Original discussions were terminated on 31 July 2014, but Carillion came back with a revised offer last week.
Carillion proposed a revised set of terms at a meeting that was attended by Carillion chairman Philip Green and Balfour Beatty executive chairman Steve Marshall on 3 August 2014.
At the meeting Mr Green proposed to keep the 56.5%/43.5% split of the business as previously agreed but made the following changes and additions to the key terms of the proposal:
- Parsons Brinckerhoff to remain in a combined business, as per Carillion’s proposed change to the terms; however, Carillion would agree to cover appropriate bidder costs for the remaining bidders in the sale process, if these bidders could be persuaded to proceed on the basis that the merger did not ultimately happen
- Balfour Beatty shareholders receive the final dividend payment for 2014
- Extension of the Put-up or Shut-up deadline to 28 August with the interim results for both companies deferred to the same date.
- In addition, Mr Green indicated that Carillion had expressed confidence in a higher level of announced synergies.
However, Balfour released a list of reasons which outlined why it was rejecting the revised offer:
- The risk of undermining the Parsons Brinckerhoff sales process which is a key strategic objective of the Group
- Bidders for Parsons Brinckerhoff may not regard the cost cover as adequate to remain fully committed to the process with the resultant risk that the sale process would be terminated
- Risk that a failed sale process would materially impact the motivation and retention of Parsons Brinckerhoff management and employees and damage its competitive position in a rapidly consolidating professional services market
- Impact of terminating the Parsons Brinckerhoff sale process would be compounded if the merger with Carillion did not complete, in which case any associated loss of value would be entirely for the account of Balfour Beatty’s shareholders
- Significant execution risk associated with the integration of the two businesses would be substantially increased by any material revenue reduction in Balfour Beatty’s Construction Services UK business
- Any material reduction in Balfour Beatty’s revenues in Construction Services UK would create unacceptable operational and financial risks:
- Increase restructuring costs and cash and working capital outflows
- Reduce the addressable cost base and bankable synergies
- Remove profitable business opportunities, taking away future earnings recovery potential
- The risk of engaging in detailed due diligence with a competitor while having serious reservations about the transaction and its deliverability
- The risk of not meeting the envisaged announcement date under the revised proposal of 28 August given Balfour Beatty’s due diligence requirements and the impact on the Parsons Brinckerhoff process should an alternative, later announcement date be required.
A statement from Balfour added: “In light of these considerations on the revised proposal, the Board has lost confidence in the likely delivery of a successful transaction and has therefore concluded that the current proposal from Carillion is not in the best interests of Balfour Beatty shareholders. With the Parsons Brinckerhoff sale process proceeding in line with the Board's expectations, the Board is clear that its current plans to refocus and simplify the Group, including the sale of Parsons Brinckerhoff, remains the most attractive option. In this case, 100% of cost savings achieved by refocusing and simplifying the Group would accrue to Balfour Beatty shareholders.”
