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Balfour Beatty rejects Carillion bid

Balfour Beatty has put forward a number of reasons why it believes a proposed £3bn merger should not proceed.

Balfour Beatty has rejected a merger proposal from rival UK developer Carillion that would value the combined group at £3 billion (€3.7 billion; $5.0 billion).

In putting forward the proposal, Carillion argued that a merger would mean the combined entity being better placed to compete for contracts with international competitors such as Spain’s Ferrovial.

However, a big sticking point has been Carillion’s insistence that, as part of any deal, Balfour Beatty should cancel its intended sale of US engineering and design business Parsons Brinckerhoff.

Balfour Beatty put Parsons Brinckerhoff up for sale earlier this year, having paid £380 million for it in September 2009.

In a statement today, Balfour Beatty says that Parsons Brinckerhoff “did not deliver material competitive advantage for the group and added significant complexity”. It also said that terminating the sale process “risks damaging a significant part of the value of Balfour Beatty”.

Carillion claims that, following a merger, more than £175 million of savings a year could be achieved by 2016 through the streamlining of offices, supply chains and IT.

However, Balfour Beatty said it believes the plan will involve the reduction of its UK construction revenues by up to two-thirds with the majority of the reduction coming in its regional construction business. It claims that this unit is “best placed to benefit from any recovery in UK construction, and is already showing signs of such a recovery”.

Both Carillion and Balfour Beatty have significant public-private partnership (PPP) businesses. In its own statement yesterday, Carillion said it would “maintain its existing policy of recycling PPP investments over the combined investment portfolio”.

The move from Carillion comes after a troubled period for Balfour Beatty, which has issued a series of profits warnings and saw its chief executive Andrew McNaughton depart in May.

Under takeover rules, Carillion has until August 21 to make a final offer for Balfour Beatty.