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Carillion Ends Balfour Pursuit After Repeated Rejection

A Balfour Beatty Construction Site in London
Balfour Beatty Plc rejected an increased bid from rival Carillion Plc to form Britain’s biggest builder with a market valuation of more than 3 billion pounds ($5 billion), saying the plan is too risky. Photographer: Simon Dawson/Bloomberg

Carillion Plc stopped pursuing a merger with Balfour Beatty Plc to form Britain’s biggest builder after its increased offer was rejected.

“The Board of Balfour Beatty has not agreed to Carillion’s proposal,” the company said in an e-mailed statement today. “Carillion therefore today announces that it is no longer pursuing such a merger.” Balfour Beatty shares dropped as much as 8.8 percent in London trading, while Carillion declined as much as 3.3 percent.

Balfour Beatty turned down Carillion’s advances, which would have formed a company with a market valuation of more than 3 billion pounds ($5 billion), several times since news of the talks was made public July 24. A sticking point for London-based Balfour Beatty was the Parsons Brinckerhoff engineering-consulting unit that it’s trying to divest. Carillion wanted to keep that business.

A merger would combine Carillion’s extensive services business with Balfour Beatty’s building operations, which have struggled with a slowdown in construction activity. Carillion has been expanding its maintenance offerings for industries such as railways and telecommunications.

Carillion yesterday made a new merger bid for Balfour Beatty, valuing it at 2.1 billion pounds. The offer would have given Balfour Beatty investors 58.3 percent of the new company and a cash dividend of 8.5 pence per Balfour Beatty share. That represents a premium of 36 percent to the weighted average share price before the talks were announced. Balfour Beatty rejected the latest offer earlier today.

Looming Deadline

A so-called “put up or shut up” deadline, by which British regulations stipulated that Carillion must make a new offer or abandon a deal for at least six months, expires at 5 p.m. in London tomorrow.

Carillion didn’t rule out the possibility of another offer should regulations, which otherwise place a moratorium on further bids within six months, permit, the Wolverhampton, England-based company said.

In rejection Carillion’s latest offer, Balfour Beatty said there are “considerable risks associated with the proposed business plan, including the strategy to significantly reduce the scale of the U.K. construction business when it is poised to benefit from a recovery in the market.”

‘No Logic’

Balfour Beatty Chairman Steve Marshall has said he sees “no logic” in retaining New York-based Parsons Brinckerhoff and that calling off the planned sale is too risky should a merger with Carillion ultimately fail. The sale is “reaching a successful conclusion,” Balfour Betty said today.

Carillion had said that keeping Parsons Brinckerhoff would give the combined group access to 3 billion pounds of financing.

“The chairman has clearly spoken to the top few shareholders to feel confident to reject this proposal -- in our view that’s the end of the process,” Andrew Gibb, a London-based analyst at Investec, said before Carillion’s withdrawal. “But standalone Balfour Beatty without Parsons Brinckerhoff has significant risks. There is no certainty this team is able to turn around the business.”

Before today, Balfour Beatty’s shares had declined 11 percent this year, valuing the company at 1.8 billion pounds. Andrew McNaughton stepped down as chief executive officer in May after 13 months in the role. His departure followed a second warning inside two months that full-year profit would miss forecasts. Chairman Steve Marshall took over the running of Balfour on an interim basis.

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