Balfour Beatty's board has rejected the latest offer by Carillion after deciding that the improved offer made yesterday (Tuesday 19 August) is still not in the best interests of shareholders.
LATEST UPDATE 20th August: Carillion announces that it is no longer pursuing a merger with Balfour Beatty.
"The Board of Balfour Beatty has not agreed to Carillion's proposal or to request an extension to the Put Up or Shut Up deadline which expires at 5pm tomorrow, 21 August 2014. Carillion therefore today announces that it is no longer pursuing such a merger."
In a statement released this morning (Wednesday 20 August) Balfour Beatty said the bid still fails to address its two key concerns namely;
It is also separately thought that Balfour Beatty is moving close to concluding a deal to sell Parsons Brinckerhoff with consultant WSP still tipped as the front runner. No announcements have been made on the progress of this sale.
In its latest statement Balfour Beatty said that it will not not be seeking any extention to the previously imposed "put up or shut up" deadline of 5pm Thursday 21 August, and noted that the improved offer "represents only a small value change in the terms compared to the proposal from Carillion rejected on 11 August 2014".
Carillion's improved offer to Balfour Beatty shareholderscame on Tuesday 19 August, just two days ahead of the put or shut up deadline imposed in a bid to force through a merger of the two businesses.
Carillion’s latest offers Balfour Beatty shareholders a 56.268% share of the combined business and a cash dividend of 8.5p valuing Balfour Beatty at £2.086M. The previous offer had been a 56.5% share, worth £1.886M.
Carillion stands by its statements that costs can be cut by £175M a year. This would require a cut in the Balfour Beatty Construction Services business of two thirds, according to Balfour Beatty.
Carillion's latest proposal represents a 36% premium for Balfour Beatty shareholders. It believes the proposal provides a “compelling case” for Balfour Beatty to ask the Panel On Takeovers and Mergers to extend the deadline and resume discussions. Parsons Brinckerhoff would still be part of the deal.
Carillion 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 to create a world-class business and very significant value for the shareholders of both companies”.
The Proposed Offer
Carillion’s revised proposal is as follows:
Parsons Brinckerhoff
Carillion has repeated to Balfour Beatty that it is willing to allow it to continue with its Parsons Brinckerhoff auction process, and to enter into a contract for a sale of Parsons Brinckerhoff subject to shareholder approval. However, should the merger proceed, Carillion would expect the disposal of Parsons Brinckerhoff not to be completed.
Carillion is willing to reimburse the remaining Parsons Brinckerhoff bidders’ reasonable costs (up to £10 million in aggregate) from the date that discussions with Balfour Beatty resume, in the event that the merger goes ahead and Parsons Brinckerhoff is not sold.
Balfour Beatty's priorities
In its satatement on 20th August Balfour Beatty said its priorities are as follows:
Carillion was formed in 1999 following the demerger of the Tarmac Group into a building materials company ('Tarmac') and a company focused on support services and construction services ('Carillion'). Its history therefore traces to the companies that had become part of the Tarmac Group by the late 1990s, namely Tarmac Construction, Wimpey Construction, Cubitts and Mitchell Construction.
Since 1999, Carillion has acquired further well-known construction companies including Mowlem (acquired in 2006), Alfred McAlpine (acquired in 2008), Vanbots (acquired in 2008) and Eaga (acquired in 2011).
Chairman: Philip Green
Chief executive Richard Howson
Carillion is a FTSE 250 company with around 40,000 staff across the world. Current share price is 340p and market capitalisation is £1.46bn.
Markets include: Aviation, Building, Central Government, Civil Engineering, Commercial, Defence, Education, Energy, Financial Services, Health, Justice, Local Authorities, Rail, Roads, Utilities
Carillion operates in three geographic regions:
Carillion operates across three divisions
1. Construction Services
2. Support Services including:
3. Public Private Partnership – current projects and equity commitments include:
Carillion’s 2013 results: In 2013 revenue fell from £4.4bn in 2012 to £4.1bn; pretax profit dropped from £200M in 2012 to £174.7M in 2013; operating margin maintained at 5.6%.
Carillion’s 2014 half-year results: £3.2bn of contracts won in the first half, including a £700M contract in UK rail. The group’s pre-tax profits climbed 5% higher to £67.5m while revenues were 5pc lower to £1.87bn. during the period.
Strategy: to achieve sustainable, profitable growth by:
Vision: "To be the trusted partner for providing services, delivering infrastructure and creating places that bring lasting benefits to our customers and the communities in which we live and work." Richard Howson, chief executive.
Carillion claims to be the largest employer of young apprentices in the UK construction sector with up to 2,000 apprentices in training each year in its network of 14 training centres.
Carillion and Balfour Beatty have a small overlap in institutional investors including BlackRock, Standard Life, Schroders, State Street and Dimensional Fund Advisers. It is understood that some investors have urged Balfour’s board to re-engage.