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Balfour dangles £200m in front of investors as it rejects merger again

Builder defends independent future despite first-half profits slumping by more than half

Balfour Beatty offered a £200m sweetener to shareholders yesterday, despite tumbling profits, as the building company rejected a second overture from rival Carillion over a £3bn merger.

The company plans to return the cash to shareholders in the event of a £1bn sale of its US consulting arm Parsons Brinckerhoff – the business on which the on-off merger has hinged.

Carillion had initially agreed to the sale of Brinckerhoff,  which accounts for a third of Balfour’s profits, but then stunned the UK company’s board by changing its mind two weeks ago, throwing the proposed deal into doubt.

The US company’s latest proposal included keeping Brinckerhoff, but covering the costs of bidders for the business, if they could be persuaded to continue bidding on the basis that the merger might fail. Balfour shareholders would also get a final dividend payment.

But Balfour, which bought Brinckerhoff in 2009, sees no future for the operation as part of the group and the executive chairman Steve Marshall said it made “little sense” to hang on to it as the sector rides a wave of takeover activity. The “well advanced” sale process is said to have attracted bidders including the engineer WS Atkins and Mr Marshall said there was still “strong competitive” interest.

He criticised Carillion for in effect asking Brinckerhoff’s would-be buyers to “make a bet” that the merger would fail and said the board’s fundamental concerns “had not been addressed”.

Balfour’s investors would have owned 56.5 per of the new company under the all-share merger, although Carillion would have secured the top management positions. Carillion only said yesterday that it would “give further consideration to its position”.

Mr Marshall insists his company has an independent future but the half-year results underlined the lingering problems at the UK’s biggest builder, which sacked its chief executive in May and has been hit by four profit warnings in two years. Its construction business sank to a £69m operating loss while overall pre-tax profits shrank by more than half to £22m on revenues down 2 per cent at £4.85bn. Balfour will be smaller in future, cutting its geographical footprint to focus mainly on the US and UK.

Mr Marshall said: “Anybody is entitled to table an offer for a public company at any point ... But the key thing we are going to be talking about with investors is the future for a standalone Balfour Beatty and we’re very confident that the plans we’ve got in place will take the company forward.”

The City has not completely written off hopes of a merger, with an estimated £250m in cost savings potentially on offer. Balfour also left the door open as it said the it “remains open to strategic value-creating opportunities” – which could include the sale of a £1bn portfolio of stakes in private finance initiative projects.

Stephen Williams at  the investment manager Brewin Dolphin said: “The tone of the Carillion statement recently seemed to be one of anger that the talks had been terminated, but Balfour Beatty is now open to an external bid and there is substantial value to be unlocked. We are not convinced that remaining independent is a viable option.”

Broker Liberum’s Sebastian Jory said: “There is a long to-do list and there will be no quick-fix in the go-it-alone strategy.”