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Carillion-Balfour saga turns into war of words

Balfour Beatty has launched a stinging attack on Carillion over its proposal to slash costs in a combined business.

Carillion said earlier today that it had identified £175M of post-merger synergies, and that it would dramatically downsize the Balfour construction business.

But Balfour Beatty has hit back at Carillion’s plans, as the proposed merger between the two construction giants turned into a series of tit-for-tat investor statements.

According to Balfour, “significant risks” identified in its 11 August announcement were not addressed by Carillion’s statement. The possibility of derailing the proposed sale of Parsons Brinckerhoff – which Carillion opposes – was stated by Balfour Beatty as the main reason for not proceeding with the Carillion merger.

Today, Balfour Beatty said: “To benchmark a series of theoretical cost reduction opportunities, represent them all as synergies, and further, to represent them as incremental value creation directly arising from the merger proposal is incorrect.

“Several key business plan assumptions suggest an analysis based on the integration of businesses smaller than Carillion’s, rather than one that is substantially larger. In particular, the substantial rescaling – possibly by up to two thirds – in the revenue of Balfour Beatty’s UK construction business would eliminate future earnings recovery potential. It would also incur cash outflows of many hundreds of millions of pounds of restructuring costs and working capital.”

Balfour Beatty said it had “serious reservations” as to whether Carillion could achieve the £175M synergy savings identified. It added that it had plans for “developing rather than partially eliminating the UK construction services business”.

The Parsons Brinckerhoff issue remains a bone of contention. Balfour said: “Carillions continue to require Parsons Brinckerhoff to remain part of the potential combined business, without providing any strategic or value related logic for its retention, other than for financial presentation purposes. Balfour Beatty has been clear that Parsons Brinckerhoff has not provided synergistic benefits for the Group over five years of ownership, and this has not been disputed by Carillion.

“Their proposed approach would result in the likely termination of the Parsons Brinckerhoff sales process. This risks damage to that business, as well as eroding its competitive position, and potentially resulting in a loss of value to our shareholders.”

The firm added: “The principal objective of the Board of Balfour Beatty is to restore value to its shareholders. The Board is confident that pursuing its strong independent strategy based around a recovering UK business, growing US market and significant investments business is more attractive than a merger on the terms proposed by Carillion with its associated execution risks and potential value loss from a terminated Parsons Brinckerhoff sale. As already indicated, the Board remains open to strategic value creating opportunities across the Group.”

It said it will make a further more detailed announcement in due course.

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