Balfour Beatty has dismissed today’s latest statement from Carillion on its bid attempt, saying it fails to address “the significant risks” set out in Balfour Beatty’s announcement of 11 August.
The Carillion statement elaborates on the previous proposal which was rejected by the Board of Balfour Beatty on 11 August as not in shareholders’ best interests.
Balfour Beatty said Carillion’s benchmarking of a series of theoretical cost reduction opportunities, representing them all as synergies, and then representing them as incremental value creation directly arising from the merger proposal was incorrect.
Balfour also said that several of Carilion’s key business plan assumptions suggested an analysis based on the integration of businesses smaller than Carillion’s, rather than one that is substantially larger. In particular, the substantial rescaling – possibly by up to two thirds – in the revenue of Balfour Beatty’s UK construction business would eliminate future earnings recovery potential. It would also incur cash outflows of many hundreds of millions of pounds of restructuring costs and working capital.
“As a result, the Board of Balfour Beatty has serious reservations as to the achievability of the stated synergy number and believes that it creates unacceptable operational and financial risks. In contrast, Balfour Beatty has clear plans for developing rather than partially eliminating the UK Construction Services business, including achieving future cost savings where 100% of the benefits achieved would accrue to Balfour Beatty shareholders.”
Balfour Beatty said that Carillion was also continuing to require Parsons Brinckerhoff to remain part of the potential combined business, without providing any strategic or value related logic for its retention, other than for financial presentation purposes.
Balfour Beatty said it had been clear that Parsons Brinckerhoff has not provided synergistic benefits for the Group over five years of ownership which had not been disputed by Carillion, commenting:
“ Their proposed approach would result in the likely termination of the Parsons Brinckerhoff sales process. This risks damage to that business, as well as eroding its competitive position, and potentially resulting in a loss of value to shareholders.”
“The principal objective of the Board of Balfour Beatty is to restore value to its shareholders. The Board is confident that pursuing its strong independent strategy based around a recovering UK business, growing US market and significant investments business is more attractive than a merger on the terms proposed by Carillion with its associated execution risks and potential value loss from a terminated Parsons Brinckerhoff sale. As already indicated, the Board remains open to strategic value creating opportunities across the Group.”
Balfour Beatty will make a further more detailed announcement in due course.
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