By Dow Jones Business News,
July 31, 2014, 08:12:00 AM EDT
By Ed Ballard
LONDON--U.K. construction firm Balfour Beatty PLC (BBY.LN) pulled out of merger talks with Carillion PLC (CLLN.LN),
complaining that Carillion wanted Balfour to abandon a plan to sell Parsons Brinckerhoff, a New York-based design
"This change in the proposed terms is not acceptable," Balfour Beatty said in a statement Thursday. When they made the
early-stage talks public in a joint press release on July 25, the companies said Balfour would continue looking for a
buyer for Parsons Brinckerhoff--acquired for $626 million five years ago--during the merger talks.
In response, Carillion said it was "surprised" by Balfour Beatty's decision. "The work to date has led to increased
confidence in the potential to realise very material value for the benefit of both sets of shareholders," the company
Shares in both companies fell on the news. Around midday in London, Balfour Beatty shares were down around 2.6%, while
Carillion traded down around 3%.
Balfour Beatty's abrupt reversal surprised analysts, who approve a potential tie-up on the grounds that a combined
group could reduce spending on areas where the two companies' businesses overlap, particularly in U.K. construction.
Balfour Beatty--which has issued a string of profit warnings in the last two years as it struggles to turn around an
underperforming U.K. construction business--is now vulnerable to rival takeover bids, said Numis Securities' Howard
"You can't go back," Mr. Seymour said. "People have done the numbers and looked at the cost synergies. They could see
the value uplift. Other companies will say, 'If Carillion thinks it can get that, we can get that and maybe more.' And
shareholders now have a metric to say Balfour must do better than the combined entity would."
Sweden'sSkanska A.B. (SKA-B.SK) is the "most obvious" candidate to make a bid for Balfour Beatty because of the cost
savings that would result from combining both companies' U.S. operations, Mr. Seymour said. Other contenders include
France'sVinci S.A. (DG.FR) and Irving, TX-based Fluor Corp. (FLR), he added.
Stephen Rawlinson at Whitman Howard said: "This is a massive overreaction by Balfour Beatty... they have prioritized
selling Parsons over the possibility of creating a larger viable entity."
Carillion said it will "give further consideration to its position" but ruled out a hostile takeover. Joe Brent at
Liberum Securities said that will spur Balfour Beatty's shareholders to put pressure on the board--and also means that
Carillion must act fast in case Balfour Beatty sells Parsons Brinckerhoff before the Aug. 21 takeover deadline.
"The sale of PB by Balfours will make a deal harder," Mr. Brent said.
In another development that could have implications for the merger, Hyder Consulting (HYC.LN) Thursday said that it
accepted a 650 pence-per-share offer from Netherlands-based Arcadis N.V. (ARCAD.AE).
Arcadis' decision to buy Hyder--a design consultancy comparable to Parsons Brinckerhoff--reduces the U.S. firm's field
of potential acquirers, wrote analysts at Liberum who said W.S. Atkins PLC (ATK.LN) is the most likely buyer.
At 1113 GMT, Balfour Beatty traded down nine pence at 244 pence, while Carillion was down 11 pence at 342 pence.
Write to Ed Ballard at email@example.com
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