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Balfour questions Carillion's ability to pull off merger as slaps down second proposal

Shares in Balfour Beatty crept up a little, while construction rival Carillion went lower Friday - as what had been billed as a friendly merger between the two descended further into claim and counter- claim.

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Shares in Balfour Beatty (LON:BBY) crept up a little, while construction rival Carillion's (LON:CLLN) went lower Friday - as what had been billed as a friendly merger between the two descended further into claim and counter- claim.

Those familar with the saga know it has been rumbling on since last month, when the pair revealed they were first in talks over the creation of a potential £3bn mega builder.

Today, Balfour slapped down a second apprach from Carillion in unequivocal style, suggesting its managment could not pull off the deal anyway.

It issued a comprehensive statement detailing why it believes the merger is not in the interests of its shareholders and was an "opportunistic" move.

The firms fell out two weeks ago over Carillion’s U-turn over the fate of  Balfour's US business Parsons Brinckerhoff, which has been a real sticking point in the whole affair -  which Balfour is selling but Carillion now wants to keep.

Carillion has said a union could reduce the group's cost base by at least £175mln a year.

But Balfour said today the combined group would be of a significantly larger scale and diversity than the Carillion management team has previously managed, with annual revenues of around £14 billion and around 80,000 employees, excluding joint ventures.

It added that 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 business.

Balfour also claimed that Carillion's proposals would reduce revenues at its UK construction arm by two-thirds.

This division generated £2.8bn of revenue in 2013 and Balfour Beatty claims a "significant reduction in overheads" would, therefore, be required in order to maintain profit margins at the business.

The implementation programme would be complex, requiring simultaneous business restructuring, integration and outsourcing, it said.

"The proposal remains unchanged to that rejected on 11 August 2014," it told investors.

"The board believes this is the right time to sell Parsons Brinckerhoff, but believes Carillion's approach for the entire group at this stage of the construction cycle is opportunistic."

Balfour shares edged 0.79% higher, while Carillion moved 2.54% lower to 338p.

Quick facts: Balfour Beatty plc

Price: 228.2 GBX

LSE:BBY
Market: LSE
Market Cap: £1.57 billion
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