LONDON: British construction company Balfour Beatty rejected a third merger proposal from Carillion yesterday , saying a turnaround strategy centred on the sale of its United States (US) engineering business was a better prospect for investors.
Carillion made its sweetened all-share approach on Tuesday, valuing its rival at £2.1 billion (RM11.09 billion), in its attempt to create a British construction giant with 80,000 staff around the world.
Both sides said they had made their decisions after consulting Balfour’s biggest shareholders. Two analysts and an investor said on Tuesday they expected Balfour to open talks with Carillion, but the group said yesterday that its board had unanimously rejected the offer.
“This is increasingly looking like an opportunity about to be missed by Balfour Beatty as far as we can see. The share price will no doubt reflect that over the coming months,” said Whitman Howard analyst Stephen Rawlinson.
Carillion has said the new terms were equivalent to a 36 per cent premium to the price at which Balfour shares traded before news of a possible merger leaked.
Balfour said yesterday that it was concerned about Carillion’s plans to keep Parsons Brinckerhoff, the US design and engineering firm Balfour wants to sell, and reduce its UK construction business.
Balfour is trying to refocus itself as a construction and specialist services group after a difficult 18 months marred by profit warnings and the departure of its chief executive, Andrew McNaughton.
The company expects to return £200 million to shareholders following the sale of Parsons Brinckerhoff, which it says does not fit with the rest of its US construction and infrastructure support services operations. The US accounts for around 16 per cent of group revenue.
Numis Securities analyst Howard Seymour, who has a “hold” rating on both stocks, said Balfour’s rejection of Carillion’s offer indicated it had the backing of shareholders.
“Balfour is saying on a standalone basis that they are happy with what they are doing ... You feel like they must have shareholder support to be so unequivocal to say we are walking away from this deal,” he said.
Carillion’s third approach offered Balfour shareholders a 58.3 per cent share of the combined firm and a cash dividend of 8.5 pence a share.
It said that would value Balfour at £2.1 billion, compared with its previous offer of £1.9 billion.
Balfour said it will not be seeking an extension to the takeover deadline of August 21, which Carillion requested on Tuesday. Reuters