UK FIRMS WS ATKINS and Bovis are planning a merger to create a $3.35bn a year, global, one-stop-shop construction services business.
The newly merged group would combine Bovis' massive international construction and project management operation with WS Atkins' design and facilities management business.
The group would be able to bid independently for design build finance and operate projects without having to form consortia with other companies.
However, City analysts were concerned about the deal, which would see Atkins' $609M (366M) high margin engineering consultancy and facilities management business combine with Bovis' respected but low margin operation. Last year Bovis made an operating profit of 16.3M on turnover of 1.8bn - a margin of just under 1%, while Atkins produced an operating profit of 24M on turnover of 365M - a margin of 6.5%.
News of the deal caused Atkins' share price to plummet. The consultant's profits have grown largely from its inroads into the high margin facilities management sector. 'Atkins has been positioning itself as a facilities management company, and away from its exposure to construction,' says BT Alex Brown analyst Paul Morlam. 'The tie up with Bovis takes it back to its roots.'
WS Atkins is expected to buy Bovis from its parent P&O, although P&O is expected to retain a large stake in the new group. The group would employ 5,300 people.
WS Atkins chief executive Mike Jeffries said the talks were sparked by increasing demands from clients for engineer/procure/ construct services coupled with operation and maintenance contracts.
Jeffries expects profit growth to come from turning the two companies into a one-stop-shop construction management consultancy, able to offer a cradle-to-grave design, construction management and facilities management service to clients.
'We are experiencing increasing client demand for integrated solutions,' says Jeffries. This is especially true on Private Finance Initiative contracts where private concession companies are expected to design, build, finance and operate infrastructure. PFI is increasingly popular worldwide.
A merger will also allow Atkins and Bovis to share their client bases - at present the two groups have few common clients - and give Atkins access to the US. Its main rival on the world market is likely to be US contractor/project manager Bechtel.