Carillion Woos Balfour Beatty Investors After Bid Snubbed

Carillion Plc (CLLN) has met with Balfour Beatty Plc (BBY)’s major shareholders in an effort to resurrect a merger that Britain’s largest builder rejected this week.

Carillion told the Balfour investors that a deal would generate cost savings of at least 175 million pounds ($292 million) a year by the end of 2016, the Wolverhampton, England-based company said in a statement today. Balfour Beatty, which turned down Carillion’s latest approach Aug. 11, said today that it still opposes the proposal.

The sticking point for London-based Balfour is the Parsons Brinckerhoff engineering-consulting unit that the company is trying to divest. Chairman Steve Marshall has said he sees “no logic” in retaining the New York-based business and that calling off the sale is too risky should a merger with Carillion ultimately fail. Carillion said today that keeping Parsons would give the combined group access to 3 billion pounds of financing.

“Carillion continues to believe in the powerful strategic logic and financial benefits of a merger with Balfour Beatty,” it said, adding that there’s no certainty it will make a renewed offer.

The deal proposed by Carillion would probably terminate the Parsons Brinckerhoff sales process and damage that business and its competitive position, Balfour said today. It wants to sell the business as “Parsons Brinckerhoff has not provided synergistic benefits for the group over five years of ownership.”

‘Incorrect Calculations’

Balfour rose as much as 2.8 percent and was trading up 1.5 percent at 240 pence as of 10:23 a.m. in London. Carillion gained as much as 7.8 percent to 345.1 pence.

Balfour also said today it regards Carillion’s cost savings calculations as incorrect.

“To benchmark a series of theoretical cost reduction opportunities, represent them all as synergies, and further, to represent them as incremental value creation directly arising from the merger proposal is incorrect,” the company said.

A merger would combine Carillion’s extensive services business with Balfour’s building operations, which have struggled with a slowdown in construction activity, to form a builder with a market value of about 3 billion pounds. Carillion has been expanding its maintenance offerings for industries such as railways and telecommunications.

Earnings Rise

Carillion also proposed that Balfour Beatty shareholders receive an additional cash dividend of 8.5 pence a share.

Carillion said separately today that first-half underlying pretax profit increased 3.3 percent to 75.9 million pounds as revenue fell 4.8 percent to 1.87 billion pounds.

Balfour, whose projects include the transformation of London’s 2012 Olympic athletics stadium into a mixed-use arena, reported a 55 percent plunge in first-half adjusted net income to 13 million pounds on Aug. 11. Revenue fell 2.1 percent to 4.9 billion pounds.

A decline of construction work and rising energy prices in Europe has prompted builders in the region to merge and cut costs. Actividades de Construccion & 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 agreed this year to a $40 billion merger with Swiss rival Holcim Ltd. (HOLN)

To contact the reporter on this story: Alex Webb in Munich at awebb25@bloomberg.net

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

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