Carillion made a third attempt yesterday to force its larger rival Balfour Beatty to the negotiating table over a £3bn mega-merger by offering its investors an even bigger share in the combined company.
The two builders – responsible for a raft of major engineering feats including the Thames Barrier and the Channel Tunnel – began talks on a friendly deal in July. But Balfour Beatty’s executive chairman, Steve Marshall, pulled the plug three weeks ago after Carillion decided it wanted to keep the highly profitable US subsidiary Parsons Brinckerhoff, which Balfour is selling.
After talks with Balfour Beatty’s major investors, Carillion is now offering them 58.27 per cent of the shares in a combined business. That adds an extra £200m to the value of Balfour Beatty – precisely the amount that Balfour is promising to return to its shareholders through the sale of Brinckerhoff.
The improved offer values Balfour at £2.09bn – a 36 per cent premium to the average share price in the month before 24 July, when news of the potential deal first leaked.
On top of the bigger share, Balfour Beatty investors have already been offered an extra final dividend worth £59m as the clock ticks down towards tomorrow’s 5pm Takeover Panel deadline to “put up or shut up”.
Carillion’s first approach came in May, with Balfour’s fortunes at a low ebb after a string of profit warnings and the sacking of its chief executive Andrew McNaughton.
Carillion believes 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 company with a combined 80,000 staff.
Balfour’s board met last night to consider the offer, but major investors are twisting its arm to resume talks. Standard Life Investments, which has stakes in both companies, went public on Monday saying there was scope for Carillion “to modestly improve its terms”. Standard’s head of equities, David Cumming, said: “If they do that, Balfour Beatty should reopen merger talks unless they have got a credible alternative.”
Carillion said there was a “compelling case” for Balfour to request an extension of tomorrow’s deal deadline. Its chairman Philip Green said: “Given the scale of the prize for shareholders of both Balfour Beatty and Carillion from a merger of the two companies, the board of Carillion remains committed to moving forward in a constructive and collaborative way with the board and management of Balfour Beatty.”
Balfour was expected to respond this morning and declined to comment yesterday. However insiders said the group stood by its previous public statements over the execution risks involved in the merger, and its opposition to keeping Brinckerhoff at a time of consolidation within the global professional services industry when it served no strategic purpose within the company.
Carillion says it is willing to allow the auction of Brinckerhoff to continue on the understanding that the sale will not be completed if the merger happens.