11th Aug 2014 08:25
LONDON (Alliance News) - Balfour Beatty PLC Monday said it has "lost confidence" in a successful merger with Carillion PLC and has concluded that it is in its best interest to continue with its current plan to refocus and simplify the group, including the sale of its US project management business Parsons Brinckerhoff.
Balfour Beatty, which also published its first-half results ahead of schedule Monday, said it has terminated discussions after Carillion revised its proposal to demand that Parsons Brinckerhoff remain part of Balfour Beatty.
In response to Balfour Beatty's statement Monday, Carillion said it will give further consideration to its position and will make a further announcement in due course.
"In the meantime, there can be no certainty that any offer will be made by Carillion or as to the terms on which any such offer might be made," the company said.
Late last month, Balfour Beatty said Carillion's demand that Balfour retain Parson was contrary to the joint announcement released on July 24, which had confirmed that the sale of Parsons would be unaffected by the merger discussions.
Balfour Beatty reaffirmed Monday it would continue with its planned sale of Parsons, adding that a competitive sales process was already well under way.
The initial proposal for a merger of Balfour Beatty and Carillion implied an ownership split which would have been 51% of the combined entity to Balfour Beatty shareholders and 49% to Carillion shareholders, Balfour Beatty said Monday.
Following successive negotiations with Carillion over several weeks Balfour Beatty said it agreed to engage with Carillion at the end of June on the basis of an all-share combination with 56.5% undiluted ordinary equity to Balfour Beatty shareholders and 43.5% to Carillion shareholders.
It said Carillon subsequently proposed revised terms on August 3. It proposed to keep the 56.5%-43.5% split of the business as previously agreed but made some changes and additions to the key terms of the proposal, including for Parsons Brinckerhoff to remain part of a combined business.
Balfour Beatty on Monday said it carefully considered the revised proposal and concluded that there were a number of significant risks, many of which could not be mitigated. This included the risk of undermining the Parsons Brinckerhoff sales process, which is a key strategic object of the group, particularly as there is "no strategic logic for its retention other than to enhance the earnings of the combined group."
The company also said there was a risk that a failed sale process would damage Parsons Brinckerhoff's competitive position in a rapidly consolidating professional services market.
"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," Balfour Beatty said.
The construction giant said the Parsons sales process is proceeding in line with internal expectations and it "remains open to strategic value creating opportunities across the group while it concentrates on the restoration of value to its shareholders."
The announcement comes as the FTSE 250 company posted pretax profit of GBP22 million for the six months to June 27, down from GBP47 million a year earlier, as group revenue dipped to GBP4.17 billion from GBP4.31 billion.
Revenue, including its share of joint ventures, fell to GBP4.85 billion from GBP4.96 billion a year earlier.
Balfour Beatty has been struggling in recent times. Hurt by the reorganisation of its UK construction business and a significant downturn in the Australian natural resources sector, the company's woes proved too much for former Chief Executive Andrew McNaughton, who stepped down with immediate effect earlier this year. The company is still looking for a replacement.
The company said Monday that operational issues in the mechanical and electrical engineering parts of its UK construction business resulted in a "disappointing" first-half performance for the group as a whole.
Revenue for construction services rose to GBP3.16 billion from GBP3.14 billion, although the UK order book declined 11% largely due to increased selectivity in bidding activity, and reduced order intake within the engineering services business. As a result, the construction division reported a GBP69 million loss compared with a GBP39 million loss a year earlier.
However, Balfour Beatty said that across the construction services business it has seen an improvement in the quality of new order intake, with joint venture awards, such as a GBP160 million Sellafield nuclear facility contract and a GBP184 million smart-motorway upgrade scheme for the M60 and M62.
The professional services unit struggled, however, with revenue down to GBP802 million from GBP870 million a year earlier. Balfour Beatty said the Middle East order book declined as a number of large contracts awarded in the first half of 2013 converted to revenue.
On a positive note, action to reduce costs in Australia took effect, and the company saw reduced losses there during the period.
The support services division also reported a drop in revenue to GBP615 million from GBP648 million, as the power unit saw revenues and profitability decline, as had been expected, the company said.
Balfour said the transmission sector experienced lower volumes after contracted volume targets were completed ahead of schedule in the second half of 2013, and capital replacement programmes were reduced in the first-half of 2014.
Overall, at the period-end the group order book was down 1% from the year-end at constant currently to GBP13.0 billion.
Looking ahead, the company said it will focus on recruiting a new CEO and completing the disposal of Parsons Brinckerhoff.
In light of its troubles, the company declared an unchanged interim dividend of 5.6 pence per share.
Balfour Beatty shares were quoted up 1.4% at 242.41 pence Monday morning, while Carillion shares were quoted up 1.2% at 324.6p.
By Anthony Tshibangu; [email protected]; @AnthonyAllNews
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