Carillion merger with Balfour Beatty ‘not a takeover’

Balfour Beatty would not be considering a deal with Carillion if it was effectively a take over, a source at the construction giant has told Building.

Last week, the two largest UK contractors announced that they were in merger talks, to the surprise of the City and the industry.

Balfour Beatty has suffered a torrid time in recent months, with four successive profit warnings prompting the departure of its chief executive, and analysts described the proposed merger as an “opportunistic take over” of Balfour Beatty.

Joe Brent, analyst at Liberum, said the detail in the announcement of the merger talks was “deliberately vague”, but that it was most likely that the structure of any deal would entail Carillion buying Balfour Beatty.   

Following an analysts briefing from Carillion’s senior management, Kevin Cammack, analyst at Cenkos, said: “The whole tone to me made it patently obvious that in Carillion eyes this is not a merger at all but an opportunistic take over of Balfour Beatty”.

At the weekend, the Sunday Times reported that current Balfour Beatty chair Steve Marshall is set to be unseated as part of the deal with Carillion chair Philip Green slated to chair a combined business with Marshall as his deputy.

Carillion chief executive Richard Howson, reported to be the person who made the original approach to Balfour Beatty, is also expected to fulfil the role of chief executive of any merged firm as Balfour Beatty is still without a group chief executive, after the departure of Andrew McNaughton in May.

Balfour Beatty has not briefed the City on the deal, other than the formal joint statement published last week.

However, a Balfour Beatty source told Building the proposal was not a take over and that the deal “must work for us”.

The source said: “We don’t need to do this deal, we really don’t, and we are only going to do it if there’s something worth having in it.”

The source also denied that a deal would entail a scaling back of Balfour Beatty’s construction profile to bring it more in line with Carillion’s business model, which has focused on the expansion of its services business while “rescaling” its construction business in recent years.

“If this deal meant getting out of construction there would be no deal,” the source said.

The source said a merger with Carillion would “accelerate” Balfour’s strategy of growing its construction business; give the firm a “bigger and better quality” share of the construction market; and would give Balfour an entry into geographies where it did not currently have a presence, such as Canada.

The source said that the prospect of a merger had no effect on the company’s search for a chief executive, which was still going “full bore”.

The source added that the merger, if it goes ahead, is not expected before Christmas.

Another source close to the company said structuring the deal as a takeover was “unlikely” because it would mean Balfour Beatty shareholders would probably demand an “acquisition premium”, making it more expensive for Carillion.