CARILLION continued its pursuit of merger target Balfour Beatty yesterday as it high-
lighted the “powerful” financial benefits arising from a £3 billion tie-up.
The support services heavyweight also revealed it has been in talks with Balfour’s major shareholders after two proposals to the company’s board were rejected.
It has sweetened its offer by promising to pay an additional 8.5p a share dividend to Balfour investors and told them the creation of a new FTSE 100 company will result in £175 million a year in cost savings by 2016.
Carillion would also refocus Balfour’s troubled UK construction services business on a smaller number of contracts so that two-thirds of group profits will come from services and investments, with one-third from construction.
The company said: “Carillion continues to believe in the powerful strategic logic and financial benefits of a merger with Balfour Beatty and is therefore continuing to consider its position.”
Carillion also issued half-year results in which it said pre-tax profits rose by 5 per cent to £67.5m, helped by progress in re-scaling its own UK construction arm.
Balfour revealed on Monday that executive chairman Steve Marshall met Carillion counterpart Philip Green for talks a week ago following the rejection of an earlier proposal.
But the potential tie-up continues to founder on Carillion’s wish to cancel Balfour’s planned £200m sale of its US business Parsons Brinckerhoff.
Balfour said its current plan to refocus and simplify the group “remains the most attractive option”. However, half-year results this week showed deepening construction losses in Britain.
Carillion disclosed the content of its meetings with Balfour shareholders following a request from the UK Takeover Panel.
Balfour said it had “serious reservations” about the savings Carillion claims it could make by merging head office functions and applying its own business model to Balfour.
The company was also critical of Carillion’s demand that US firm Parsons Brinckerhoff remains part of the combined business, despite Balfour’s plans to sell the operation.
Analyst Andrew Gibb at Investec said he didn’t think Parsons featured in the long-term plans for Carillion.
“However, it strikes us that the need to retain this business in the short term reflects the group’s view on the current state of Balfour Beatty’s construction division and the scale of the task ahead to implement a turnaround,” he said. “The question for investors now is who is best placed to action this?”