Balfour Beatty has firmly turned down Carillion’s second merger overture, outlining instead its future strategy of simplifying its business, recruiting a “top flight” chief executive, and restoring value for shareholders.
Balfour also said that it was expecting third round bids for the sale of Parsons Brinckerhoff, a disposal likely to return £200m to shareholders.
And it would continue with an ongoing internal action plan called “The Road Ahead” for its UK Construction Services division, with further targets set for January 2015.
The strategy was described in a presentation to analysts made on Monday morning by executive chairman Steve Marshall, UK Construction Services managing director Nick Pollard and chief finance officer Duncan McGrath.
The presentation followed Balfour Beatty’s statement outlining its reasons for rejecting the merger plan, and an earlier-than-planned announcement of its interim results, originally expected August 13.
Marshall summarised Balfour Beatty’s future, saying: “The search is well underway to recruit a top-flight group Chief Executive to drive the group’s recovery. This is clearly a Board priority. He or she will also develop a longer term strategy around the core of a post PB Balfour Beatty group. The core is our strong Anglo-American construction and specialist services presence – with significant US market opportunity and UK margin recovery potential.
“So our intention is to provide an incoming chief executive with a more focused, simplified and substantially de-risked Balfour Beatty group; and with some financial flexibility to take things forward. The board is firmly of the view that this approach is in shareholders’ interests and that it merits their support.”
Marshall stressed that Balfour Beatty had played its hand responsibly in both phases of the negotiations with Carillion for a “nil premium” merger, where no money would actually change hands.
Referring to the merger talks, he said: “These were entered into for the right reasons – because we perceived an oppportunity to enhance shareholder value. The proposal has also been rejected for the right reasons – because in the board’s judgement the risks involved are significant.”
Nick Pollard, chief executive of UK Construction Services, then described the rehabilitation process in his division following four profit warnings.
He told analysts: “We put a lot of effort into crafting a plan of action, known to our staff as ‘The Road Ahead’; we talked that through and secured buy-in face-to-face with our leaders, managers and employees through a series of Roadshows and workshops; we made sure that we communicated and focused on the plan through business reviews, personal incentives and team targets; that we carried our people with us, lifted spirits, secured transparency, escalated problems, and began fixing the issues that had damaged business performance in the preceding couple of years.”
According to a slide in the presentation, between June 2013 and June 2014 Balfour Beatty had reduced the percentage of live projects under £5m from 42% to 34%, setting 15% as the target for January 2015.
Meanwhile, it acknowledged that seven out of 21 regional delivery units were unprofitable in June 2013, a figure reduced to three out of 20 in June 2014. By January 2015, the group aims to have just 17 delivery units, all profitable.
Meanwhile, Carillion made a terse statement to the Stock Exchange, saying that it would “give further consideration to its position and will make a further announcement in due course”.
It must inform the Takeover Panel by 21 August whether it plans to make a renewed offer to Balfour Beatty, or whether it is passing up its right to so.
