19th Aug 2014 15:21
LONDON (Alliance News) - Carillion PLC Tuesday sweetened its takeover approach for fellow FTSE 250 construction firm Balfour Beatty PLC, offering an even-bigger majority stake for Balfour Beatty shareholders, but it continued to insist that Balfour Beatty's proposed sale of its Parsons Brinckerhoff business in the US not be completed if a takeover deal is agreed.
Carillion is running out of time to make a formal offer, and urged Balfour Beatty to engage in takeover talks and to request an extension from the UK Takeover Panel of the deadline for a formal bid to be made.
The sweetened deal comes just a day after Standard Life Group PLC, a major shareholder in both companies, called for the pair to get back around the negotiating table and urged Carillion to sweeten its offer. Carillion had been talking directly to Balfour Beatty shareholders about what it would need to do to get backing for a deal.
Under Carillion's new offer, which values Balfour Beatty at GBP2.09 billion, Balfour shareholders would get a 58.268% stake in the merged business, and also would receive the 8.5 pence per Balfour share cash dividend, worth GBP59 million, that Carillion had previously proposed. Carillion said Balfour Beatty had previously agreed to a 56.5% stake for its shareholders. Carillion's initial approach had envisaged Balfour Beatty shareholders taking a 51% stake.
In a separate statement Tuesday, Balfour Beatty said it was considering Carillion's latest announcement and would make a further announcement in due course.
The main sticking point in negotiations has been Balfour Beatty's refusal to consider halting the planned sale of its US project management business, Parsons Brinckerhoff. It has said the sale process is at a late stage and is non-negotiable.
Last Thursday, Balfour Beatty said there was "no strategic logic" for retaining Parsons Brinckerhoff, other than to enhance the earnings of the combined group. It expressed concern that a failed sale process could damage Parsons Brinckerhoff's competitive position in a rapidly consolidating professional services market.
Carillion hasn't changed its own position on the matter. It said Tuesday that it has repeated to Balfour that it is willing to allow it to continue with its Parsons Brinckerhoff auction process, and even to enter into a contract for a sale of Parsons Brinckerhoff subject to shareholder approval. But if a merger between Carillion and Balfour proceeds, then it would expect the sale of the business to not go through.
It said it is willing to reimburse the remaining Parsons Brinckerhoff bidders reasonable costs for up to GBP10 million in total from the date that discussions with Balfour Beatty resume, if the takeover goes ahead and the business is not sold.
However, the Parsons Brinckerhoff sale is not the only point of contention between the two, as Balfour Beatty also has disputed the structure of the enlarged group and the benefits the deal would bring.
Carillion's business plan for the enlarged group is to shrink the combined UK construction services business in a similar manner to the downsizing it undertook in respect of its own UK construction business, principally by being more selective in the contracts for which it bids, and to grow the combined services business, such that, within the medium term, two thirds of the combined group's operating profit would derive from services and investments, with one third coming from construction.
Balfour Beatty has a different idea. It wants to grow its UK construction business. The unit has improved of late and posted an increase in revenue to GBP3.16 billion for the six months ended June 30 from GBP3.14 billion a year earlier. Balfour Beatty said the construction services business 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 London-headquartered company said it has clear plans for developing rather than partially eliminating the UK construction business, including achieving future cost savings where 100% of the benefits achieved would accrue to its shareholders.
Balfour Beatty believes that any reduction in revenue in the UK construction services business would create unacceptable operational and financial risks. The company said it would also incur cash outflows of many hundreds of millions of pounds of restructuring costs and working capital.
"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 Monday of last week.
However, Carillion reiterated Tuesday that it continues to believe in the "powerful strategic logic" of a deal, and said that the cost base of the combined group could be reduced by at least GBP175 million per year by the end of 2016, and earnings per share would be significantly enhanced from that year.
"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," said Carillion Chairman Philip Green in a statement Tuesday.
Carillion has until after market close this Thursday to either announce a firm offer for Balfour Beatty or walk away. Therefore, for discussions to continue, Balfour must request an extension.
The company said that if it were to re-engage with Balfour Beatty, it would expect to be in a position to announce a firm offer for Balfour Beatty within four weeks.
Shares in Carillion were trading down 0.2% at 336.60 pence late Tuesday afternoon. Shares in Balfour Beatty were trading up 4.1% at 258.11 pence, putting it among the top-ten risers in the FTSE 250 index.
By Hana Stewart-Smith; [email protected]; @HanaSSAllNews
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