Some people might think AWG's admission that it paid £22m over the odds for contractor Morrison is a cause for embarrassment. But, as Victoria Madine discovered, the water group's chief executive isn't one of them.
Corporate deals can sometimes become as dramatic as an episode of Eastenders, and in the case of Anglia Water Group's coupling with contractor Morrison, the story is far from over. Eighteen months ago, the unprecedented acquisition of a builder by a water company confused audiences in both industries, and analysts sucked their teeth, shook their heads and said it would never work.

The City's doubts appeared well founded when, nine months later, AWG was forced to admit that it had overvalued Morrison by £22m. It was impossible to avoid the headlines screaming out that AWG had bought a lemon. Chris Mellor, chief executive of AWG, was the man who phoned Gordon Morrison to propose the deal – but if he feels he has got egg on his face, he is hiding it well.

In fact, it's difficult to read anything in 52-year-old Mellor's demeanour except a flinty determination to stick to his guns, no matter what his critics say.

Originally a state-owned regional water company, AWG has used the 13 years since its privatisation to transform itself into a £1.2bn water and wastewater service provider, with an international division and a facilities management arm.

In August 2000, when AWG bought it for £265m, Morrison was a highly profitable Edinburgh-based contractor whose construction, property and facilities management divisions turned over £500m. It was owned by the high-profile Sir Fraser Morrison and his younger brother Gordon.

Despite the City's scepticism, Mellor describes AWG and Morrison as "a very good marriage" – but admits that he could have explained his thinking better. "Maybe we're not doing a good enough job at making people understand what we're doing," he says. "I'll admit my part in that."

In his deadpan delivery, Mellor explains that the acquisition of Morrison is a key part of his strategy to reposition AWG as a utilities infrastructure provider. "My prediction is that within four years, people will not actually buy water from the big water companies – we are not interested in being the end retailer."

AWG needed a construction firm to help it make its transformation, and Morrison fitted the bill. "We were very clear about what we wanted – a well-regarded construction business with a presence in PFI. We spent a long time searching the field looking for something that would be a good fit."

By May last year, Morrison was not looking like such as good choice anymore; AWG's annual accounts revealed that contractual difficulties and overruns on six of Morrison's projects had left the contractor with a £36.2m loss in the six months before it was bought. Mellor, however, refuses to speak about the debacle or comment on how AWG's accountants failed to spot the problems. "I'm not going to go there, I'm afraid," he says.

We will prove the analysts wrong. They aren’t always right – look at the advice they gave about dotcoms

He also refuses to scotch rumours that he plans to sue the Morrison brothers, only saying legal action is a "live issue". But he insists that most of the problem contracts have now been sorted out; Morrison turned a £7.1m operating profit for the six months to September 2001.

Unwavering in his praise for Morrison, Mellor cites the firm's "good reputation" several times, almost as if the problem contracts never happened. "I'm happy to let the facts speak for themselves," he says as he fetches a file of contractor performance tables. "Look at the top 50 contractors. Morrison is in the top 10 – top across most of the regions. The company is doing very, very well."

This emphasis on hard evidence is characteristic: if he says something is successful, he wants to tell you how successful, preferably expressed as a percentage of net present value or earnings per share. This is the approach you would expect from an accountant who joined AWG in 1988 and became group finance director two years later.

He occupied this key post through the economic and political turbulence that followed privatisation and the economic crash of the 1990s. From there it was a short jump to group managing director in 1998 and then to chief executive, a job he gained in the same month as the purchase of Morrison. Given the kind of pressure that he must have been under, it is strangely unsurprising to discover that he keeps a drum kit at home – the legacy of his membership of a rock band – and indulges himself in a little noise therapy from time to time.

Despite Mellor's celebration of Morrison's reputation and successes, the contractor's brand will largely disappear. The absorption process, which could take up to two years, has already begun. "It's already hard to think in terms of AWG and Morrison," he says matter-of-factly. "We are thinking in terms of the group. These days, when we bid for a large PFI project, we bid as AWG. Morrison people prefer to do business this way because AWG is an industry heavyweight." Mellor believes Morrison's clients find this clout reassuring.

He adds that Morrison used to be at the bottom end of construction's food chain, but is now involved with the management of projects. "The contractors are not just laying the pipes, but managing the workforce," he points out.

However, the Morrison brand will be kept in Scotland, where Mellor says it is "very valuable". It will also be used when AWG is bidding for work with other utility groups – to avoid the embarrassment of AWG vans turning up in rivals' car parks.

Personal effects

Who’s in your family?
My wife Julia, and five daughters – three are grown-up, one is two years old and the latest is a newborn.
Any hobbies?
Golf (handicap of 12), playing the drums and getting up at six to go for a run – but not in this weather!
What are your musical tastes?
Rock and jazz. I like Buddy Rich, and Sting is a very good singer.
Do you have any sporting heroes?
Nick Faldo.