1st Feb 2007 07:02
Balfour Beatty PLC01 February 2007 1 February 2007 BALFOUR BEATTY AGREES TO ACQUIRE CENTEX CONSTRUCTION IN THE US FOR A CASH ========================================================================= CONSIDERATION OF $362 MILLION ============================= Acquisition of a leading presence in attractive commercial construction markets------------------------------------------------------------------------------- which creates significant growth opportunities ---------------------------------------------- KEY POINTS ---------- - A major step forward in long-term strategy of building a major domestic construction, services and investment presence in the US on Balfour Beatty's UK model - A profitable, high-quality, top tier US building company, well-placed in growth markets, with approximately $5.6 billion of secured and committed orders - A proven and committed management team which has achieved consistent growth with high earnings quality and predictability - A leading player in Florida, Texas, Washington DC and North Carolina, four of the largest and fastest-growing regional building markets, with a strong portfolio of long-term, blue-chip customers - A leading player in the military housing market where it has an order book of over $750 million - Highly compatible business processes and culture - Potential to exploit new growth opportunities, working in conjunction with Heery and Balfour Beatty Capital - Significantly and immediately earnings per share enhancing for Balfour Beatty* "Establishing a major presence in the US on the model of our UK business, withstrong capabilities in programme management, project delivery and capitalinvestment, is an important element in Balfour Beatty's established long-termgrowth strategy. "Centex Construction is a high-quality building company which gives usprofitable critical mass in the US in a core Balfour Beatty business and bringssubstantial new business development opportunities. We anticipate that it alsowill make a strong, immediate contribution to growth and generate significantvalue for our shareholders." Ian Tyler, Chief Executive ACQUISITION OF CENTEX CONSTRUCTION ================================== Balfour Beatty, the international engineering, construction and services group,announces today that it has agreed to acquire Centex Construction (CC), aleading US building company, from Centex Corporation for a cash consideration of$362 million. At the completion of the acquisition, it is anticipated that CCwill have substantial net cash in its balance sheet. CC's average cash balancesin excess of equity for the nine months ended 31 December 2006 wereapproximately $200 million. In addition to the cash consideration, BalfourBeatty will pay Centex Corporation $4 million per annum for 15 years to secureincremental tax benefits. Commenting today on the acquisition, Balfour Beatty Chief Executive, Ian Tyler,said: "Establishing a major presence in the US on the model of our UK business, withstrong capabilities in programme management, project delivery and capitalinvestment, is an important element in Balfour Beatty's established long-termgrowth strategy. "Centex Construction is a high-quality building company which gives usprofitable critical mass in the US in a core Balfour Beatty business and bringssubstantial new business development opportunities. We anticipate that it alsowill make a strong, immediate contribution to growth and generate significantvalue for our shareholders." Balfour Beatty is already a US leader in selected design, project and programmemanagement markets through Heery International and has established a presence inthe growing US private finance market through Balfour Beatty Capital. Theacquisition of CC offers Balfour Beatty additional potential to grow in itstarget building and investment markets, as well as a strong, well-positioned andwell-managed business. It is anticipated that the acquisition will be significantly earnings per shareenhancing in 2007 and thereafter* will generate significant value for BalfourBeatty shareholders. The acquisition will enable Balfour Beatty to accesssignificant tax benefits and will be funded from Balfour Beatty's existing cashresources. Centex Corporation is selling CC in order to concentrate its resources on the UShousing market, in which it is a leading participant. The transaction is conditional upon certain US regulatory clearances. Centex Construction------------------- Centex Construction (CC) is a profitable, top tier US building company withleading positions in the Florida, Texas, Washington DC and North Carolinamarkets. CC is also a leading player in the nationwide military housing market.It has approximately 1,500 employees. The CC management team to be acquired withthe business has a proven track record of profitable growth. CC's business is in the construction management and delivery of institutionaland commercial buildings, particularly in the education, healthcare,correctional, government, transportation, leisure and office sectors. Amongstits major customers are Federal Government, Disney Corporation, BostonProperties, Marriott, Bank of America and a range of education authorities andhealthcare organisations. It is also a major participant in the military housingmarket, where it has a secured order book of over $750 million. In this market,it operates in long-term partnership with GMH, the Pennsylvania-based developer. CC operates through four divisions based in Florida, Texas, Washington DC andNorth Carolina. It is among the market leaders in each of its territories ofoperation. Balfour Beatty has undertaken extensive due diligence, including in-depthinteraction with CC's senior and regional management teams and detailed contractreviews. The great majority of CC's contracts are secured through qualification-basedtendering in which final cost is agreed only after design is substantiallycomplete and the supply chain is in place. Thus, cost and programme risk aresubstantially reduced and the business's margins are highly predictable. Approximately 95% of its work is negotiated and 80% is through long-termrelationship customers. Balfour Beatty attaches great importance to the skills and experience of CC'smanagement team who will play a key role in the further development of thebusiness. Balfour Beatty also believes that CC will benefit from being part of abusiness focused on engineering, construction and services on an internationalbasis. CC has many cultural and process similarities to Balfour Beatty's UK operations,including a decentralised structure, clear focus on delivery, a sophisticatedrisk management system, a strong bias towards long-term customer relationships,proven processes in supply chain management and strong cash management. Performance----------- In the fiscal year to 31 March 2006, CC had revenues of $1.61 billion andoperating profits of $26.8 million excluding interest on net cash balances, a14% increase on the previous year. In its quarterly earnings announcement on 23January 2007, Centex Corporation reported that CC had revenues of $1.65 billionand operating profits of $27.5 million for the nine months ended 31 December2006. CC has a track record of strong profit growth over recent years. Its currentconfirmed order book is $2.9 billion, with a further $2.7 billion of workawarded but yet to be contracted. The business is expected to continue to growstrongly in the medium term, supported by its strong order book and the inherentgrowth potential of its core markets. A further growth driver is the strong position the business has established inthe military housing market through a number of major long-term contracts,including at Fort Stewart in Georgia, Fort Bliss in Texas and for Navyaccommodation in the North-East US. At 31 March 2006, CC had gross assets of $893 million and net assets of$278 million. Prior to completion of the acquisition, CC's net assets will bereduced to $nil through the payment of a dividend to Centex Corporation. Balfour Beatty in the US------------------------ Balfour Beatty's current US businesses will continue to operate as separateentities under their existing managements. It is anticipated that there will besignificant opportunity for Heery International, Balfour Beatty's professionalservices business which provides consultancy, design, programme and projectmanagement services, to work with CC to take advantage of changing procurementtrends in the US building market. These include increasing use of design andbuild and early contractor involvement. Heery had 2006 revenues of approximately$400 million and is a leader in the education, healthcare, federal government,correctional/judicial and sports sectors, and operates in many of the sameregional markets as CC. CC's substantial presence in state markets in which private finance is playingan increasing role and in the military housing market will also help acceleratethe development of Balfour Beatty Capital's PPP business, based in Atlanta. The acquired business will change its name to Balfour Beatty following theacquisition. Once the acquisition is completed, Balfour Beatty's annual revenuesin the US will amount to approximately $3.5 billion, 80% of which will be in thebuilding sector through CC and Heery. US sales are likely to representapproximately 23% of proforma Group revenues. ENDS Enquiries to:-------------Tim SharpTel: 020 7216 6884www.balfourbeatty.com Notes----- * Statements as to earnings per share enhancement do not constitute a profit forecast and should not be interpreted to mean that Balfour Beatty's earnings per share will necessarily exceed or match those of any prior year. * * * * * * * * * * THERE WILL BE A BRIEFING FOR ANALYSTS TODAY AT 9.30 AM AT ABN AMRO, 250BISHOPSGATE, LONDON, EC2. There will be a live webcast of this presentation on www.balfourbeatty.com andthe slides presented will be available on the website from 10.30 am. * * * * * * * * * * High resolution photographs are available to the media free of charge atwww.newscast.co.uk (tel +44 (0)20 7608 1000). 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