Balfour Beatty rejects new Carillion move
By Sandy Guthrie11 August 2014
The proposed sale of Parsons Brinckerhoff remains a sticking point in merger discussions between Balfour Beatty and Carillion, with a revised proposal from Carillion being rejected.
Merger talks between the two UK contractors began last month, but talks were broken off when Balfour Beatty called a halt, citing Carillion’s “wholly unexpected decision” to go ahead with the possible merger only if Parsons Brinckerhoff remained part of the potential combined entity.
In return, Carillion said it was surprised by Balfour Beatty’s reaction as the work to date had led to “increased confidence in the potential to realise very material value for the benefit of both sets of shareholders”.
Carillion said at that time that its board had concluded that for the combination to satisfy Carillion’s requirements as set out in an announcement the week before, it would be essential to retain the stability and dependability of Parsons Brinckerhoff’s earnings.
Balfour Beatty said today that since those discussions with Carillion had been halted, a subsequent revised proposal had been made by Carillion, and that it had been rejected.
Balfour Beatty said that Carillion had proposed a revised set of terms on 3 August. It said that at the meeting, Philip Green, chairman of Carillion, proposed to keep the 56.5%:43.5% split of the business as previously agreed but made a number of “changes and additions to the key terms of the proposal”.
These included the proposal for Parsons Brinckerhoff to remain in a combined business, as had been stated in Carillion’s proposed change to the terms. However, it was said that Carillion would agree to cover appropriate bidder costs for the remaining bidders in the sale process, if these bidders could be persuaded to proceed on the basis that the merger did not ultimately happen.
Balfour Beatty said its board had carefully considered the revised proposal from Carillion, including the business plan for the combined business. It said that while the board was “mindful of the synergies that might be achieved through a combination with Carillion”, it had concluded that there were a number of “significant risks, many of which cannot be mitigated”.
It said these included the risk of undermining the Parsons Brinckerhoff sales process which was said to be 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”.
Balfour Beatty’s board also felt that bidders for Parsons Brinckerhoff might 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.
There was also a risk that a failed sale process would materially have an impact on the motivation and retention of Parsons Brinckerhoff management and employees, and damage its competitive position in a rapidly consolidating professional services market, said Balfour Beatty.
It added that the impact of halting the Parsons Brinckerhoff sale process would be compounded if the merger with Carillion did not complete.
It said that in the light of these and other considerations on the revised proposal, the board had lost confidence in the likely delivery of a successful transaction, and had therefore concluded that the current proposal from Carillion was not in the best interests of Balfour Beatty shareholders.
It said, “With the Parsons Brinckerhoff sale process proceeding in line with the board's expectations, the board is clear that its current plans to refocus and simplify the group, including the sale of Parsons Brinckerhoff, remains the most attractive option.”
Meanwhile, Balfour Beatty said its overall first-half results were in line with its most recent trading update.
It said operational issues in its UK mechanical and electrical engineering business had made a significant impact on the overall first-half financial performance. Remedial action plan and cost efficiencies were being implemented, it said.
It said its construction services in the US had performed strongly in the first half, with 14% revenue growth at constant currency, while the order book had remained stable. It reported good wins in Asia and the Middle East, too.
It added that its order book was stable at £13.0 billion (€16.3 billion), down 1% from the year end at constant currency.