The “friendly” merger to create a £3bn UK building giant descended further into acrimony as Balfour Beatty accused Carillion’s management of not being able to pull off the deal.
Balfour, led by the executive chairman Steve Marshall, is fending off an approach from its construction rival, which claims it can deliver at least £175m in savings through the combination.
Carillion has swallowed other famous names in the building industry over recent years including Mowlem and Alfred McAlpine. But Balfour cast doubt on the ability of chief executive Richard Howson’s team to drive through cost savings in a much bigger group with 80,000 staff.
The duo fell out two weeks ago over Carillion’s U-turn on the fate of the US business Parsons Brinckerhoff, which Balfour is looking to sell but its suitor now wants to keep. Instead, Carillion is seeking to cut the size of Balfour’s British construction business, which employs 9,000 staff, by two thirds.
In a detailed statement on Friday, Balfour said the execution risks in the merger envisaged by its rival were huge. It warned: “The combined group would be of a significantly larger scale and diversity than the Carillion management team has previously managed, with annual revenues of circa £14bn and 80,000 employees, excluding joint ventures.
“The proposed retention of Parsons Brinckerhoff exacerbates the scale of the challenge at a time when the management team would be undertaking a fundamental downsizing of the UK construction businesses.”
Balfour was also forced to put out a clarifying statement stressing that it was not specifically labelling Carillion’s breakdown of potential cost savings published on Friday as “incorrect”. But it believes most of Carillion’s planned cuts would be likely to fall on its regional construction arm, which is best placed to benefit from a nascent recovery.
Balfour has already identified its own plans for savings: cutting overhead costs from over 6 per cent of revenues to under 5 per cent – around £30m – slimming management and improving the supply chain. It argues that investors in a standalone business would reap the full benefit of this, as well as up to £200m through the sale of Brinckerhoff.
Under takeover rules, Carillion has until 21 August to make a final offer. It made its initial approach in May following a difficult six months for Balfour, which has been hit by a series of profit warnings and the sacking of its chief executive. Its shares have slumped more than 20 per cent in the past six months.
On Friday they slipped 0.2p to 239.9p, while Carillion fell 13.7p to 333.1p.