Carillion set out its stall to shareholders today in its £3 billion pitch for larger building rival Balfour Beatty, identifying at least £175 million a year in cost savings.
The two firms announced talks over an agreed deal at the end of July but the merger quickly fell apart after a U-turn from Carillion over the fate of the Balfour’s highly profitable United States business Parsons Brinckerhoff, which was put up for sale in May.
Carillion now wants to keep the business in any combined company, to the consternation of Balfour Beatty’s board.
Tate Modern builder Carillion has until 21 August to agree a takeover deal for Balfour under a Takeover Panel “put up or shut up” deadline.
Today’s detailed statement on cost savings represents a last appeal to Balfour’s shareholders to force the board to the table, as it is understood that Carillion will not go hostile.
Carillion plans the savings from combining the back office and IT functions of the two firms, as well as selling off overlapping properties and improvements to the supply chain.
The firm believes the savings can be achieved by the end of 2016, but estimates are based on public documents from Balfour Beatty, the builder of the Aquatics Centre, rather than detailed due diligence, which could throw up more cost savings.
Liberum analyst Joe Brent said: “The synergy prize is too big to walk away from, with Carillion confident of achieving at least £175 million.
“We believe final synergies could be higher, perhaps £250 million. Egos aside, this deal should happen.” Carillion’s latest proposal included keeping Brinckerhoff, but covering the costs of bidders for the business, if they could be persuaded to continue bidding on the basis that the merger eventually failed.
Balfour shareholders would also get a final dividend payment worth £59 million but Balfour said today’s announcement by Carillion did not constitute any improvement in the terms of the offer.
Balfour said it “has serious reservations as to the achievability of the stated synergy number and believes that it creates unacceptable operational and financial risks.
“In contrast, Balfour Beatty has clear plans for developing rather than partially eliminating the UK construction services business.”
Balfour’s results have been hobbled by its construction business, which more than halved overall pre-tax profits to £22 million in the first half.
Carillion in contrast posted a 3% rise in profits to £75.9 million.
