More information emerged over the weekend about the potential merger between Balfour Beatty, the UK’s largest contractor, and its second-placed rival Carillion.Â
The Sunday press in the UK reported that Philip Green, the chairman of Carillion, and Richard Howson, its chief executive, will retain their roles in the construction colossus that will result from the merger, if it goes ahead.
Among the high-profile contracts the new "super contractor" would complete would be the new stadium (pictured) for Liverpool Football Club, which chose Carillion for the job earlier this month.
The combined firm will have a turnover of £17.5bn and will employ about 80,000 people. The lack of Balfour representation in the two most senior of those jobs will reinforce the impression that the merger was undertaken on the initiative of Carillion.
The chief executive of one of the UK’s leading consultants told GCR that the deal had come as a surprise to the UK construction industry.Â
He said: "We weren’t expecting it, but it’s not shocking in the sense that that’s the way the contracting industry has gone generally in the UK: the mantra is the bigger the better. Balfour is a good company but the turmoil in the PPP markets in the UK – effectively the stopping of the PPP markets – hit them hard, as they were the leaders in that space."
A company the size of Balfour Beatty and Carillion could create a firm that is able to compete with players such as Spain’s ACS and Ferrovial, and France’s Vinci.Â
Carillion, which maintains British railways, roads and military bases, said in March that it planned to diversify into sectors such as oil, power distribution and highways maintenance. It currently operates in Britain and Ireland, Middle East and North Africa and Canada, areas where Balfour Beatty also has a significant presence.
Balfour became a merger target after undertaking a series of poorly performing contracts, many in the M&E area in the south-east of England. This resulted in a series of profit warnings, management restructurings, and changes to the company’s overall business strategy. In particular, it led to the decision to seek a buyer for Parsons Brinckerhoff, the professional services company it bought for $626m in 2009.
The last chief executive to fall on his sword was Andrew McNaughton in May, after the firm issued a $270m profit warning. He followed Mike Peasland, who left the previous April after an $85m profit warning. Now their replacement, Steve Marshall, is effectively to follow them, although there was speculation that he would be offered the role of deputy chairman.Â
Carillion is understood to have hired Slaughter and May to handle the legal work involved in the merger, including dealing with the UK’s Competition Authority. The regulatory authorities will have to be assured that the creation of the UK’s largest ever contractor does not harm the market for construction services.
Under the UK Takeover Code, the firms now have until 21 August to complete the deal, although they can ask for an extension.
