Balfour Beatty rejects revised proposals on Carillion merger
CONSTRUCTION giant Balfour Beatty has rejected revised attempts by Wolverhampton-based Carillion to secure a potential £3bn merger.
Balfour Beatty had originally rejected the terms of Carillion’s proposed merger because the latter wanted to keep consultancy Parsons Brinckerhoff as part of the entity – a move at odds with Balfour Beatty’s intention to sell-off the business.
Under renewed discussions, Carillion had proposed to keep the 56.5% / 43.5% split of the business as previously agreed and said Parsons Brinckerhoff would remain part of the combined business although Carillion would agree to cover appropriate bidder costs for the remainder of the sale process, providing the bidders could be persuaded to proceed on the basis that the merger did not ultimately happen
Other terms were that Balfour Beatty shareholders receive the final dividend payment for 2014 and the extension of the Put-up or Shut-up deadline to August 28 with the interim results for both companies deferred to the same date.
Balfour Beatty said its board had carefully considered the revised proposals but ultimately could not support them.
“While the board is mindful of the synergies that might be achieved through a combination with Carillion, the board has concluded that there are a number of significant risks many of which cannot be mitigated,” it said.
These risks include:
• The risk of undermining the Parsons Brinckerhoff sales process, especially as there is no strategic logic for its retention other than to enhance the earnings of the combined group
• Bidders for Parsons Brinckerhoff may not regard the cost cover as adequate to remain fully committed to the process with the resultant risk that the sale process would be terminated
• Risk that a failed sale process would materially impact the motivation and retention of Parsons Brinckerhoff management and employees and damage its competitive position in a rapidly consolidating professional services market
• Impact of terminating the Parsons Brinckerhoff sale process would be compounded if the merger with Carillion did not complete, in which case any associated loss of value would be entirely for the account of Balfour Beatty’s shareholders
• Significant execution risk associated with the integration of the two businesses would be substantially increased by any material revenue reduction in Balfour Beatty’s Construction Services UK business
• Any material reduction in Balfour Beatty’s revenues in Construction Services UK would create unacceptable operational and financial risks:
– Increase restructuring costs and cash and working capital outflows
– Reduce the addressable cost base and bankable synergies
– Remove profitable business opportunities, taking away future earnings recovery potential
• The risk of engaging in detailed due diligence with a competitor while having serious reservations about the transaction and its deliverability
• The risk of not meeting the envisaged announcement date under the revised proposal of August 28 given Balfour Beatty’s due diligence requirements and the impact on the Parsons Brinckerhoff process should an alternative, later announcement date be required.
“In light of these considerations on the revised proposal, the board has lost confidence in the likely delivery of a successful transaction and has therefore concluded that the current proposal from Carillion is not in the best interests of Balfour Beatty shareholders,” it added.
“With the Parsons Brinckerhoff sale process proceeding in line with the board’s expectations, the board is clear that its current plans to refocus and simplify the group, including the sale of Parsons Brinckerhoff, remains the most attractive option. In this case, 100% of cost savings achieved by refocusing and simplifying the group would accrue to Balfour Beatty shareholders.”
It said it remained open to strategic value creating opportunities across the group while it concentrated on the restoration of value to its shareholders.
It added the announcement had been made without Carillion’s consent.
