黑洞社区

Carillion has revealed it is to wipe 拢120m off Mowlem's balance sheet after it agreed a 拢291m price tag for the ailing contractor.

The deal, which would create a 拢4bn turnover company in the same league as Amec and Balfour Beatty, comes after the two companies were locked in negotiations until 5.30am on Wednesday morning. The firms finally agreed a cash and equity offer that values Mowlem at 205p a share 鈥� significantly less than the 225p it was hoping for.

Carillion鈥檚 next move will be to circulate a prospectus to Mowlem鈥檚 shareholders shortly after Christmas. The deal is then likely to be closed by the end of March, subject to the offer being accepted by Mowlem鈥檚 shareholders.

Chris Girling, Carillion鈥檚 finance director, said the company was content with its due diligence on Mowlem. He said: 鈥淲e鈥檝e taken a view and are writing down a further 拢120m.鈥�

Vivian said that not all of that figure was associated with contracts and that it was reached after 鈥渇air value adjustment鈥�. About 拢45m of the 拢120m relates to writedowns on contracts.

The board of the enlarged company will remain the same, with John McDonough, Carillion chief executive, at the helm. Carillion鈥檚 initial offer document said that on completion of the deal it 鈥渋ntends to invite Simon Vivian [Mowlem chief executive] to join its board as an executive director鈥�.

However, Vivian told 黑洞社区 on Wednesday that it was too early to say whether he would stay. 鈥淲e鈥檝e still got to decide that,鈥� he said.

The two companies said the rationale behind the deal was the good strategic fit because there was little overlap between them.

Girling said that Carillion expected to cut costs 拢15m a year by late 2007.

Vivian and Girling told 黑洞社区 that although there would be some job losses if the takeover went ahead, these would be numbered in tens or hundreds, rather than thousands, and added that that was a small proportion of the combined 40,000 staff.

Girling said that disposals was 鈥渁 key part鈥� of the cost-cutting programme but said it did not necessarily mean selling off parts of Mowlem and could include the sale of some of Carillion鈥檚 PFI stakes.

Carillion took on debt from the Royal Bank of Scotland to finance the offer and said the enlarged group would have a peak net debt of 拢250m next year.

Girling said that this was not a worry for the company: 鈥溌�250m is not a concern when you are talking about a 拢4bn company,鈥� he said, 鈥渂ut our strategy is to have 0% debt in the long-term.鈥�

There is still the possibility of a rival bid for Mowlem. The company confirmed that it had received an approach from a second suitor shortly after Carillion鈥檚 approach.

Vivian declined to name the interested party but said: 鈥淚t has not made an offer, although it may materialise.鈥�

Analysts said that a second bid was unlikely to happen and that the deal with Carillion was likely to go ahead.

Commenting on the likely tie-up, a senior industry rival said: 鈥淭he acquisition is a good move for both companies. We will start to see bigger companies emerging over the next few years as more work is tendered as sophisticated packages. At the moment, the industry and its jobs are too fragmented.鈥�

A senior QS agreed, but said it was bad news for the clients looking to market.

He said: 鈥淚t makes sense for Carillion as it gives them a large portfolio of PFI projects and a regional presence. But it鈥檚 less good for the Treasury 鈥� there are fewer firms to bid for PFIs.鈥�

Both chief executives said that Carillion鈥檚 bid was not linked to the financial problems that have blighted Mowlem of late.

Girling said that this was not a worry for the company: 鈥溌�250m is not a concern when you a talking about a 拢4bn company,鈥� he said, 鈥渂ut our strategy is to have 0% debt in the long-term.鈥�

There is still the possibility of a rival bid for Mowlem. The company confirmed that it had received an approach from a second suitor shortly after Carillion鈥檚 approach.

Vivian declined to name the interested party but said: 鈥淚t has not made an offer, although it may materialise.鈥�

Analysts said that a second bid was unlikely to happen and that the deal with Carillion was likely to go ahead.

Commenting on the likely tie-up, a senior industry rival said: 鈥淭he acquisition is a good move for both companies. We will start to see bigger companies emerging over the next few years as more work is tendered as sophisticated packages. At the moment, the industry and its jobs are too fragmented.鈥�

A senior QS agreed, but said it was bad news for the clients looking to market.

He said: 鈥淚t makes sense for Carillion as it gives them a large portfolio of PFI projects and a regional presence. But it鈥檚 less good for the Treasury 鈥� there are fewer firms to bid for PFIs.鈥�