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Is this the next ASX 200 stock to spin-off assets to trigger a re-rating?

Speculation that Lendlease Group (ASX: LLC) is moving closer to divesting assets through a multi-split strategy hasn’t helped the stock win new friends today.

The Lendlease share price fell 0.7% to $13.67 in morning trade even as the S&P/ASX 200 (Index:^AXJO) (ASX:XJO) index bounced back from yesterday’s carnage to trade 0.3% higher.

This smells like a dead-cat bounce, but that’s for another article.

Too big to swallow

The property and construction engineering group are looking to separate its unwanted business into smaller parts to attract more potential buyers, according to the Australian Financial Review.

Lendlease has been trying to flog its troubled engineering group since it issued a shock profit downgrade last year, and the fact that it is allegedly having to carve up the part it wants to sell may have spooked investors into thinking that the sale is harder to complete than expected.

The AFR quoted unnamed sources as saying the planned divestment is too big for one party to swallow and that the group is now engaging with potential buyers who are only keen on taking parts of the non-core business.

Lendlease would prefer to sell its engineering and services units in one go, but if the report is right, it’s more likely to shed the assets in two separate transactions. The engineering business builds rail, road and other infrastructure; while the service division undertakes maintenance and asset management for infrastructure owners.

Divestments can trigger stock re-rating

A successful divestment would likely trigger a re-rating for the underperforming stock as the other divisions under the Lendlease umbrella are doing well.

This will give investors another reason to closely watch Lendlease’s profit result announcement, which is due on August 19.

We might be living through an infrastructure building boom but contractors on fixed-priced contracts are falling out of favour with investors as project delays and cost blowouts can have a detrimental impact on their bottom lines.

Downer EDI Limited (ASX: DOW) was also caught up in a similar situation for a wind farm project.

Investors also like divestments as the companies involved often to outperform in the aftermath. Spinning off assets is fashionable now too with some investors applying pressure on Tabcorp Holdings Limited (ASX: TAH) to make the move to turnaround its sagging share price.

Other companies that have made divestments recently include Woolworths Group Ltd (ASX: WOW), Commonwealth Bank of Australia (ASX: CBA) and Wesfamers Ltd (ASX: WES).

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Motley Fool contributor Brendon Lau owns shares of Commonwealth Bank of Australia and Downer EDI. Connect with him on Twitter @brenlau.

The Motley Fool Australia owns shares of and has recommended Wesfarmers 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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