“The board has lost confidence in the likely delivery of a successful transaction and has therefore concluded that the current proposal from Carillion is not in the best interests of Balfour Beatty shareholders,” Balfour Beatty said.
It also revealed that Carillion has offered to pay off bidders for Parsons Brinckerhoff, so keen is it to keep hold of the profitable US subsidiary at the heart of the split between the two companies.
Carillion initially approached Balfour Beatty on 27 May 2014 with a merger proposal that would give 51% of the combined entity to Balfour Beatty shareholders and 49% to Carillion shareholders.
Several weeks of negotiations followed and a deal was agreed on the basis that Balfour Beatty shareholders got 56.5% to Carillion’s 43.5%, but Carillion got the three top jobs of chairman, chief executive and finance director. Balfour Beatty says that it was also agreed that its previously planned sale of its US engineering subsidiary Parsons Brinckerhoff would continue. At Carillion’s request, the equity split in the merger was predicated on Balfour Beatty retaining the proceeds from the sale of Parsons Brinckerhoff as freely available cash.
This was the deal behind the 25th July announcement that merger talks were going on. (See previous report here.)
According to Balfour Beatty, at a meeting on 30th July Carillion told Balfour Beatty that it wanted to change the terms of the deal and keep Parsons Brinckerhoff business. The next day Balfour Beatty announced that it had terminated discussions on the basis of a fundamental concern regarding the proposed treatment of Parsons Brinckerhoff. With a sale at an advanced stage, Balfour Beatty was concerned about the costs that had been incurred by bidders should the sale be scrapped.
Other reports indicate that Carillion merely suggested delaying the sale of Parsons Brinckerhoff.
At a meeting between Carillion chairman Philip Green and Balfour Beatty executive chairman Steve Marshall on 3rd August, Carillion proposed a revised set of terms. Mr Green suggested that Carillion would pay the costs incurred to date by companies bidding for Parsons Brinckerhoff [reported to include Atkins, WSP and at least two venture capital funds] on the basis that these bidders would agree to keep their offers on the table should the Balfour/Carillion merger not ultimately happen.
Balfour Beatty said that its board considered the revised proposal but decided the risk of undermining the Parsons Brinckerhoff sales process was too great – “particularly as there is no strategic logic for its retention other than to enhance the earnings of the combined group”.
Balfour’s statement this morning said that it feared bidders for Parsons Brinckerhoff “may not regard the cost cover as adequate to remain fully committed to the process with the resultant risk that the sale process would be terminated”.
It also fears that “a failed sale process would materially impact the motivation and retention of Parsons Brinckerhoff management and employees and damage its competitive position in a rapidly consolidating professional services market”.
If the merger with Carillion did not go ahead, Balfour Beatty would then be left holding an asset – Parsons Brinckerhoff – that had effectively been devalued by its role as a passive pawn in what has effectively become a takeover battle.
Balfour Beatty’s statement concluded: “In light of these considerations on the revised proposal, the board has lost confidence in the likely delivery of a successful transaction and has therefore concluded that the current proposal from Carillion is not in the best interests of Balfour Beatty shareholders. With the Parsons Brinckerhoff sale process proceeding in line with the board's expectations, the board is clear that its current plans to refocus and simplify the group, including the sale of Parsons Brinckerhoff, remains the most attractive option. In this case, 100% of cost savings achieved by refocusing and simplifying the group would accrue to Balfour Beatty shareholders.”
In a separate announcement, Balfour Beatty said that the Parsons Brinckerhoff sale process was "well advanced, with completion expected by the end of the year, subject to shareholder approval".