黑洞社区

Balfour Beatty has come under fire from City analysts after talks on a merger with Carillion broke down acrimoniously last week.

Balfour Beatty unilaterally ended the talks between the two construction giants on Thursday (31 July), saying Carillion had 鈥渨holly unexpectedly鈥� changed its mind over the sale of the former鈥檚 拢160m-turnover consultancy arm Parsons Brinckerhoff.

When the two firms announced they were in talks on 25 July they said the sale of Parsons Brinckerhoff, which has been progressing since May, would 鈥減roceed unaffected鈥�.

But last week Carillion changed its mind, saying it required the 鈥渟tability and dependability of Parsons Brinckerhoff鈥檚 earnings鈥�.

Carillion was reportedly given just five minutes鈥� notice of Balfour鈥檚 public statement announcing the end of the talks.

Carillion subsequently hit out at Balfour鈥檚 鈥渦nilateral鈥� action and said it was considering its position as it still believed 鈥渋n the powerful strategic rationale of a combination鈥�.

Balfour Beatty had announcedits intention to sell Parsons Brinckerhoff in May to refocus on its UK and US construction businesses, in a move that was widely seen as an abandonment of its long-term strategy of diversifying into a global construction and professional services company.

The announcement followed a dire period for the firm, with a series of profit warnings prompting the exit of chief executive Andrew McNaughton in May.

Kevin Cammack, analyst at Cenkos, said he 鈥渋nterpreted鈥� Carillion鈥檚 change of position 鈥渁s meaning that the profitability of the rest [of Balfour Beatty] was in question and/or its shareholders had expressed some disquiet over a fully construction-led deal鈥�.

Stephen Rawlinson, analyst at Whitman Howard, said Balfour Beatty was in 鈥渁 position of weakness鈥� and the 拢10.1bn-turnover contractor鈥檚 management 鈥渁ppears [鈥�] to be somewhat confused鈥�.

鈥淭o walk away from the talks in such a manner suggests that [Balfour Beatty] management may not realise the delicacy of its position,鈥� he added.

He said the Parsons Brinckerhoff sale was set to leave a hole of around 拢60m in Balfour Beatty鈥檚 annual pre-tax profits 鈥渨hen there is little certainty that turnaround can be achieved in the UK鈥�.

He added: 鈥淭he company has not spoken about currency headwinds [due to the US exchange rate] and we suspect they will also have an adverse impact that may not yet be accounted for fully in forecasts and guidance.鈥�

Speaking to 黑洞社区 last week, Balfour Beatty Group executive chair Steven Marshall revealed he is set to upgrade the valuation of the firm鈥檚 portfolio of investments to try and shore up its share price when it reports its interim results next week.

He said: 鈥淎t the moment we provide a valuation for the market value of the business but we have been selling assets for 60-70% above that. It鈥檚 one of the things I was determined to force out in the company鈥檚 share price [when I took over as executive chair].鈥�

It was later reported that Marshall鈥檚 comments were under investigation by the City鈥檚 Panel on Takeovers and Mergers.

The takeover code states: 鈥淧arties to an offer must take particular care not to disclose new material in interviews or discussions with the media.鈥�

A spokesman for the Panel said it did not comment on specific cases.

Meanwhile, the sale of Parsons Brinckerhoff is now reported to be down to four bidders, including consultants Atkins and WSP, and private equity firms. Both Atkins and WSP declined to comment.