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
ebooks
ebooksAn introduction to the ground rules of British democracy
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

Recruitment Genius: Compliance Manager

£40000 - £60000 per annum: Recruitment Genius: A Compliance Manager is require...

SThree: Talent Acquisition Consultant

£22500 - £27000 per annum + OTE £45K: SThree: Since our inception in 1986, STh...

Recruitment Genius: Experienced Financial Advisers and Paraplanners

Negotiable: Recruitment Genius: This extremely successful and well-established...

Guru Careers: FX Trader / Risk Manager

Competitive with monthly bonus: Guru Careers: We are seeking an experienced FX...

Day In a Page

Seifeddine Rezgui: What motivated a shy student to kill 38 holidaymakers in Tunisia?

Making of a killer

What motivated a shy student to kill 38 holidaymakers in Tunisia?
UK Heatwave: Temperatures on the tube are going to exceed the legal limit for transporting cattle

Just when you thought your commute couldn't get any worse...

Heatwave will see temperatures on the Tube exceed legal limit for transporting cattle
Exclusive - The Real Stories of Migrant Britain: Swapping Bucharest for London

The Real Stories of Migrant Britain

Meet the man who swapped Romania for the UK in a bid to provide for his family, only to discover that the home he left behind wasn't quite what it seemed
Cheaper energy on the way, but it's not all sunshine and rainbows

Cheaper energy on the way, but it's not all sunshine and rainbows

Solar power will help bring down electricity prices over the next five years, according to a new report. But it’s cheap imports of ‘dirty power’ that will lower them the most
Katy Perry prevented from buying California convent for $14.5m after nuns sell to local businesswoman instead

No grace of God for Katy Perry as sisters act to stop her buying convent

Archdiocese sues nuns who turned down star’s $14.5m because they don’t approve of her
Ajmer: The ancient Indian metropolis chosen to be a 'smart city' where residents would just be happy to have power and running water

Residents just want water and power in a city chosen to be a ‘smart’ metropolis

The Indian Government has launched an ambitious plan to transform 100 of its crumbling cities
Michael Fassbender in 'Macbeth': The Scottish play on film, from Welles to Cheggers

Something wicked?

Films of Macbeth don’t always end well - just ask Orson Welles... and Keith Chegwin
10 best sun creams for body

10 best sun creams for body

Make sure you’re protected from head to toe in the heatwave
Wimbledon 2015: Nick Bollettieri - Milos Raonic has ability to get to the top but he must learn to handle pressure in big games

Nick Bollettieri's Wimbledon files

Milos Raonic has ability to get to the top but he must learn to handle pressure in big games
Women's World Cup 2015: How England's semi-final success could do wonders for both sexes

There is more than a shiny trophy to be won by England’s World Cup women

The success of the decidedly non-famous females wearing the Three Lions could do wonders for a ‘man’s game’ riddled with cynicism and greed
How to stop an asteroid hitting Earth: Would people co-operate to face down a global peril?

How to stop an asteroid hitting Earth

Would people cooperate to face a global peril?
Just one day to find €1.6bn: Greece edges nearer euro exit

One day to find €1.6bn

Greece is edging inexorably towards an exit from the euro
New 'Iron Man' augmented reality technology could help surgeons and firefighters, say scientists

'Iron Man' augmented reality technology could become reality

Holographic projections would provide extra information on objects in a person's visual field in real time
Sugary drinks 'are killing 184,000 adults around the world every year'

Sugary drinks are killing 184,000 adults around the world every year

The drinks that should be eliminated from people's diets
Pride of Place: Historians map out untold LGBT histories of locations throughout UK

Historians map out untold LGBT histories

Public are being asked to help improve the map