Balfour Beatty snubs third Carillion bid as takeover deadline looms

 

Balfour Beatty has rejected a third takeover proposal from rival Carillion and refused to extend tomorrow’s “put-up-or-shut-up” deadline to agree a deal.

Shares in Balfour, led by executive chairman Steve Marshall after the struggling company sacked its chief executive in May, sank 5 per cent, or 13.9p, to 242.1p as markets decided that  the end of the summer takeover saga was nigh.

The two companies, responsible for a raft of the nation’s major engineering feats including the Thames Barrier and the Channel Tunnel, began talks on a friendly deal in July.

But Marshall pulled the plug three weeks ago after a U-turn from Carillion on the fate of highly profitable US subsidiary Parsons Brinckerhoff, which Balfour is selling, but Carillion now wants to keep.

Carillion’s management team, led by chief executive Richard Howson, believes it can drive at least £175 million a year in savings through a deal.

Carillion tabled a third proposal offering 58.27 per cent of the shares in a combined business. This added an extra £200 million to the value of Balfour Beatty, the amount that Balfour is promising to return to its shareholders through the sale of Brinckerhoff.

But Balfour rejected the latest approach after consulting with shareholders, saying Carillion had failed to address the “considerable risks” associated with combining the two companies, and criticising its plans to drastically shrink the UK construction business with a potential recovery in the offing.

The board “unanimously” rejected the deal and is concentrating on a stand-alone strategy of focusing the business on US and UK markets, as well as exploring other “value-creating  opportunities” such as the potential sale of its £1 billion-plus portfolio of  PFI investments.

Balfour is also concentrating on finding a new “outstanding” chief executive to replace the sacked Andrew McNaughton, as well as a cost-cutting programme of its own, which is likely to involve deep job cuts. It also wants to restore group margins to the level of industry peers.

City analysts are not expecting any “rabbits out of the hat” such as a reversal of Carillion’s stance on Brinckerhoff, although one major shareholder, Standard Life Investments, came out in favour of a merger this week. Under Takeover Panel rules, Carillion is likely to be forced to retreat until next year. UBS analyst Gregor Kuglitsch said: “We believe Carillion has little choice but to walk away, and that it has no option to go hostile.

“On that basis, Carillion will have no  ability to bid for six months unless it receives a Balfour Beatty board recommendation or a third-party  bid emerges.”

Liberum analyst Joe Brent said: “The saga has reminded the market of the value potential within Balfour Beatty: the Parsons Brinckerhoff disposal is progressing well, the investment portfolio is likely to be revalued upwards and the bigger prize remains to improve construction margins from zero into a recovery.”

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