黑洞社区

Balfour Beatty has abandoned its long-term strategy of diversifying into a global construction and professional services company, analysts said this week, after the firm鈥檚 surprise announcement that it is considering selling consultant Parsons Brinckerhoff.

Balfour Beatty shocked the City on Tuesday (6 May) with the move to put Parsons Brinckerhoff up for sale, which it bought for 拢380m in 2009, along with the news of the immediate resignation of group chief executive Andrew McNaughton, after only 13 months in the post.

McNaughton is to be replaced on an interim basis by executive chair Steve Marshall (see box below). The news, which was interpreted by analysts as a major shift in strategic direction for the 拢10bn-turnover construction giant, came alongside a fresh 拢30m profit warning, which was the result of a forecast profit shortfall in its 拢2.8bn turnover UK construction business.

This followed a 拢50m profit warning in April 2013, with the firm鈥檚 pre-tax profit ultimately falling 拢60m short of expectations in the year to 31 December 2013, largely due to under-performance in the UK construction business.

But it was the announcement that the firm will 鈥渆valuate options for the possible sale鈥� of Parsons Brinckerhoff that most surprised the City, with analysts saying it indicated the firm was abandoning its long-term strategy of diversifying into a global construction and professional services company - and could even see the firm become an acquisition target.

Balfour Beatty said the move was the result of a previously unannounced strategic review, and a sale would enable it to refocus on its core UK and US construction markets as well as its investment portfolio.

Balfour Beatty鈥檚 share price fell 20% after the announcement and had not recovered as 黑洞社区 went to press on Wednesday (7 May).

Responding to the news, Kevin Cammack, analyst at Cenkos, said the potential sale of Parsons Brinkerhoff was a 鈥減anic measure鈥� that represented an abandonment of the strategy developed under former chief executive Ian Tyler, which was taken on by McNaughton after he succeeded Tyler in March 2013.

鈥淏alfour Beatty is chucking out five years of its previous strategy to penetrate higher growth markets driven by professional services, following a strategic review that we weren鈥檛 told was happening, in order to focus on becoming an Anglo-US contractor,鈥� said Cammack.

鈥淚f anything, Parsons Brinckerhoff has been the shining star of the business. [Selling it] is a retrograde step that means any hope of raising the group profit margin has been lost.鈥�

Stephen Rawlinson, an analyst at Whitman Howard, said Balfour Beatty had 鈥渆ffectively abandoned [its strategy] as it did not work in three of the worst years in the construction sector鈥檚 history鈥�.

He said the move to sell Parsons Brinkerhoff could make Balfour Beatty itself an acquisition target.

鈥淚t may be that the company gets into the target sights of a bidder.To outsiders it may be that a US or a continental European entity may see value in the business,鈥� said Rawlinson.

Other City sources said it was unlikely any UK firms would be large enough to consider buying Balfour Beatty, but it could become a target for Chinese contractors looking to set up in the UK.

One rival contractor chief executive said: 鈥淚鈥檓 sure Balfour Beatty would be open to an approach at the moment, it would make complete sense. Selling Parsons Brinckerhoff could make it more digestible.

鈥淏ut it is still such a big beast that there鈥檚 not a huge long list of potential buyers for it.鈥�

Balfour Beatty managers told analysts this week that Balfour Beatty expected to recoup more than $900m (拢530m) from selling Parsons Brinkerhoff, considerably more than the $626m (拢380m) it paid for it in 2009.

Speculation over possible purchasers of the business has centred on international engineering-led multi-disciplinary consultants such as Aecom, Jacobs and Arcadis, while UK consultant Atkins is understood to have run the rule over the firm last time it was for sale.