Balfour Beatty says it has “lost confidence” in the possibility of a deal with rival Carillion

Carillion balfour beatty

Balfour Beatty has rejected a revised merger proposal from Carillion and said it has “lost confidence” in the possibility of a deal between the two firms taking place.

Carillion proposed revised terms for a merger - including keeping consultant Parsons Brinckerhoff in the combined firm - in a meeting between the two firms held on 3 August, which was called by Carillion’s chairman Philip Green.

Carillion offered to compensate bidders for Parsons Brinckerhoff - which Balfour Beatty has put up for sale - if they proceeded with their bids for the consultant and then, following the successful completion of the merger, the plug was pulled on the sale of Parsons.

Carillion also offered to allow Balfour Beatty shareholders a final dividend payment for 2014 and requested the deadline for any merger agreement be pushed back a week to 28 August.

In rejecting the offer, Balfour Beatty said: “The board has lost confidence in the likely delivery of a successful transaction and has therefore concluded that the current proposal from Carillion is not in the best interests of Balfour Beatty shareholders.”

Balfour Beatty cited several reasons for rejecting the transaction, listed below.

Balfour Beatty’s statement was made without Carillion’s consent.

Carillion said its board would “give further consideration to its position” and that it would “make a further announcement in due course”.

It added: “In the meantime, there can be no certainty that any offer will be made by Carillion or as to the terms on which any such offer might be made.”

The firm also noted the original 21 August deadline to announce a firm intention to do a deal.

Balfour Beatty’s reasons for rejecting the Carillion deal

- The risk of undermining the Parsons Brinckerhoff sales process which is a key strategic objective of the group, particularly as there is no strategic logic for its retention other than to enhance the earnings of the combined group

- Bidders for Parsons Brinckerhoff may not regard the cost cover as adequate to remain fully committed to the process with the resultant risk that the sale process would be terminated

- Risk that a failed sale process would materially impact the motivation and retention of Parsons Brinckerhoff management and employees and damage its competitive position in a rapidly consolidating professional services market

- Impact of terminating the Parsons Brinckerhoff sale process would be compounded if the merger with Carillion did not complete, in which case any associated loss of value would be entirely for the account of Balfour Beatty’s shareholders

- Significant execution risk associated with the integration of the two businesses would be substantially increased by any material revenue reduction in Balfour Beatty’s Construction Services UK business

- Any material reduction in Balfour Beatty’s revenues in Construction Services UK would create unacceptable operational and financial risks:

  • Increase restructuring costs and cash and working capital outflows
  • Reduce the addressable cost base and bankable synergies
  • Remove profitable business opportunities, taking away future earnings recovery potential

- The risk of engaging in detailed due diligence with a competitor while having serious reservations about the transaction and its deliverability

- The risk of not meeting the envisaged announcement date under the revised proposal of 28 August given Balfour Beatty’s due diligence requirements and the impact on the Parsons Brinckerhoff process should an alternative, later announcement date be required.