The friendly £3bn mega-merger between two of the UK’s biggest building companies collapsed in embarrassing acrimony yesterday, less than a week after the pair announced discussions over an agreed deal.
Carillion had first approached its struggling UK rival Balfour Beatty over a possible deal in late May, before going public with the talks on 24 July. The two are behind a succession of prominent projects, from Tate Modern to the London 2012 aquatics centre, although Balfour sacked its chief executive two months ago after a string of profit warnings.
The merger has foundered on the fate of Balfour’s US consulting business Parsons Brinckerhoff, which it bought in 2009 but recently decided to sell. Brinckerhoff accounts for about a third of Balfour’s profits and the group is hoping it will fetch $1bn (£590m).
In last week’s joint statement, Carillion and Balfour said the sale would “proceed unaffected” by the merger talks, but Balfour yesterday stunned the market with news of a “wholly unexpected” decision by Carillion to insist that Brinckerhoff remained within the group. “This change in the proposed terms is not acceptable to the board of Balfour Beatty,” the company said.
Carillion now insists that it is “essential to retain the stability and dependability of Parsons Brinckerhoff’s earnings”, and said it was “surprised” by Balfour’s reaction. The company “continues to believe in the powerful strategic rationale of a combination”.
Carillion’s bosses dropped the bombshell about Brinckerhoff at a meeting on Wednesday night.
Balfour’s executive chairman, Steve Marshall, said: “At my request on Monday they came and presented to the Balfour Beatty board, and again all was well. The working assumption was that we were trying to conclude with a further announcement next week.”
City analysts who had been licking their lips over a potential £250m in savings said Carillion could go hostile in its pursuit of Balfour after swoops for Mowlem and Alfred McAlpine in the past decade. Anthony Codling, an analyst at Jefferies, said: “Whilst discussions are always easier when conducted between two willing parties, we would not be surprised if Carillion made a play for the whole of Balfour Beatty. However, due diligence during a hostile bid adds a level of complexity.”
JP Morgan’s Emily Biddulph added: “From a Balfour Beatty perspective, we see how it would be difficult now to justify keeping Parsons Brinckerhoff as part of a combined group; management has spent the last few months explaining why there are no real revenue or cost synergies with the rest of the group.”
Carillion shares closed down 18.9p at 334.3p and Balfour was off 14.8p at 237.9p.