Shares in two of Britain’s biggest builders were propelled higher today by £3 billion merger talks as the City salivated over the potential for big savings and the possibility of a rival crashing the deal.
Carillion’s approach to Balfour Beatty — hit by a string of profit warnings and without a chief executive — sent shares in both rocketing 11%. Carillion pushed 36.2p higher to 374.7p and Balfour surged 26.25p to 258.35p.
Both firms trace their history back more than a century, working on a succession of prominent buildings in the capital from Tate Modern to the London 2012 Aquatics centre. The two firms also worked together on parts of the construction of the East London Line.
A deal for Balfour Beatty would create a UK giant on the cusp of the FTSE 100, marking Carillion’s most ambitious deal yet after swoops for other famous industry names Mowlem and Alfred McAlpine in the past decade.
Liberum analyst William Shirley said the “huge overlap” between the two firms could generate £250 million in cost savings. “Contractor consolidation has always been compelling since margins are typically low, but synergies high,” he said. He predicted an offer for Balfour Beatty of up to 300p, adding: “Balfour’s management will no doubt seek to create some competitive tension. Other bidders could include Hochtief, Vinci and Bouygues. However, none would have the same geographical and business overlap as Carillion and could not replicate the synergies.”
Peel Hunt analyst Andrew Nussey added: “The integration will be challenging, complex and will carry material execution risk. However, at this early stage we consider that the benefits, and Carillion’s record of business integration, outweigh these risks.”
