Carillion plc Ups Its Offer For Balfour Beatty plc

Many people suspected that the merger between construction giants Carillion (LSE: CLLN) and Balfour Beatty (LSE: BBY) might get resurrected. And it looks like they were correct.

This morning, following discussions with Balfour Beatty’s major shareholders, Carillion promised an extra dividend should the deal proceed, and also outlined what it thought the potential cost savings could be.

8.5p and more to come…

The additional dividend would be 8.5p per Balfour Beatty share, which is arguably fairly minor compared to the overall scale of the deal. Perhaps more importantly, Carillion said it planned to continue its progressive dividend policy. Carillion’s payout has increased from 13p to 17.5p over the last five years, while Balfour Beatty’s has increased much more slowly, from 12.8p to 14.1p.

On the cost savings front, Carillion reckons that £175m a year could be saved across the group by the end of 2016 by removing duplicate functions and property, and using Carillion’s supply chain solution. The one-off cash costs of these savings would be £225m.

Carillion also reckons the enlarged group would have access to £3bn in funding, and that a further three to four weeks of due diligence would be required once it had access to Balfour Beatty’s books again. However, it clearly intends to retain Balfour’s Parsons Brinckerhoff subsidiary, the fate of which was apparently the main stumbling block when discussions between the two companies were more cordial.

Share price bounce

Investors seemed to like this latest development, with Balfour Beatty rising 2% to 242p and Carillion 4% higher at 333p.

Carillion also issued its half-year results today. These showed a 5% fall in revenues but a 5% increase in profits. The interim dividend was raised just 2% however. The company said it was “well positioned to benefit from its strong work-winning performance over the last 18 months”, and that expectations for full-year profits remained unchanged.