CARILLION'S £291M cash and shares takeover bid for Mowlem was heading for trouble this week after Balfour Beatty said it might make a rival offer.
Mowlem shares surged to 215p on Monday, well above Carillion's offer price which was initially valued at 205p, after Balfour Beatty declared its interest.
Last week Mowlem directors agreed to recommend Carillion's offer. But Mowlem's shares fell slightly at the news, suggesting that the offer was considered by some to be too low.
And Carillion's shares have fallen too, reducing the value of its bid. Its share price reached 300p a share last week but fell to 295p following Balfour Beatty's announcement.
Balfour Beatty said it had initially approached Mowlem before Carillion had announced its bid.
It is currently meeting Mowlem officials and examining documents as part of a due diligence exercise before deciding whether to make a formal offer.
A merger of Balfour Beatty and Mowlem would consolidate Balfour Beatty's position as Britain's biggest construction business, creating a group with an annual turnover of £6.8bn.
Balfour Beatty said that Mowlem was attractive because of its regional and disciplinary fit.
A takeover would give Balfour Beatty a stronger presence in the regional building markets, complementing the recent acquisition of south east contractor Maunsell.
It added that Mowlem's defence and accommodation projects expertise could complement its own work in health, education and transport.
Carillion said Mowlem's strengths in education and defence work would complement its own skills in major building projects, education and residential high rise.
Both contractors said they saw Mowlem's facilities management business and private fi nce initiative businesses as attractive additions.