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.

Start your day with The Independent, sign up for daily news emails
ebooksAn introduction to the ground rules of British democracy
Latest stories from i100
Have you tried new the Independent Digital Edition apps?
Independent Dating

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

iJobs Job Widget
iJobs Money & Business

SThree: Trainee Recruitment Consulant

£20000 - £25000 per annum + competitive: SThree: SThree are a global FTSE 250...

Guru Careers: Financial Controller

£45 - £55k DOE: Guru Careers: A Financial Controller is required to join a suc...

Recruitment Genius: Sales Consultant / Telemarketer - OTE £20,000

£12500 - £20000 per annum: Recruitment Genius: Scotland's leading life insuran...

Recruitment Genius: Sales Adviser - OTE £24,500

£22500 - £24500 per annum: Recruitment Genius: Inbound and outbound calls with...

Day In a Page

Mullah Omar, creator of the Taliban, is dead... for the fourth time

Mullah Omar, creator of the Taliban, is dead... again

I was once told that intelligence services declare their enemies dead to provoke them into popping up their heads and revealing their location, says Robert Fisk
Margaret Attwood on climate change: 'Time is running out for our fragile, Goldilocks planet'

Margaret Attwood on climate change

The author looks back on what she wrote about oil in 2009, and reflects on how the conversation has changed in a mere six years
New Dr Seuss manuscript discovered: What Pet Should I Get? goes on sale this week

New Dr Seuss manuscript discovered

What Pet Should I Get? goes on sale this week
Oculus Rift and the lonely cartoon hedgehog who could become the first ever virtual reality movie star

The cartoon hedgehog leading the way into a whole new reality

Virtual reality is the 'next chapter' of entertainment. Tim Walker gives it a try
Ants have unique ability to switch between individual and collective action, says study

Secrets of ants' teamwork revealed

The insects have an almost unique ability to switch between individual and collective action
Donovan interview: The singer is releasing a greatest hits album to mark his 50th year in folk

Donovan marks his 50th year in folk

The singer tells Nick Duerden about receiving death threats, why the world is 'mentally ill', and how he can write a song about anything, from ecology to crumpets
Let's Race simulator: Ultra-realistic technology recreates thrill of the Formula One circuit

Simulator recreates thrill of F1 circuit

Rory Buckeridge gets behind the wheel and explains how it works
Twitter accused of 'Facebookisation' over plans to overhaul reverse-chronological timeline

Twitter accused of 'Facebookisation'

Facebook exasperates its users by deciding which posts they can and can’t see. So why has Twitter announced plans to do the same?
Jane Birkin asks Hermès to rename bag - but what else could the fashion house call it?

Jane Birkin asks Hermès to rename bag

The star was shocked by a Peta investigation into the exotic skins trade
10 best waterproof mascaras

Whatever the weather: 10 best waterproof mascaras

We found lash-enhancing beauties that won’t budge no matter what you throw at them
Diego Costa biography: Chelsea striker's route to the top - from those who shared his journey

Diego Costa: I go to war. You come with me...

Chelsea's rampaging striker had to fight his way from a poor city in Brazil to life at the top of the Premier League. A new book speaks to those who shared his journey
Ashes 2015: England show the mettle to strike back hard in third Test

England show the mettle to strike back hard in third Test

The biggest problem facing them in Birmingham was the recovery of the zeitgeist that drained so quickly under the weight of Australian runs at Lord's, says Kevin Garside
Women's Open 2015: Charley Hull - 'I know I'm a good golfer but I'm also just a person'

Charley Hull: 'I know I'm a good golfer but I'm also just a person'

British teen keeps her feet on ground ahead of Women's Open
Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

Turkey's conflict with Kurdish guerrillas in Iraq can benefit Isis in Syria

Turkish President Erdogan could benefit politically from the targeting of the PKK, says Patrick Cockburn
Yvette Cooper: Our choice is years of Tory rule under Jeremy Corbyn or a return to a Labour government

Our choice is years of Tory rule under Corbyn or a return to a Labour government

Yvette Cooper urged Labour members to 'get serious' about the next general election rather than become 'a protest movement'