Carillion set out its stall to shareholders yesterday in a£3bn pitch for its larger building rival Balfour Beatty, identifying at least £175m a year in cost savings.
The two construction companies announced talks over an agreed deal at the end of July, but the merger quickly fell apart after a U-turn from Carillion over the fate of the Balfour’s profitable US business, Parsons Brinckerhoff, which was put up for sale in May. Carillion now wants to keep the business in any combined company, to the consternation of Balfour Beatty’s board.
Its detailed statement on cost savings represents a last appeal to Balfour’s shareholders to force the board to the table before a 21 August bid deadline from the Takeover Panel, as it is understood that Carillion will not go hostile.
Carillion plans the savings from combining the back office and IT functions of the two firms, as well as sell-offs of overlapping properties and improvements to the supply chain. The company believes the savings can be achieved by the end of 2016, but estimates are based on public documents rather than detailed due diligence, which could throw up more cost savings.
Joe Brent, a Liberum analyst, said: “The synergy prize is too big to walk away from, with Carillion confident of achieving at least £175m. Final synergies could be higher, perhaps £250m. Egos aside, this deal should happen.”
Carillion’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 eventually failed.
Balfour shareholders would also get a final dividend worth £59m, but Balfour said the announcement did not constitute any improvement in the terms of the offer.
Balfour said it “has serious reservations as to the achievability of the stated synergy number and believes that it creates unacceptable operational and financial risks. In contrast, Balfour Beatty has clear plans for developing rather than partially eliminating the UK construction services business.”
Balfour’s results have been hobbled by its construction business, which more than halved overall pre-tax profits to £22m in the first half. It is also without a chief executive after Andrew McNaughton was sacked in May and the group has issued four profit warnings in two years.
Carillion, in contrast, posted a 3 per cent rise in profit to £75.9m, on revenues amounting to £1.87bn.