Balfour Sasy Terminating Merger Talks With Carillion

Balfour Beatty Plc (BBY) ended merger talks with rival British builder Carillion Plc (CLLN) after disagreeing on the terms of a deal that would have formed the country’s biggest construction company with a market valuation of more than 3 billion pounds ($5 billion).

Balfour rejected a Carillion demand that its Parsons Brinckerhoff unit, a New York-based infrastructure consulting company, would be included in the combined entity, it said in a statement.

“This change in the proposed terms is not acceptable to the board,” London-based Balfour said, adding that it will proceed with its own business plan. The builder said it’s in the midst of a “competitive” sale process to sell Parsons Brinckerhoff.

The failed talks are a setback for Balfour as the builder has struggled since the global recession, with a lack of building work in the U.K. and the cancellation of projects across Australia, where the company cut hundreds of jobs last year. A merged company would have benefited from Carillion’s booming services business as the Wolverhampton, England-based builder expands its maintenance offerings for the rail, oil and telecommunication industries. Balfour’s chief quit in May after predicting a profit drop.

‘Powerful Rationale’

Balfour and Carillion had surged 13 percent and 14 percent respectively in London trading on July 25, one day after the companies unveiled their talks and said the deal would create a market-leading service and construction business able to serve more clients and cut costs. Liberum analyst William Shirley said at the time that a deal would offer “huge potential synergies” of potentially 250 million pounds.

Today, Balfour shares fell as much as 7.8 percent while Carillion dropped as much as 5.4 percent.

Carillion’s board concluded yesterday that it would be essential to retain the stability and dependability of Parsons Brinckerhoff’s earnings, it said in a statement. While Carillion is “surprised by Balfour Beatty’s reaction,” the company “continues to believe in the powerful strategic rationale of a combination and the capability of such a combination to create very significant shareholder value.”

Carillion said it will make a further announcement in due course, adding that there is no certainty that any offer will be made.

International Expansion

Carillion has been expanding in new markets such as Canada to make up for a construction slump in its U.K. home market. The company’s share of revenue from the U.K. dropped to 78 percent in 2012 from more than 90 percent five years earlier, according to data compiled by Bloomberg. The U.K. government is one of the biggest customers of both Balfour and Carillion.

Andrew McNaughton stepped down as Balfour chief executive officer on May 6, following 13 months in his post, after saying that earnings will be “significantly” lower than forecast. Chairman Steve Marshall has taken over on an interim basis.

A decline of construction work and rising energy prices in Europe prompted other builders in the region to merge and cut costs. Actividades de Construccion y Servicios SA, Spain’s biggest builder, gained a majority stake in German rival Hochtief AG in June 2011 after a nine-month battle. French cement company Lafarge SA this year agreed a $40 billion merger with rival Holcim Ltd. of Switzerland.

To contact the reporter on this story: Andrew Noel in London at anoel@bloomberg.net

To contact the editors responsible for this story: Simon Thiel at sthiel1@bloomberg.net Andrew Noel

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