Balfour Beatty, the construction services group, surprised the stock market yesterday when it announced that it had been forced to abandon a major deal in the United States and would have to take a £9m exceptional charge to cover due diligence costs.
Balfour Beatty had planned to buy JA Jones, the US business of the collapsed German building group Philip Holzmann. The deal would have cost around £300m and required a substantial rights issue to fund it. But Balfour Beatty said the continued slide in equity markets had made the fund-raising impossible.
"Current equity market conditions have led the board to conclude that it is not appropriate to raise equity at this time and, accordingly, we have decided not to proceed with this transaction," the company said. The shares jumped 19.5p to 159.5p on the news.
A spokesman said the company had been in exclusive discussions with Philip Holzmann's liquidators for three months. During this time Balfour Beatty's share price slumped from 230p to 140p as equity markets plunged around the world.
"It's not embarrassing, it's frustrating," a spokesman said. "This is a business that would have been strategically and financially beneficial."
JA Jones is based in North Carolina and had sales of $3bn (£2bn) last year. It has experienced a tough time in the past two years but is still ranked as one of America's top 10 construction firms. Because Balfour Beatty was dealing with the liquidators and had been granted exclusive rights, it had hoped to buy the business at a very competitive price. Balfour Beatty already has US sales of $800m from four companies involved in railway maintenance and road and bridge building work.
Balfour Beatty added yesterday that current trading is in line with expectations. It said its record half-year order book of £4.8bn will shortly be increased "by the addition of major new contracts in outsourced services, rail and building contracts under the London Underground public-private partnership". The company is part of the Metronet consortium which has won concessions for maintaining and running several Tube lines.
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