Are you glad you didn’t tie the knot? Don’t ask that question to Carillion (LSE: CLLN) shareholders.
On the face of it, Carillion managers did all they could to acquire Balfour Beatty. The combined entity was meant to exploit meaningful synergies, and that’s where value was meant to be in the tie-up. For Carillion, the more realistic way to create shareholder value now is to open talks with buyers for its assets. Sweden’s Skanska AB, whose equity valuation needs a boost, is an obvious acquirer — although several construction companies both from Europe and the US may show interest.
From Predator To Prey: A Takeover Of Carillion
The shares of Balfour Beatty trade slightly above the level they recorded on 24 July, when first takeover rumours emerged. The shares of Carillion are slightly lower, but Carillion shareholders are the ones who have been left with a bitter taste in their mouth. Carillion stock has gone nowhere in the last seven years. Carillion needed Balfour Beatty more than Balfour Beatty needed Carillion, in my view. The way it looks, Carillion stock doesn’t offer much value at this level.
Including joint ventures, Carillion’s total revenues dropped to £4bn from £5bn between 2011 and 2013, and are forecast to hit £4.4bn by the end of 2016, growing just in line with UK inflation in the next couple of years. Prospects for operating profit and cash flows aren’t particularly promising, either. These elements are reflected in Carillion stock’s trading multiples, which point to more downside than upside to the end of 2015. With a market cap of £1.4bn and an enterprise value of £1.6bn, however, Carillion is a palatable takeover target. Whether Skanska AB or other rivals will make a move, that is another matter – but if Carillion shares come under more pressure, the UK builder could certainly receive interest from third parties.
Busy Times At AMEC
Another engineering business that has come under the spotlight in recent days is AMEC (LSE: AMEC). The company cut growth forecast earlier this month, and its problems may spell opportunity for suitors, which could be attracted to the synergy potential that AMEC offers as it consolidates other assets. In February, it agreed to acquire US rival Foster Wheeler for more than $3bn, but it received the green light from the European commission only in mid-July.
AMEC boasts a market cap of £3.2bn, so it’s bigger than Balfour Beatty and Carillion. It has a different focus, given that it provides services to the nuclear, infrastructure, energy, water and environmental industries. Its shares have lost 9% of value in the last three months, yet they look a bit pricey because growth prospects aren’t incredibly appealing. Value creation has been an uphill struggle since 2011. General Electric has ties with AMEC and could be the ideal buyer if AMEC’s valuation weakens further.