Balfour Beatty mulls rival bid to Carillion's £291m offer for construction group Mowlem

Balfour Beatty, the UK's largest building group, was on the verge of kickstarting a bidding war for its smaller rival Mowlem yesterday, conceding it was mulling a possible offer to challenge Carillion's agreed £291m bid for the company.

In a short statement yesterday morning, Balfour said only that it was considering making an offer, and that there was no certainty it would press ahead at this stage. Later in the day, however, a spokesman added: "We are in the process of due diligence and we are trying to find out as much as we can about Mowlem. We've been on the case for a while. I think we have a little way to go."

Shares in Mowlem rose by as much as 4.5 per cent in early trading yesterday, eventually closing up 2.6 per cent at 215p, giving the company a market value of £305m. Balfour Beatty's interest comes less than a week after Carillion first announced its £291m cash and shares offer for Mowlem. The bid, which was quickly backed by the Mowlem board, was equivalent to 205p a share - an 18 per cent premium to the company's share price on 28 October, the last day of trading before Mowlem first announced it had received expressions of interest in the business.

Carillion said it continued to remain positive about the success of its offer, highlighting that shareholders would not just be voting on the price of its offer, but on the ongoing performance of the combined group. It believes, if its bid is successful, it can generate cost savings of some £15m a year by the end of 2007.

Mowlem, whose previous projects include building the former Natwest Tower in London's financial district, said that having not yet seen any firm proposals from Balfour Beatty, it would continue to back the Carillion offer.

Analysts said that buying Mowlem could give Balfour a strong foothold in the defence market, as well as strengthen its bidding potential for other Government PFI contracts. However, they expressed concern that the eventual buyer could overpay if a bidding war emerged.

Mowlem has had a troubled year, issuing three profits warnings before announcing a loss of more than £70m for the first half of 2005. The chief executive, Simon Vivian, then appointed external advisers to conduct a review of its options. Although the initial outcome was to recommend a sale of its loss-making divisions, this sparked Carillion's offer for the entire company.