Press commentary around the possible Carillion and Balfour Beatty merger has mainly centred on the idea that Carillion – far smaller than its rival in terms of turnover – has launched an “opportunistic takeover” bid for its larger rival.
The impression that Carillion holds more of the cards in any future deal hardened when it emerged that talks had been initiated by Carillion two months ago, directly after the third of four profit warnings and amid the power vacuum left when Balfour Beatty’s former chief executive Andrew McNaughton was shown the door.
The timings emerged in a Carillion-arranged teleconference with analysts, Construction News reported.
The Times also suggested Carillion was “in the driving seat” and had already sketched in its plan for a post-merger company. Carillion’s chief executive Richard Howson – speaking at the teleconference – is quoted as saying: “I think the UK will be our key area of focus initially in terms of synergy savings and benefits for shareholders. We are developing business and integration plans, underpinned by the detailed evaluation of synergies, which we believe could be substantial.”
Also according to The Times, Howson told analysts at the teleconference that there was “obviously huge overlap [between the two businesses] in the UK”, with the paper then quoting analyst Liberum’s suggestion that this would translate into annual savings of up to £250m a year.
Under takeover panel rules, the two businesses have until 21 August to come up with a plan, although The Sunday Times pointed out they could request an extension.
That paper also went further than other press in suggesting not only that Howson could take on the chief executive role of the larger, merged entity, but that Carillion’s chairman Philip Green would also chair the board.
Normally in mergers, it says, one company takes the chief executive role and the other supplies the chairman. But in this case, Balfour Beatty doesn’t have a chief executive.
Not everyone was making the assumption that the deal would go through, however. Cenkos analyst Kevin Cammack told Building magazine that there was a 50/50 chance it would take place and offered this analysis. “It boils down to two things,” he said. “Can Carillion satisfy themselves the risks are sufficiently measurable to give you confidence that you can crystallise the savings to give you value? There’s a point at which the due diligence may stop you thinking you can do that.”
But with most of the press coverage playing up Carillion’s negotiating advantages – a market capitalisation roughly the same as Balfour Beatty’s, a well-regarded chief executive very much in situ and no embarrassing profit warnings – Balfour Beatty seems to have grown a bit fed up. A report in Building yesterday quoted an unnamed Balfour Beatty source insisting that the deal under discussion was not a take-over, and would only be recommeneded by the board if Balfour Beatty stood to gain.
The source apparently 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 anonymous source also took issue with another assumption in much of the press coverage: that a Carillion-led merged company would scale back Balfour Beatty’s exposure to the construction market in favour of Carillion’s own weighting towards services contracts.
“If this deal meant getting out of contruction, there would be no deal,” he or she said.
