
In a statement to Construction Dive, AECOM said, "We have taken and continue to take proactive steps from a position of strength to create meaningful shareholder value as demonstrated through our plan to spin-off our Management Services business into a standalone government services company; our already-executed $225 million margin-enhancing [general and administration expenses] reduction; ongoing review of margin improvement opportunities; our intent to exit all self-perform construction exposure by the end of the fiscal year; and stock repurchases under our $1 billion authorization." The company added that it values shareholder input and will review Starboard's letter.
AECOM announced last week that it was going to spin off its management services unit into a standalone company, which Starboard cited as an opportunity for it to suggest other changes.
It's not unusual for public companies like AECOM to have one or more activist investors try to force fundamental changes in the way the company operates.
Earlier this year, another AECOM investor, Engine Capital, tried to sway shareholders in the runup to the company's annual meeting by announcing it would vote "withhold" against current board members and a new executive compensation plan. Engine said executive pay at the company, particularity for Burke, who had by that time received almost $80 million in compensation, was too high given its substandard operating results in comparison to its peers. One of Engine's suggestions was to tie bonuses to long-term performance.
Shareholders ended up approving all of AECOM's board of directors' nominees and the proposed executive compensation resolution, voting yes as well on a revised employee stock purchase plan.