By Ed Ballard
LONDON--U.K. construction firm Balfour Beatty PLC (BBY.LN)
pulled out of merger talks with Carillion PLC (CLLN.LN),
complaining that Carillion wanted Balfour to abandon a plan to sell
Parsons Brinckerhoff, a New York-based design consultancy.
"This change in the proposed terms is not acceptable," Balfour
Beatty said in a statement Thursday. When they made the early-stage
talks public in a joint press release on July 25, the companies
said Balfour would continue looking for a buyer for Parsons
Brinckerhoff--acquired for $626 million five years ago--during the
merger talks.
In response, Carillion said it was "surprised" by Balfour
Beatty's decision. "The work to date has led to increased
confidence in the potential to realise very material value for the
benefit of both sets of shareholders," the company said.
Shares in both companies fell on the news. Around midday in
London, Balfour Beatty shares were down around 2.6%, while
Carillion traded down around 3%.
Balfour Beatty's abrupt reversal surprised analysts, who approve
a potential tie-up on the grounds that a combined group could
reduce spending on areas where the two companies' businesses
overlap, particularly in U.K. construction.
Balfour Beatty--which has issued a string of profit warnings in
the last two years as it struggles to turn around an
underperforming U.K. construction business--is now vulnerable to
rival takeover bids, said Numis Securities' Howard Seymour.
"You can't go back," Mr. Seymour said. "People have done the
numbers and looked at the cost synergies. They could see the value
uplift. Other companies will say, 'If Carillion thinks it can get
that, we can get that and maybe more.' And shareholders now have a
metric to say Balfour must do better than the combined entity
would."
Sweden's Skanska A.B. (SKA-B.SK) is the "most obvious" candidate
to make a bid for Balfour Beatty because of the cost savings that
would result from combining both companies' U.S. operations, Mr.
Seymour said. Other contenders include France's Vinci S.A. (DG.FR)
and Irving, TX-based Fluor Corp. (FLR), he added.
Stephen Rawlinson at Whitman Howard said: "This is a massive
overreaction by Balfour Beatty... they have prioritized selling
Parsons over the possibility of creating a larger viable
entity."
Carillion said it will "give further consideration to its
position" but ruled out a hostile takeover. Joe Brent at Liberum
Securities said that will spur Balfour Beatty's shareholders to put
pressure on the board--and also means that Carillion must act fast
in case Balfour Beatty sells Parsons Brinckerhoff before the Aug.
21 takeover deadline.
"The sale of PB by Balfours will make a deal harder," Mr. Brent
said.
In another development that could have implications for the
merger, Hyder Consulting (HYC.LN) Thursday said that it accepted a
650 pence-per-share offer from Netherlands-based Arcadis N.V.
(ARCAD.AE).
Arcadis' decision to buy Hyder--a design consultancy comparable
to Parsons Brinckerhoff--reduces the U.S. firm's field of potential
acquirers, wrote analysts at Liberum who said W.S. Atkins PLC
(ATK.LN) is the most likely buyer.
At 1113 GMT, Balfour Beatty traded down nine pence at 244 pence,
while Carillion was down 11 pence at 342 pence.
Write to Ed Ballard at ed.ballard@wsj.com
