Balfour Beatty rejects fresh merger attempt from Carillion

19 August 2014

Balfour Beatty has re-confirmed its rejection of a £3 billion (€3.7 billion) merger with Carillion, citing concerns over the levels of projected cost-savings that could be made.

The key obstacle has surrounded the sale of Parsons Brinckerhoff, which Carillion has insisted should be cancelled and retained as part of the proposed combined group.

According to Balfour Beatty, the projected financial efficiencies from the merger would fall short of the £1.5 billion (€1.8 billion) that have been forecast. This was raised by its board as another critical reason for declining the move.

Carillion now has until this Thursday to consider any further bid to drive the deal through, or face waiting a further six months before another attempt at bringing the two leading UK construction companies together.

Balfour Beatty had stated there were “a number of significant risks, many of which could not be mitigated,” by the terms of the proposals.

This included the fact that the expanded company would be managing an overall total of 80,000 employees that was significantly larger in scale than Carillion had previously managed.

Among other key factors was the belief that the merger would also involve a two-thirds reduction in Balfour’s UK construction revenues, further affecting any potential synergy cost saving from sharing of IT systems and supply chains.

The ongoing merger saga comes as Balfour Beatty has endured a turbulent year in which the firm issued a renewed profit warning this summer that followed the departure of chief executive Andrew McNaughton.

Rejection of the deal for the second time comes as Carillion has released its half-year trading figures.

Its revenues for the first six months of 2014 were down year-on-year at £1.87 billion (€2.25 billion), compared to £1.964 (€2.46 billion) for the same period in 2013.

The firm’s underlying profits before tax were up 3% to £75.9 million (€93.95 million) and its operating margins also increased to 5.5% from 5.1% last year.

Chairman Philip Green said that its short-term and medium-term financial forecasts remained unchanged despite the company’s weaker performance so far this year.

He said: "Carillion continues to perform in line with the board's expectations, reflecting the benefits of the early actions we took in response to the economic downturn, notably the planned rescaling of our UK construction business, together with our continuing strong work-winning performance.

“Having realigned our businesses to the size of the markets in which we operate, the group is well positioned to benefit from its strong work-winning performance over the last 18 months and from its high-quality pipeline of contract opportunities across our target markets.”