A major shareholder in both Balfour Beatty and its building rival Carillion put pressure on Balfour to reopen talks over a £3bn merger, as a Takeover Panel deadline to agree a deal looms large.
The “friendly” agreed merger became acrimonious three weeks ago after Carillion’s U-turn over the fate of the highly profitable US business Parsons Brinckerhoff, which Balfour is selling but Carillion now wants to keep.
Balfour, without a chief executive and hit by a clutch of profit warnings, ended talks as a result. But the shareholder, Standard Life, has now gone public in urging Balfour to go back to the table, three days ahead of Thursday’s “put up or shut up” deadline.
David Cumming, the head of equities at Standard Life Investments, said: “We do believe there are significant synergy benefits from a deal – that Carillion can take a lot of cost out and deliver that to the benefit of both shareholders. If they can agree terms, there is a case for a merger.
“Having said that, Carillion has approached Balfour Beatty at a low point in the company’s fortunes with no CEO and a depressed market valuation. There’s scope for Carillion to modestly improve its terms. If they do that, Balfour Beatty should reopen merger talks unless they have got a credible alternative.
“At the moment, all we have got is a combination of patience and the triumph of hope over experience.”
Standard Life owns 2.4 per cent of Carillion and 3.5 per cent of Balfour. The current deal involves Balfour’s shareholders holding 56.5 per cent of the new company, with 43.5 per cent heading to Carillion’s investors. Any improvement in the terms is almost certain to see a bigger share of the business going to Balfour investors rather than any cash incentive.
Carillion has said it can deliver at least £175m in savings through the combination, although Balfour has cast doubt on the ability of its management team to drive through cost savings in a much bigger group with 80,000 staff. Carillion’s management has previously absorbed smaller rivals Alfred McAlpine and Mowlem although this latest mega merger – if agreed – would bring together the builders of high-profile projects such as the Tate Modern and the Government’s GCHQ listening post.
Balfour has also warned that Carillion could shrink its regional construction arm by two-thirds – a business potentially with most to benefit from the economic recovery.
Carillion was also forced to clarify comments made this weekend by its chairman Philip Green that its plans for an overall £1.5bn in savings had been “audited”. The company said the savings had “not been ‘audited’ in the technical sense”, but verified by an independent accounting firm.