After four months of gruelling round-the-clock negotiations, Carillion finally handed over £313m and took control of its similarly sized rival Mowlem. Now the hard part begins …. Illustration by Elliot Thoburn
At 10.30am last Friday morning, John McDonough, chief executive of Carillion, finally told his staff how he planned to restructure the business. That announcement marked the end of his gruelling four-month campaign to buy Mowlem, the rival contractor fallen on hard times. And it marked the beginning of what promises to be a lengthy period of upheaval for the staff of both companies.
It was obvious to the 40,000 workers at both companies that McDonough's plan would mean a big change in their working lives.
First and foremost there was the question of redundancies; then there was the puzzle of how he would fit the two businesses together. This process is made more problematic by their different cultures: Mowlem is often seen as a traditional, regionally based business compared with the more forward-thinking and dynamic ways of Carillion.
McDonough outlined his plans in an internal memo; Building obtained a copy and then spoke to him about what the future holds.
Two into one
McDonough plays down the idea of a culture clash between the two firms, saying: "If the chemistry and the fit had not been there, we wouldn't have done such a big deal." However, the internal memo makes it clear that it is the Carillion culture that will prevail. The most obvious external sign of this is the closure of Mowlem's head office in Isleworth, Middlesex, in favour of Carillion's Warrington base.
While this certainly means change for Mowlem's people, for many it will be an opportunity rather than a threat. The financial record of the two companies speak for themselves. According to the last available figures, for the year to December 2004, Mowlem suffered a £7.4m loss and Carillion made a £54.7m pre-tax profit. As Howard Seymour, analyst at Bridgewell Securities, says: "The key now is whether Mowlem's issues are in the past."
McDonough will implement the same processes as when he was brought into Carillion in January 2001, a year after its demerger from Tarmac. He was asked to accelerate that process, and is credited with having turned the business around. Under McDonough's charge, Carillion has made annual savings of £30m, a figure that is purely associated with operations and not staff cuts.
McDonough is running a much bigger business now, but the principles are the same. As he made clear to the staff, he wants to run a "lean" machine with minimal overheads. His plan is to divide Carillion into 15 business units (see box above). Each will have their own head or heads, and they will report to three main board directors - finance director Chris Girling, business services head Don Kenny, and head of the infrastructure services and international business Roger Robinson - all Carillion men. They in turn will report directly to McDonough.
Of the 15 divisions, 11 will be headed by managers from Carillion staff and four by those from Mowlem. Two of the Mowlem businesses are Barclay Mowlem in Australia and Mowlem Pall Mall, the cleaning services unit. The chances are that Carillion will sell these non-core businesses after a review. McDonough does not answer the question outright, saying only that "there are a number of businesses where we are doing a fairly detailed analysis. At the moment though, nobody's out and nobody's in".
Change is gonna come
We are not going to bring in 4000 Mowlem vans and rebrand them tomorrow – we couldn’t afford to
That said, some are clearly going to be out. Indeed, some have left already, including Paul Kirk, the managing director of Carillion's transport division. Carillion is also thought to want to ditch Mowlem's long-term fixed-price contracts such as the Newcastle submerged tunnel. But, as one adviser close to the deal says, it may be difficult to end the contract. "It's difficult when you're involved in big capital projects because they can be quite punitive. What you might like to do might be difficult to achieve."
Mowlem's top management - chief executive Simon Vivian, finance director Paul Mainwaring and development director Arthur Moore - are all expected to leave. For "a period", however, as McDonough explains in his memo, they will join Carillion to lead the integration of the two businesses, leaving Carillion's senior management free to get on with the day-to-day operations. Moore will concentrate on integrating Mowlem's projects business into Carillion and supervising the financial close of the £7bn Allenby and Connaught projects for the Ministry of Defence, which McDonough describes as "one of the jewels in Mowlem's crown".
The Mowlem name will not go immediately. "There will be no blitz next week," McDonough laughs. "We are not going to bring in 4000 Mowlem vans and rebrand them tomorrow - we couldn't afford to."
Maybe not tomorrow, but in time the Mowlem name is likely to disappear after 184 years. Carillion has identified Barclay Mowlem and Mowlem Pall Mall as possible exceptions, but their retention hangs in the balance.
One of the most interesting questions is what will happen to McDonough himself: while Mowlem staff are familiarising themselves with his face on a video message that has been doing the rounds this week, it's not clear how much longer they will be seeing it. One Carillion insider says that Don Kenny, head of business services, is being groomed for the top job, but McDonough is expected to stick around until the integration of the business is complete.
For now, McDonough is concentrating on the enhanced earnings that he expects the Mowlem acquisition to deliver in 2007, the first full year of operation for the enlarged business. He says the integrated solutions division - which includes defence, education and local authority regeneration - has the biggest opportunity for growth. "I will give integrated solutions a special mention," he says, "because that will potentially be the biggest part of the business." It also happens to be run by Kenny.
The fate of the masses
As in all cases of mergers and acquisitions, job losses are inevitable. McDonough sounds irritable when the question is raised: "We only got the business yesterday," he says. "There will be a few hundred redundancies rather than thousands. To put that into context, Carillion is looking to hire 2500 people this year and Mowlem is looking for several hundred for Allenby and Connaught."
Although the closure of Mowlem's head office will be an emotive issue, not everyone working there will lose their job. One source close to Mowlem said: "It really depends on what your job title is. Anyone with ‘group' in their title will be off pretty quickly as you don't need two group HR or communications directors."
It is likely that Mowlem's major projects team, based at Isleworth, will move up the road to Carillion's Brentford office. According to Richard Sanders, partner at Catalyst Corporate Finance, the takeover will actually benefit most Mowlem staff: "Carillion's clearer strategy should also be a blessing for Mowlem staff's morale, which will have been bruised over recent months with the continual release of bad news," he says.
A lot of the hard work is done. For now, McDonough is looking forward to a quieter life. Although he is planning a big party for all those involved in putting the deal together, he had more mundane things on his mind when Building spoke to him last Friday: "I am planning a weekend of sleep. It has been a long and hard few months."
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