Balfour Beatty rejects Carillion merger for third time

20 August 2014

A third attempted bid by Carillion to merge with Balfour Beatty has been rejected amid key concerns over potential financial savings that the deal could have achieved.

The revised offer had placed a valuation of just over £2 billion (€2.5 billion) on its rival firm, with Carillion increasing its offer so that 58.2% of the combined company would be owned by Balfour Beatty shareholders.

However, considerable doubts remained over the forecast savings figure of £1.5 billion (€1.88 billion) that could have been made from the proposals through sharing IT systems and supply chains.

Balfour Beatty’s third and final rejection of the move cited “considerable risks associated with the proposed business plan”. It said this included a strategy to reduce significantly the scale of the UK construction business, at a point where it had forecast an upturn in its fortunes this year.

Its board members, who unanimously rejected the merger which would have created a combined group worth £3 billion (€3.7 billion), also raised major concerns over Carillion’s insistence on cancelling Balfour’s plans to sell its US-based business, Parsons Brinckerhoff.

Balfour Beatty had projected that the Parsons Brinckerhoff deal would bring a total of £200 million (€250.4 million) to its shareholders, offsetting a troubled financial year in which the firm issued profit warnings. Its chief executive, Andrew McNaughton, also stood down over its financial performance.

Despite this, the Balfour Beatty board confirmed it would not be seeking any extension to the legal deadline of tomorrow (Thursday) by which any deal could have been concluded.

Carillion chairman Philip Green had claimed that forging the merger could “create a world-class business of significant value for the shareholders of both companies”.

Strong position

Its third bid came as Carillion had released its half-year results that showed revenues down year-on-year at £1.87 billion (€2.25 billion) for the same period in 2013. However, the firm claimed that its underlying profits before tax were up 3% to £75.9million (€93.95) million), meaning it was in a strong position to take the proposed merger forward.

In light of its decision, Balfour Beatty has insisted that it will continue with its business strategy as a standalone company.

Its stated priorities include concluding the sale of Parsons Brinckerhoff, recruiting a new chief executive and improving the margins of its UK operations.