Carillion ups its offer for Balfour Beatty: latest

With two days to go before the put or shut up deadline Carillion has upped its offer to Balfour Beatty shareholders in a bid to force through a merger of the two businesses.

Antony Oliver
19 August 2014

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And Carillion believes its latest proposal provides a “compelling case” for Balfour Beatty to ask the Panel On Takeovers and Mergers to extend the deadline and resume discussions. Parsons Brinckerhoff would still be part of the deal. Balfour Beatty said today (Tuesday) that it is considering Carillion's announcement and will make a further announcement "in due course".

Carillion’s latest offers Balfour Beatty shareholders a 56.268% share of the combined business and a cash dividend of 8.5p valuing Balfour Beatty at £2.086M. The previous offer had been a 56.5% share, worth £1.886M.

Carillion stands by its statements that costs can be cut by £175M a year.  This would require a cut in the Balfour Beatty Construction Services business of two thirds, according to Balfour Beatty. 

Carillion's latest proposal represents a 36% premium for Balfour Beatty shareholders.

Carillion chairman Philip Green said: “Given the scale of the prize for shareholders of both Balfour Beatty and Carillion from a merger of the two companies, the Board of Carillion remains committed to moving forward in a constructive and collaborative way with the board and management of Balfour Beatty to create a world-class business and very significant value for the shareholders of both companies”.

The Proposed Offer

Carillion’s revised proposal is as follows:

• All-share merger of Carillion and Balfour Beatty; 
• 58.268% share for Balfour Beatty shareholders based on the current undiluted ordinary share capital of each of Balfour Beatty and Carillion;
• In addition to the interim dividend announced by Balfour Beatty last week and to the 2014 final dividend to which shareholders of the combined group would be entitled, Balfour Beatty shareholders to receive an additional cash dividend or equivalent of 8.5 pence per Balfour Beatty share (£59 million in total);
• Leadership team of Richard Howson, CEO; Richard Adam, CFO; and Philip Green, Chairman (all Carillion);
• Three Balfour Beatty non-executive directors to join the Board;
• Enlarged group to maintain Carillion’s progressive dividend policy;
• Senior management team below board level to be drawn from both companies; and
• Remaining Parsons Brinckerhoff bidders’ reasonable costs to be covered by Carillion in the event the merger goes ahead (up to £10M in aggregate).

Parsons Brinckerhoff

Carillion has repeated to Balfour Beatty that it is willing to allow it to continue with its Parsons Brinckerhoff auction process, and to enter into a contract for a sale of Parsons Brinckerhoff subject to shareholder approval. However, should the merger proceed, Carillion would expect the disposal of Parsons Brinckerhoff not to be completed.

Carillion is willing to reimburse the remaining Parsons Brinckerhoff bidders’ reasonable costs (up to £10 million in aggregate) from the date that discussions with Balfour Beatty resume, in the event that the merger goes ahead and Parsons Brinckerhoff is not sold.

Ten things to know about Carillion

1. Background

Carillion was formed in 1999 following the demerger of the Tarmac Group into a building materials company ('Tarmac') and a company focused on support services and construction services ('Carillion'). Its history therefore traces to the companies that had become part of the Tarmac Group by the late 1990s, namely Tarmac Construction, Wimpey Construction, Cubitts and Mitchell Construction.

Since 1999, Carillion has acquired further well-known construction companies including Mowlem (acquired in 2006), Alfred McAlpine (acquired in 2008), Vanbots (acquired in 2008) and Eaga (acquired in 2011).

2. Management 

Chairman: Philip Green 

Chief executive Richard Howson

3. The business

Carillion is a FTSE 250 company with around 40,000 staff across the world. Current share price is 340p and market capitalisation is £1.46bn. 

Markets include: Aviation, Building, Central Government, Civil Engineering, Commercial, Defence, Education, Energy, Financial Services, Health, Justice, Local Authorities, Rail, Roads, Utilities

4. Geography

Carillion operates in three geographic regions:

• UK and Ireland
• Middle East and Africa
• Canada

5. Services

Carillion operates across three divisions

1. Construction Services

2. Support Services including:

• Facilities Management and Property Services
• Specialist Services
• Business Services
• Infrastructure Services
• Energy Services
• Advice Services

3. Public Private Partnership – current projects and equity commitments include:

• UK: Southmead Hospital - £48.7M - 30 years
• UK: Allenby Connaught - £15.0M - 35 years
• Canada: Forensic Service and Coroners Complex - £11.4M - 30 years
• Canada: Centre for Addiction and Mental Health - £8.9M - 30 years
• Canada: Sault Area Hospital - £4.7M - 30 years

6. Financial performance

Carillion’s 2013 results: In 2013 revenue fell from £4.4bn in 2012 to £4.1bn; pretax profit dropped from £200M in 2012 to £174.7M in 2013; operating margin maintained at 5.6%.

Carillion’s 2014 half-year results: £3.2bn of contracts won in the first half, including a £700M contract in UK rail. The group’s pre-tax profits climbed 5% higher to £67.5m while revenues were 5pc lower to £1.87bn. during the period.

7. Carillion’s strategy and vision

Strategy: to achieve sustainable, profitable growth by:

• Investing in people and capabilities
• Building long-term, trusted partnerships
• Transferring knowledge and skills to new and existing markets to expand our services and infrastructure activities
• Providing a selective high-quality construction capability

Vision: "To be the trusted partner for providing services, delivering infrastructure and creating places that bring lasting benefits to our customers and the communities in which we live and work." Richard Howson, chief executive. 

8. Training

Carillion claims to be the largest employer of young apprentices in the UK construction sector with up to 2,000 apprentices in training each year in its network of 14 training centres.

9. Ten key projects over Carillion’s 15 year life:

1. Current - Southmead Hospital Redevelopment Project 
2. 2012 - Olympic Media Centre, London
3. 2009 - Yas Marina Hotel, Abu Dhabi (Al Futtaim Carillion)
4. 2007 - Channel Tunnel Rail Link to St Pancras, London 
5. 2006 - Twickenham Rugby Stadium, London (Mowlem)
6. 2003 - Government Communications HQ, Cheltenham
7. 2002 - Copenhagen Metro, Copenhagen 
8. 8.2001 - Grand Mosque, Muscat 
9. 2000 - Tate Modern, London 
10. 1999 - JJB Stadium, Wigan (Alfred McAlpine)

10. Investors

Carillion and Balfour Beatty  have a small overlap in institutional investors including BlackRock, Standard Life, Schroders, State Street and Dimensional Fund Advisers. It is understood that some investors have urged Balfour’s board to re-engage.