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City hopes results will hold key to Carillion/Balfour Beatty merger resolution

The City is awaiting further statements from Carillion and Balfour Beatty over the next fortnight as the saga over a potential merger between two of the UK’s most dominant contractors rumbles on.

The contractors – two of the largest in the UK – revealed on 24 July they were engaged in preliminary discussions in relation to a possible union.

However, seven days later Balfour terminated the talks after Carillion said it was only interested in the deal if Balfour scrapped the planned sale of subsidiary consultant Parsons Brinckerhoff.

A further twist came later that day when Carillion declared itself surprised by Balfour’s statement, and insisted it still believed in the benefits of the merger.

Andy Brown, analyst at broker N+1 Singer, told NCE the City was looking for further clarification on the situation when the pair published interim results later this month.

Brown said: “The market can understand an opportunistic attempt by Carillion, but a half-hearted approach would not make sense. Even in the City there is some confusion.

“We have Balfour Beatty figures next week and Carillion the week after so things will become clearer. There will have to be some statements in those from the boards.”

Balfour Beatty is due to publish half-year financial data on 13 August, with Carillion due to do the same a week later.

Brown said one possibility was that Carillion was looking to ease itself out of the deal by demanding the inclusion of Parsons Brinckerhoff.

“Carillion may have had enough shareholder kickback that it wants a way out,” he said.

But Cenkos Securities analyst Kevin Cammack last week told NCE Carillion may want to benefit from Balfour’s overseas success.

“Balfour Beatty has a significant North American business and an Asian presence so Carillion may seek to benefit from these,” he said, before Carillion announced it wanted US-based Parsons Brinckerhoff.

The proposed deal could see Balfour and Carillion form a super contractor. The firms brought in £8.7bn and £3.3bn respectively in 2013, excluding joint venture revenue.

Brown believes such a merged firm could become “a ready-made consortium”.

“It should become attractive to clients because it will be under one roof so have much more consistent bid teams and site teams [than purpose-built teams],” he said.

“It might mean the merged company could go after big contracts. When new nuclear spend gets going, and High Speed 2, you would expect this company to be at the forefront.”

Brown said the two companies had complementary strengths.

Balfour boasts a large construction division, while Carillion brings a wealth of support services work. Balfour is strong on large infrastructure projects; Carillion in general building. Balfour works heavily in the US; Carillion in Canada.

Meanwhile, Balfour said the process to sell Parsons Brinckerhoff was “proceeding in line with the board’s expectations”.

Balfour announced in May that it was putting the US consultant up for sale, just five years after buying it for £380M.

It was reported this weekend that a shortlist of four bidders had been drawn up, with Atkins and WSP said to be the most likely winners.

Atkins UK and Europe chief executive David Tonkin told NCE earlier this summer that the firm was always looking out for international opportunities.

“We have active teams that are always looking at active possibilities, and have done for the last three years,” he said.

“All through the year we look at lots of international opportunities and we do make some lovely acquisitions.”

Atkins, WSP and Balfour all declined to comment on the speculation linking the two consultants to Parsons Brinckerhoff. Neither Balfour nor Carillion commented further on the merger talks.

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