Balfour and Carillion in talks to create £3bn construction giant

 

Balfour Beatty and Carillion are in merger talks that could create a £3bn blue-chip construction giant.

The companies behind the London Olympics Aquatics Centre and the St Pancras Channel Tunnel rail link last night confirmed they have been in talks for the last few weeks on a possible deal. They said that “the merger of the two groups has the potential to create a market leading business … of considerable depth and scale”.

Should a merger be agreed, the companies can expect the deal to be scrutinised by the Competition Commission, especially since both companies hold a huge stake in public sector work. Balfour remains rudderless after its former chief executive Andrew McNaughton was shown the door in May.

The Independent revealed last month that both firms had pocketed hundreds of millions of pounds of profits in the past four years by exploiting deals that were controversially awarded to them by the last Labour government.

Balfour alone profited to the tune of £188.9m from the rising value of its private finance initiatives (PFIs) and public private partnerships (PPPs).

Analysts said last night that a tie-up to form a broad infrastructure services group could save millions of pounds. Carillion is strong in the services sector and Balfour has a track record in construction.

Carillion works with the Government on a £500m project to roll out superfast broadband to 33 local authority regions, while Balfour Beatty has been working on transforming the Olympic Stadium in London into the new home of West Ham United.

Any merger is unlikely to happen until the end of the summer. Carillion’s chief executive, Richard Howson, is expected to run the new company, which would rank among the FTSE 100.

Carillion has performed better than its rival and potential bedfellow in recent months, winning a £75m contract to expand Liverpool football club’s Anfield stadium. Its new orders stand at £2.7bn, including the first phase of the Battersea power station regeneration.

By comparison, Balfour Beatty issued its second profit warning in two months three weeks ago, blaming problems with engineering contracts in London, and revealed a £35m blow to profits from its engineering services division.

The first profit warning in May led to Mr McNaughton’s departure, but the company has had problems for more than a year.

In 2013 the company made losses of £60m in the UK, owing to fierce competition over government contracts, which squeezed profit margins.  As a result the company made plans to sell its North American engineering design services group, Parsons Brinckerhoff, which it bought for £354m in 2009.

News of the talks emerged on Sky News after markets had closed last night. The companies’ confirmation means that they now have until the 21 August under City rules to announce a deal, although this could be extended.

Both companies were criticised previously for their use of PFI and PPP deals as a way to make extra cash. The firms had been doubling their money by “flipping”, or selling on the projects, just four years after finishing them. Four contractors alone – Balfour Beatty, Carillion, Interserve and Kier – made profits of more than £300m.

PROMOTED VIDEO
News
Alan Bennett criticised the lack of fairness in British society encapsulated by the private school system
peopleBut he does like Stewart Lee
Sport
John Terry, Frank Lampard
footballChelsea captain sends signed shirt to fan whose mum had died
Life and Style
food + drink
Arts and Entertainment
Rita Ora will replace Kylie Minogue as a judge on The Voice 2015
tv
Life and Style
tech
Life and Style
Alan Turing, who was convicted of gross indecency in 1952, was granted a royal pardon last year
life
News
ebooksAn unforgettable anthology of contemporary reportage
Arts and Entertainment
Sheridan Smith as Cilla Black and Ed Stoppard as her manager Brian Epstein
tvCilla Episode 2 review: Grit under the glamour in part two of biopic series starring Sheridan Smith
Life and Style
life
Arts and Entertainment
Tennis player Andy Murray's mum Judy has been paired with Anton du Beke for Strictly Come Dancing. 'I'm absolutely delighted,' she said.
tvJudy Murray 'struggling' to let Anton Du Beke take control on Strictly
Life and Style
Vote with your wallet: the app can help shoppers feel more informed about items on sale
lifeNew app reveals political leanings of food companies
Sport
David Moyes and Louis van Gaal
football
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating
and  

By clicking 'Search' you
are agreeing to our
Terms of Use.

iJobs Job Widget
iJobs Money & Business

IT Project manager - Web E-commerce

£65000 Per Annum Benefits + bonus: Clearwater People Solutions Ltd: If you are...

Trainee / Experienced Recruitment Consultants

£20000 - £25000 per annum + OTE £40,000: SThree: SThree are a global FTSE 250 ...

Trainee Recruitment Consultant - Soho

£20000 - £25000 per annum + OTE £40000: SThree: As a Recruitment Consultant, y...

Trainee Recruitment Consultants - Banking & Finance

£20000 - £25000 per annum + OTE £40,000: SThree: SThree Group have been well e...

Day In a Page

Secret politics of the weekly shop

The politics of the weekly shop

New app reveals political leanings of food companies
Beam me up, Scottie!

Beam me up, Scottie!

Celebrity Trekkies from Alex Salmond to Barack Obama
Beware Wet Paint: The ICA's latest ambitious exhibition

Beware Wet Paint

The ICA's latest ambitious exhibition
Pink Floyd have produced some of rock's greatest ever album covers

Pink Floyd have produced some of rock's greatest ever album covers

Can 'The Endless River' carry on the tradition?
Sanctuary for the suicidal

Sanctuary for the suicidal

One mother's story of how London charity Maytree helped her son with his depression
A roller-coaster tale from the 'voice of a generation'

Not That Kind of Girl:

A roller-coaster tale from 'voice of a generation' Lena Dunham
London is not bedlam or a cradle of vice. In fact it, as much as anywhere, deserves independence

London is not bedlam or a cradle of vice

In fact it, as much as anywhere, deserves independence
Vivienne Westwood 'didn’t want' relationship with Malcolm McLaren

Vivienne Westwood 'didn’t want' relationship with McLaren

Designer 'felt pressured' into going out with Sex Pistols manager
Jourdan Dunn: Model mother

Model mother

Jordan Dunn became one of the best-paid models in the world
Apple still coolest brand – despite U2 PR disaster

Apple still the coolest brand

Despite PR disaster of free U2 album
Scottish referendum: The Yes vote was the love that dared speak its name, but it was not to be

Despite the result, this is the end of the status quo

Boyd Tonkin on the fall-out from the Scottish referendum
Manolo Blahnik: The high priest of heels talks flats, Englishness, and why he loves Mary Beard

Manolo Blahnik: Flats, Englishness, and Mary Beard

The shoe designer who has been dubbed 'the patron saint of the stiletto'
The Beatles biographer reveals exclusive original manuscripts of some of the best pop songs ever written

Scrambled eggs and LSD

Behind The Beatles' lyrics - thanks to Hunter Davis's original manuscript copies
'Normcore' fashion: Blending in is the new standing out in latest catwalk non-trend

'Normcore': Blending in is the new standing out

Just when fashion was in grave danger of running out of trends, it only went and invented the non-trend. Rebecca Gonsalves investigates
Dance’s new leading ladies fight back: How female vocalists are now writing their own hits

New leading ladies of dance fight back

How female vocalists are now writing their own hits