Acquisition

RNS Number : 2370Z

Balfour Beatty PLC

17 September 2009

 



17th September 2009

THE INFORMATION CONTAINED HEREIN IS RESTRICTED AND IS NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, DIRECTLY OR INDIRECTLY, IN WHOLE OR IN PART IN INTO OR FROM THE UNITED STATES, AUSTRALIA, JAPAN OR SOUTH AFRICA OR ANY OTHER JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OF SUCH JURISDICTION

BALFOUR BEATTY TO ACQUIRE PARSONS BRINCKERHOFF INC., ONE OF THE WORLD'S LEADING PROFESSIONAL SERVICES COMPANIES, 

FOR US$626 MILLION

3 for 7 Rights Issue at 180 pence per ordinary share 

to raise approximately £353 million net of Rights Issue expenses

SUMMARY

• Acquisition of Parsons Brinckerhoff for US$626 million (c.£380 million), subject to the satisfaction of certain conditions
• Fully-underwritten 3 for 7 Rights Issue to raise approximately £353 million (net of Rights Issue expenses) to substantially finance the Acquisition 
• Parsons Brinckerhoff is an employee-owned, US-based international professional services firm focused on infrastructure:
  -   worldwide revenue of US$2.34 billion in the year ended 31 October 2008
  -   a network of over 100 offices and over 12,500 employees 
• The Board believes the Acquisition will accomplish a number of Balfour Beatty's objectives by:
  -   establishing a global professional services business of scale, with over 14,000 employees;
  -   creating a leading position in US civil infrastructure, particularly in the transportation sector;
  -   enhancing its global reach, as well as strengthening its position in existing geographical markets 
       and the power sector.
• The Acquisition and Rights Issue, taken together and before exceptional items, are expected to enhance earnings per share in the year ending 31 December 2011 *

Commenting on the acquisition today, Balfour Beatty Chief Executive, Ian Tyler, said:

'The acquisition of Parsons Brinckerhoff represents the realisation of a number of key strategic objectives for Balfour Beatty. In particular, we believe it makes us one of the world's major players in professional services, substantially strengthens our US presence and puts Balfour Beatty in an excellent position to take advantage of increased infrastructure spending.  It is a key step in becoming a global integrated leader in infrastructure services.' 

Keith Hawksworth, Chief Executive Officer of Parsons Brinckerhoff, said

'We are delighted to be joining the Balfour Beatty Group. We believe there is a clear fit between our two closely-aligned companies. We are very enthusiastic about what we see as the enormous potential that can be realised by working together in the future.'

  Parsons Brinckerhoff

Parsons Brinckerhoff is one of the world's leading professional services firms, ranked eleventh in terms of global design revenues amongst US-based companies by ENR in 2009.  It has a strong focus on civil infrastructure, particularly transportation in the US, and substantial businesses in the power market in the UK.  It also operates selectively in the building market in South and East Asia, where it specialises in electrical and mechanical design, as well as in the water market in both the US and Australia.  Parsons Brinckerhoff is well known for its programme management of large, complex projects and has been involved in some of the largest and most important infrastructure projects in the world.  

Parsons Brinckerhoff operates through a network of over 100 offices, has approximately 12,650 employees, and is entirely employee-owned, with approximately 4,750 stockholders.  In the year ended 31 October 2008, its worldwide revenue was US$2.34 billion with adjusted profit from operations before exceptional and employee stock items of US$107 million.

Rationale for the Acquisition

The Board believes that the combination of Balfour Beatty and Parsons Brinckerhoff would represent the successful realisation of a number of key strategic objectives, in particular, the development of a global professional services business and the further strengthening of Balfour Beatty's US presence.  The Board believes that the Enlarged Group will have enhanced long-term growth potential through its leading position in the international markets for infrastructure services and from increased infrastructure spending in both developed and emerging markets.  Adding Parsons Brinckerhoff's successful and well-established international professional services business to Balfour Beatty's very significant construction, existing professional services and investment businesses will create a group with significantly enhanced capabilities to address the needs of key infrastructure customers internationally. 

The Enlarged Group will have a presence across the entire life cycle of major infrastructure assets - from conception and funding to construction, operation and maintenance. This will enable the Enlarged Group to provide customers with a comprehensive range of services relevant to all stages of infrastructure asset development and to operate in a wider range of geographies. Additionally, the Board believes that the trend of major infrastructure owners increasingly looking for an integrated service approach from their key partners and suppliers will continue in the future, providing increasingly favourable market dynamics for the Enlarged Group.

The Rights Issue 

The acquisition consideration of US$626 million is to be substantially financed through a fully underwritten Rights Issue of 205.5 million New Shares, which will raise, net of Rights Issue expenses, approximately £353 million.  The Enlarged Group's policy will continue to be to maintain its established capital structure principles, reflecting surety bonding requirements and maintaining customer confidence.

Pursuant to the Rights Issue, Qualifying Shareholders will be offered 3 New Shares for every 7 Existing Shares held at close of business on the Record Date at a price of 180 pence per New Share.  

This Issue Price represents a 46.8 per cent discount to the closing middle market price of 344 pence per Ordinary Share on 16 September 2009, the latest practicable date before the announcement of the Rights Issue, after adjustment for the 2009 Interim Dividend of 5.5 pence. The Issue Price also represents a discount of 38.1 per cent to the theoretical ex-rights price on the same basis.

J.P. Morgan Cazenove Limited and RBS Hoare Govett Limited are acting as Joint Bookrunners and Citigroup Global Markets U.K. Equity Limited is acting as Senior Co-Lead Manager in relation to the Rights Issue. The Rights Issue has been fully underwritten by J.P. Morgan Securities Ltd., RBS Hoare Govett Limited and Citigroup Global Markets U.K. Equity Limited.

The New Shares, when issued and fully paid, will rank pari passu in all respects with the Existing Shares including the right to receive dividends or distributions made, paid or declared after the date of the Prospectus other than in respect of the 2009 Interim Dividend.

Conditionality

Completion of the Acquisition is conditional on, amongst other things, (i) Shareholder approval and (ii) completion of the Rights Issue.  The Acquisition is also conditional on the approval of the holders of not less than 75 per cent. in aggregate of Parsons Brinckerhoff's total capital stock, which will be sought at a general meeting of Parsons Brinckerhoff Stockholders which is scheduled for 21 October 2009.

Shareholder approval for the Acquisition and for the Resolutions required for the Rights Issue will be sought at a General Meeting to be held on 7 October 2009.  The Rights Issue is not conditional on completion of the Acquisition. Subsequent to the Rights Issue becoming wholly unconditional, the Acquisition could fail to complete.  The Prospectus in connection with the Rights Issue and the Acquisition including the notice convening the General Meeting is expected to be published and posted to Shareholders shortly.

Expected Timetable of Principal Events

• Posting of Parsons Brinckerhoff proxy statement1 on 24 September 2009.
  

• Record Date for entitlement under the Rights Issue close of business on 2 October 2009.
  

• Latest time and date for receipt of Balfour Beatty General Meeting Forms of Proxy 10.00 a.m. on 5 October 2009.
  

• Balfour Beatty General Meeting 10.00 a.m. on 7 October 2009.
  

• Despatch of Provisional Allotment Letters (to Qualifying Non-CREST Shareholders only)2 on 7 October 2009.
  

• Dealings in New Shares, nil paid, commence on the London Stock Exchange 8.00 a.m. on 8 October 2009.
  

• Existing Shares marked 'ex rights' by the London Stock Exchange 8.00 a.m. on    8 October 2009.
  

• Nil Paid Rights credited to stock accounts in CREST
  (Qualifying CREST Shareholders only)2  8.00 a.m. on 8 October 2009.
  

• Nil Paid Rights and Fully Paid Rights enabled in CREST by 8.00 a.m. on 8 October 2009.
  

• General meeting of Parsons Brinckerhoff1 on 21 October 2009 (New York). 

• Latest time and date for acceptance, payment in full and registration of renunciation of Provisional Allotment Letters 11.00 a.m. on 22 October 2009.
  

• Dealings in New Shares, fully paid, commence on the London Stock Exchange by 8.00 a.m. on 23 October 2009.
  

• New Shares credited to CREST stock accounts 8.00 a.m. on 23 October 2009.
  

• Completion of the Acquisition is expected by 31 October 2009.
  

• Despatch of definitive share certificates for the New Shares in certificated form by no later than 2 November 2009.

1    These dates are outside the control of Balfour Beatty and therefore subject to change by Parsons Brinckerhoff.

2    Subject to certain restrictions relating to Qualifying Shareholders with registered addresses outside the UK.

3    The times and dates set out above and in this release may be adjusted by Balfour Beatty in consultation with Citigroup Global Markets Limited.

J.P. Morgan Cazenove Limited, Citigroup Global Markets Limited and RBS Hoare Govett Limited are acting as Joint Sponsors and Citigroup Global Markets Limited is Sole Financial Adviser to Balfour Beatty. J.P. Morgan Securities Ltd., RBS Hoare Govett Limited and Citigroup Global Markets U.K. Equity Limited are joint underwriters of the Rights Issue.

Houlihan Lokey is financial adviser to Parsons Brinckerhoff.

This summary should be read in conjunction with the detailed press announcement which follows.

ENDS

A presentation to analysts and investors will be held today at J.P. Morgan Cazenove, 20 Moorgate, London EC2R 6DA at 2.15pm for 2.30pm start.

There will be a live webcast of this presentation on www.balfourbeatty.com and the slides presented will be available today on the website.

Enquiries:        

Balfour Beatty

Ian Tyler, Chief Executive

Duncan Magrath, Finance Director

Duncan Murray, Director of Corporate Communications

Tel. [phone]

Citi

Jan Skarbek

James Ireland

Bertie Whitehead

Steve Salo

Tel: [phone]

J.P. Morgan Cazenove

Edmund Byers

Jonathan Wilcox

Charles Pretzlik

Tel: [phone]

RBS Hoare Govett

Bob Pringle

Neil Collingridge

Jeremy Thompson

Tel. [phone]

Pelham PR

Andy Cornelius

Gavin Davis

Tel. [phone]

Notes to Editors:

Balfour Beatty (www.balfourbeatty.com) is an international engineering and construction services (including facilities management), professional services and investment group, offering customers a wide range of capabilities across infrastructure markets with a particular focus on the public sector and regulated utilities.  

We work in partnership with our customers principally in the UK, the US, South-East Asia and the Middle East, who value the highest levels of quality, safety and technical expertise.  

Our key infrastructure markets include transportation (roads, rail and airports); social infrastructure 

(education, specialist healthcare, and various types of accommodation); utilities (water, gas and power transmission and generation) and commercial (offices, leisure and retail). Balfour Beatty delivers services essential to the development, creation and care of these infrastructure assets including investments, project design, financing and management, engineering and construction, and maintenance management services.  

Balfour Beatty employs more than 40,000 people around the world and its strong financial position offers continuing flexibility to make appropriate investments in long-term growth opportunities.

High resolution photographs are available to the media free of charge at www.newscast.co.uk (Tel. [phone]).

Parsons Brinckerhoff (www.pbworld.com) is one of the world's leading professional services firms.  It was founded in 1885 and was ranked eleventh in terms of global design revenues amongst US-based companies by  ENR in 2009. It is a global market leader in transportation, with a particular strength in the rail transit sector.  

Parsons Brinckerhoff offers professional services across the entire project life cycle from management consultancy and planning to design and engineering; programme, project and construction management services; and operational, maintenance and support services.  Parsons Brinckerhoff is well-known for its programme management of large, complex projects and has been involved in some of the largest and most important infrastructure projects in the world.  

It operates through a network of over 100 offices and has approximately 12,650 employees.

  Capitalised terms used in this announcement have the meanings ascribed to them in the Appendix - 'Definitions'.

Overview of the Acquisition

The Board believes that the combination of Balfour Beatty and Parsons Brinckerhoff would represent the successful realisation of a number of key strategic objectives, in particular, the development of a global professional services business and the further strengthening of Balfour Beatty's US presence. The Board believes that the Enlarged Group will have enhanced long-term growth potential through its leading position in the international markets for infrastructure services and from increased infrastructure spending in both developed and emerging markets. Adding Parsons Brinckerhoff's successful and well-established international professional services business to Balfour Beatty's very significant construction, existing professional services and investment businesses will create a group with significantly enhanced capabilities to address the needs of key infrastructure customers internationally. 

The Enlarged Group will have a presence across the entire life cycle of major infrastructure assets - from conception and funding to construction, operation and maintenance. This will enable the Enlarged Group to provide customers with a comprehensive range of services relevant to all stages of infrastructure asset development and to operate in a wider range of geographies. Additionally, the Board believes that the trend of major infrastructure owners increasingly looking for an integrated service approach from their key partners and suppliers will continue in the future, providing increasingly favourable market dynamics for the Enlarged Group.

The acquisition consideration of US$626 million is subject to the contingent payments described in 'Principal terms of the Acquisition' below and will be substantially financed from the net proceeds of the Rights Issue. Balfour Beatty's policy in relation to its capital structure has been, and will continue to be, to operate a conservative financing strategy, maintaining adequate levels of liquidity in cash and facilities and carrying no significant net debt, other than the non-recourse borrowings of companies engaged in PPP projects and infrastructure investment. The Directors believe that this capital structure is also appropriate for the Enlarged Group and will enable it to grow organically and provide the necessary financial flexibility to pursue selective acquisitions.

  Information on Parsons Brinckerhoff

Parsons Brinckerhoff is one of the world's leading professional services firms, ranked eleventh in terms of global design revenues amongst US-based companies by ENR in 2009. Headquartered in New York, the Parsons Brinckerhoff business has been operating for 125 years, having been founded in 1885. 

The current business is a global market leader in transportation in general and rail transit in particular. Parsons Brinckerhoff's key geographical markets are the US, the UK, Australia, Asia, the Middle East and South Africa.

Parsons Brinckerhoff offers professional services across the entire project life cycle from management consultancy and planning to design and engineering; programme, project and construction management services; and operational, maintenance and support services. It has a strong focus on civil infrastructure, particularly transportation in the US and is ranked fourth in transportation in ENR's 2009 survey of the top 500 US design firms and was ranked first by Roads and Bridges Magazine's 2009 Go-To List amongst design firms for roads and highways, bridges, airports and mass-transit based on which design firms US government official readers preferred to work with. It has substantial businesses in the power market in the UK and is ranked third in the UK and fourth for global consultants in that market according to the 2009 New Civil Engineer magazine rankings.  It also operates selectively in the building market in South and East Asia, where it specialises in electrical and mechanical design, as well as in the water market in both the US and Australia. 

Parsons Brinckerhoff is well known for its programme management of large, complex projects and has been involved in some of the largest and most important infrastructure projects in the world. These projects include the NORAD hardened underground facility in Colorado; the Taiwan High-Speed Rail Line; the Palm Jumeirah development project in Dubai; the Bay Area Rapid Transit (BART) System in San Francisco; and the Woodrow Wilson Bridge Replacement programme outside Washington D.C. 

Parsons Brinckerhoff is entirely employee-owned, with approximately 4,750 stockholders as at 13 August 2009. It operates internationally through a network of over 100 offices and approximately 12,650 employees. This extensive international network provides a local presence and local customer relationships that support Parsons Brinckerhoff's global expertise and reputation. 

Parsons Brinckerhoff's organisational structure includes two main operating divisions and a corporate group: 

• 'Americas' operates primarily in the US, through a network of over 60 local offices, but also has a presence in Canada. As at 8 May 2009, it had approximately 4,900 employees and in the financial year ended 31 October 2008 it accounted for 53 per cent. of Parsons Brinckerhoff's revenue; and 

• 'International' operates outside the US, primarily in Australia, the UK, Asia and the Middle East, and in South Africa where it has a developing business. As at 8 May 2009, it had approximately 7,600 employees and in the financial year ended 31 October 2008 it accounted for 47 per cent. of Parsons Brinckerhoff's revenue.

In the nine months ended 31 July 2009, Parsons Brinckerhoff recorded profit before taxation of US$31 million and, in the year ended 31 October 2008, Parsons Brinckerhoff recorded profit before taxation of US$34 million. The Parsons Brinckerhoff financial information presented above has been extracted without material adjustment from Parsons Brinckerhoff's unaudited interim financial information prepared under IFRS for the nine months ended 31 July 2009 and unaudited financial information prepared under IFRS for the year ended 31 October 2008. 

Parsons Brinckerhoff's order book has remained stable at US$2 billion.

Rationale for the Acquisition of Parsons Brinckerhoff

The Board believes that the combination of Balfour Beatty and Parsons Brinckerhoff, which are two highly complementary businesses, both geographically and in terms of their sectoral areas of expertise, will be a major step forward in accomplishing a number of Balfour Beatty's objectives by:

a)    Establishing a global professional services business of scale so that Balfour Beatty can provide infrastructure customers with a comprehensive service offering that integrates its professional, construction and investment services businesses

 

Balfour Beatty and Parsons Brinckerhoff are highly complementary businesses, with Parsons Brinckerhoff providing extensive, additional professional services capabilities alongside Balfour Beatty’s existing professional services capabilities. The Enlarged Group will have the capacity for service provision across the entire life cycle of infrastructure assets, and will be strongly positioned to take advantage of growth in infrastructure markets, including:

 

-     an enhanced ability to offer customers integrated project services. In the UK, many of Balfour Beatty’s key customers have been looking for earlier involvement in the project life cycle and integrated services from their key service providers, which relieves the pressure on their engineering and procurement organisations, and can reduce or eliminate the risks of supply chain conflicts and supplier interface management.

 

The Board believes that the trend of major infrastructure owners increasingly looking for an integrated service approach from their key partners and suppliers will continue in the future, providing increasingly favourable market dynamics for the Enlarged Group;

 

-   an enhanced ability to respond to evolving procurement methods, such as design and build, alliances and PPP concessions, as seen in the UK and which the Board believes will increasingly emerge, with local adaptation, in other countries. The Board believes that this is likely to occur in the US, where the role of the professional services provider is critical in terms of key customer relationships; and

 

-   a differentiated capability in the international PPP market, where the combination of Balfour Beatty’s investment expertise and Parsons Brinckerhoff’s technical and management skills, augmented in some markets with Balfour Beatty’s downstream delivery capabilities, will result in an offering which the Board believes very few organisations can match.

 

b)    Strengthening Balfour Beatty’s position in the global infrastructure market, particularly in the transportation and power segments

 

The Board believes that there will be strong and sustained long-term demand for infrastructure (which in the short term will be augmented by government stimulus packages). The Board believes that in mature economies this will be driven by the need to renew ageing infrastructure and by sustainability issues, for example in relation to renewable energy and rail networks, and in emerging economies by continued economic growth and demographic trends (including increasing urbanisation).

 

In the UK, Parsons Brinckerhoff has one of the leading power services businesses and would substantially enhance Balfour Beatty’s prospects in this market, in both generation and transmission. In the US, Balfour Beatty’s international rail expertise, particularly in electrification, combined with Parsons Brinckerhoff’s strength in the US transportation services market, will give the Enlarged Group a stronger position.

 

Parsons Brinckerhoff, as a global professional services business, will provide access to opportunities in Australia and certain key emerging markets (most notably, India, China, South Korea and South Africa) in rail, power and mining infrastructure. This increased exposure to emerging markets will further diversify the Enlarged Group’s customer base.

 

c)    Delivering a further step change in the scale and depth of Balfour Beatty’s US capabilities, particularly in civil infrastructure

 

Balfour Beatty has made considerable progress in developing its businesses in the US in the social infrastructure market through its various acquisitions and in the development of Heery, its professional services business. This has given Balfour Beatty a strong position in social infrastructure, particularly in education, health, defence, military housing and prisons. However, Balfour Beatty retains the strategic objective of achieving a similar position in the civil infrastructure market.

 

Parsons Brinckerhoff is among the leading providers of transportation-related professional services in the US, and provides a key channel to the civil infrastructure market, including roads, rail, aviation, ports, power and energy. The vast majority of Parsons Brinckerhoff’s work in the US civil infrastructure market is secured on the basis of reputation, qualifications and track record, which allow it to have a closer relationship with customers than as a delivery contractor. Parsons Brinckerhoff will significantly increase the scale and reputation of Balfour Beatty’s US civil infrastructure operations and ultimately better position it to take advantage of opportunities in that market. In addition, the Board believes that, in the medium term, opportunities will exist for the Enlarged Group to exploit Balfour Beatty’s investment expertise in the US civil infrastructure market.

 

d)  Providing attractive opportunities in the UK, Australia, Hong Kong, Singapore, the UAE and a number of other markets

 

In addition to an enhanced presence in the US civil infrastructure market, Parsons Brinckerhoff also offers considerable opportunities in other geographies including:

-     UK

Balfour Beatty has made significant progress in recent years in expanding its professional services business to provide customers with an integrated offering from upstream professional services to downstream delivery capabilities. The combination in the UK of Parsons Brinckerhoff and Balfour Beatty management teams would create a UK business of scale, with an improved ability to attract highly-skilled professionals to work on some of the UK’s leading infrastructure projects for public sector and regulated customers. Parsons Brinckerhoff also has a strong position in the UK power market, which strengthens Balfour Beatty’s position in this key strategic market at a time when the UK’s power generation investment is likely to increase.

 

-     Australia

Parsons Brinckerhoff has expanded its operations in Australia since its acquisition of PPK Environment and Infrastructure Pty. Ltd. in 2000 and is now well-established as a broadly based professional services business, operating in the transportation, power, mining, water and building markets.

 

Parsons Brinckerhoff has a strong position in transportation services, including in PPP and alliance projects, where it has enduring relationships with key customers, including government agencies, and the Board believes opportunities exist to combine Balfour Beatty’s expertise in rail and power infrastructure with Parsons Brinckerhoff’s local presence.

 

-     Hong Kong, Singapore and the UAE

Balfour Beatty currently enjoys strong downstream positions in Hong Kong, Singapore and the UAE through its interests in joint venture companies. Parsons Brinckerhoff provides access to a substantial network of offices across Asia and the Middle East and the combination of the two businesses would allow the Enlarged Group to benefit from existing local relationships and broaden its capabilities in civil and social infrastructure, harnessing the excellent medium and long-term prospects for these two regions.

 

Balfour Beatty’s existing operations in South East Asia are effected through the Gammon joint venture in which Balfour Beatty has a 50 per cent. interest, with the remaining 50 per cent. being held by companies ultimately owned by Jardine Matheson. Pursuant to the terms of the joint venture agreement between Balfour Beatty and Jardine Matheson, there are a number of countries across Asia in respect of which Balfour Beatty and Jardine Matheson have agreed that certain of the operations which are undertaken by either party are subject to the terms of the joint venture agreement. Following the Acquisition, Balfour Beatty will manage Parsons Brinckerhoff’s operations in Asia, which will not therefore form part of the Gammon joint venture. Discussions are progressing with Dutco on how operations in the Middle East will be managed.

 

-     India, China, South Korea and South Africa

Parsons Brinckerhoff has successful operations in a number of emerging growth markets which the Board believes are important growth opportunities best accessed through the professional services market.

 

For clarity, in addition to developing these areas in accordance with its strategy, Balfour Beatty intends to continue to develop its existing construction and investment platforms following the completion of the Acquisition.

Strategy of the Enlarged Group 

The Enlarged Group will continue to focus on delivering shareholder value by growing organically and through acquisition. At the same time, the Enlarged Group will maintain its focus on civil and social infrastructure in its core markets of the UK and US, Hong Kong, Singapore and the Middle East and, building on Parsons Brinckerhoff's long-established presence in these regions, will also pursue opportunities in Australia and in emerging markets in South East Asia and elsewhere. In particular, in the US, the Enlarged Group will seek to leverage its expanded and strengthened civil infrastructure platform and to further develop its position in transportation, power and water, and complex buildings.

A key objective for Balfour Beatty is the preservation of the existing Parsons Brinckerhoff brand as Parsons Brinckerhoff joins the Enlarged Group. This will be accomplished by operating Parsons Brinckerhoff as a distinct business within the Enlarged Group.

In the UK, it is intended to integrate Balfour Beatty Management and Parsons Brinckerhoff's business, generating significant opportunities for performance improvement. In the medium term, in the US, the combination of Parsons Brinckerhoff and Heery, Balfour Beatty's existing professional services business, would provide scope for efficiency improvements through the alignment of office networks and business support infrastructure. Balfour Beatty intends to support the Parsons Brinckerhoff management team in the continued successful execution of their growth strategy and to harness the benefits of being able to offer customers integrated upstream professional and downstream construction services.

Employees and management

Balfour Beatty attaches great importance to the skills and experience of the existing management and employees of Parsons Brinckerhoff. Balfour Beatty has given certain assurances to the Parsons Brinckerhoff Directors that, following the Acquisition becoming effective, the existing contractual compensation and benefit rights of all employees of Parsons Brinckerhoff will be substantially safeguarded.

A major benefit of the Acquisition for Balfour Beatty is expected to be its access to Parsons Brinckerhoff's significant talent pool of programme managers, project managers, engineers, planners, architects, scientists, economists, functional specialists and technicians. In total, the combined professional services organisation will have a workforce of approximately 14,300 people - with experience of a wide range of projects, working environments, and management and development programmes.  

Financial impact of the Acquisition and Rights Issue

The acquisition consideration of US$626 million is subject to the contingent payments described in 'Principal terms of the Acquisition' below and will be substantially financed from the net proceeds of the Rights Issue.

As at 31 July 2009, Parsons Brinckerhoff had net cash of US$168 million. Following the Acquisition, a number of cash items are expected to arise which will be settled out of existing Parsons Brinckerhoff cash balances. These cash items primarily comprise an additional tax charge to be incurred over a period of four years as a result of Parsons Brinckerhoff changing from a cash to accruals basis for taxation purposes, potential costs relating to the acceleration and/or crystallisation of certain project settlement costs and the unwind of some favourable working capital positions.  A contribution will also be made in respect of Parsons Brinckerhoff's defined benefit pension scheme which has an estimated funding deficit after tax of approximately US$91 million as at 31 July 2009.  In addition, there will be transaction costs relating to the Acquisition and Rights Issue and integration costs of the Acquisition. In aggregate, the first year cash cost of these items to the Enlarged Group will total approximately US$170 million on an after-tax basis.

The Board believes that the Acquisition will be financially beneficial to the Company, particularly in relation to the following key measures: 

-     the Acquisition and Rights Issue, taken together and before exceptional items, are expected to be modestly 
      dilutive to earnings in the year ending 31 December 2010, being the first full year following Completion, and 
      earnings enhancing in the year ending 31 December 2011, being the second full year following Completion; 
      and

-     the Directors believe that the Acquisition will deliver a return on capital in the year ending 31 December 
       2010, being the first full year following Completion, greater than Balfour Beatty's cost of capital, and returns 
       significantly greater than Balfour Beatty's cost of capital thereafter. The Enlarged Group is expected to 
       maintain strong operating cash flows. *

* Nothing in this announcement should be construed as a profit forecast or be interpreted to mean that the future earnings per share, profits, margins or cash flows of Balfour Beatty will necessarily be greater than the historic published figures.

  Principal terms of the Acquisition

Balfour Beatty Acquisition Corp., which is incorporated in Delaware and is a wholly-owned indirect subsidiary of Balfour Beatty plc, has conditionally agreed to merge with and into Parsons Brinckerhoff, with Parsons Brinckerhoff as the surviving entity, thereby allowing Balfour Beatty to acquire the entire issued share capital of Parsons Brinckerhoff in return for aggregate cash consideration of US$626 million, to be satisfied on Completion. In addition, Balfour Beatty may be required to pay a further amount of up to US$18 million depending on the outcome of certain contingencies.

Approximately US$26 million of the consideration will be placed into an escrow account established under the Merger Agreement for a defined period to satisfy valid indemnity claims by Balfour Beatty for any damages it suffers as a result of breaches of representations, warranties or covenants by Parsons Brinckerhoff.  

Completion of the Merger Agreement is conditional, amongst other things, on:

(i) the approval of the Acquisition by holders of not less than 75 per cent. in aggregate of Parsons Brinckerhoff's total capital stock and the amendment of the Disposition of Stock Agreement in a form reasonably satisfactory to Parsons Brinckerhoff and Balfour Beatty in order to effect the Acquisition; 

(ii) the approval of the Acquisition by Shareholders;

(iii) no material adverse change having occurred in respect of Parsons Brinckerhoff since 31 October 2008; and

(iv) completion of the Rights Issue.

To approve the Acquisition, Parsons Brinckerhoff must secure the approval of Parsons Brinckerhoff Stockholders holding at least 75 per cent. of all outstanding Parsons Brinckerhoff Stock entitled to vote. To amend the Disposition of Stock Agreement requires (i) the affirmative vote of not less than 75 per cent. of the outstanding shares of Series A common stock of Parsons Brinckerhoff voted, provided that such majority represents more than 50 per cent. of all such shares issued and outstanding and (ii) the consent of the trustees of certain Parsons Brinckerhoff employee benefit plans.

Each of Parsons Brinckerhoff and Balfour Beatty have agreed to pay the other a break fee of up to US$21.9 million in certain circumstances, details of which will be set out in the Prospectus.  In particular, Balfour Beatty is required to pay Parsons Brinckerhoff the sum of US$10 million if Shareholders fail to approve the Acquisition.

Parsons Brinckerhoff will shortly send a proxy statement to the Parsons Brinckerhoff Stockholders for the purposes of calling a Parsons Brinckerhoff Stockholder vote to approve the Acquisition.

Financing the Acquisition

The Acquisition will be substantially financed by way of a fully underwritten Rights Issue of New Shares at a price of 180 pence per New Share on the basis of 3 New Shares for every 7 Existing Shares. Assuming no options under the Employee Share Plans are exercised and no preference shares converted between 17 September 2009 (the date of the announcement of the Rights Issue) and the Record Date, 205.5 million New Shares will be issued, raising gross proceeds of approximately £370 million.

The Rights Issue is conditional, amongst other things, upon the passing of the Resolutions, Admission, and the Underwriting Agreement having become unconditional in all respects (other than conditions referring to Admission) and not having been terminated in accordance with its terms prior to Admission. The Rights Issue is not conditional on Completion of the Acquisition. However if, before Admission, the Merger Agreement is terminated or the conditions to the Acquisition cease to be capable of satisfaction, the Rights Issue will not proceed. 

The latest time and date for acceptance and payment in full under the Rights Issue is expected to be 11:00 a.m. on 22 October 2009.

The Issue Price of 180 pence per New Share represents a discount of approximately 46.8 per cent. to the closing middle-market price of 344 pence per Ordinary Share on 16 September 2009, being the last business day before the announcement of the Rights Issue, after adjustment for the 2009 Interim Dividend.

The Rights Issue is fully underwritten on the terms of the Underwriting Agreement by J.P. Morgan Securities Ltd., RBS Hoare Govett Limited and Citigroup Global Markets U.K. Equity Limited.  The principal terms of the Underwriting Agreement will be set out in the Prospectus.

If the Underwriting Agreement does not become unconditional in all respects by Admission or if it is terminated in accordance with its terms, the Rights Issue will be revoked and it will not proceed. Revocation cannot occur after nil paid dealings in the New Shares have begun. 

If the Merger Agreement does not complete and the Acquisition, therefore, does not proceed, which the Directors believe is unlikely, the Company intends to return substantially all of the proceeds of the Rights Issue to Shareholders within a reasonable period of time. The Company would return these proceeds in as tax efficient a manner as possible for all Shareholders but certain Shareholders, such as some Overseas Shareholders and individuals, would suffer a tax charge on the repayment and, accordingly, their financial position would be adversely affected.

Further information in relation to the Rights Issue will be contained in the Prospectus, together with the terms and conditions of the Rights Issue and the procedure for acceptance and payment.  The Prospectus is expected to be published and posted to Shareholders today.

Current trading

Balfour Beatty

On 12 August 2009, Balfour Beatty announced its unaudited results for the half-year ended  27 June 2009.

Subsequent to Balfour Beatty's half-year results, trading performance in the year continues to be in line with expectations, underpinned by continued infrastructure expenditure by Balfour Beatty's customers and the benefit of acquisitions.

The Directors believe that Balfour Beatty's order book continues to be high-quality and has remained broadly in line with the £12.5 billion reported as at 27 June 2009.

The Directors believe that Balfour Beatty's strong first half performance, together with the visibility provided by its significant order book of high-quality work, underpin the Board's confidence in the prospects of Balfour Beatty and the Directors anticipate Balfour Beatty making good progress in 2009.

Parsons Brinckerhoff

Parsons Brinckerhoff's results for the nine months ended 31 July 2009 showed a decrease in profit before taxation compared to the results for the nine months ended 1 August 2008, principally due to adverse movements in foreign exchange rates, the nine months ended 31 July 2009 being one week shorter than the nine months ended 1 August 2008, together with the timing effects of IFRS adjustments recorded in the nine months ended 31 July 2009.

Both the Americas and International divisions recorded declines in revenue when measured in US dollars. In the International division, the weakness of the Australian dollar and pounds sterling relative to the US dollar as well as the shorter period to 31 July 2009 were the main reasons for the approximately seven per cent. decline in revenue. When measured in local currencies however, both Australia and the UK experienced year over year increases in revenue.

Parsons Brinckerhoff had US$168 million of net cash as at 31 July 2009. Cash flow from operations was US$93 million for the nine months ended 31 July 2009 compared to US$91 million for the nine months ended 1 August 2008.

With the enactment of the American Recovery and Reinvestment Act in February 2009, increased funding for government planned projects is expected and subsequently Parsons Brinckerhoff has won several large contracts. This is reflected in the strength of the order book which has remained stable at US$2 billion despite the adverse movements in foreign exchange rates.

Parsons Brinckerhoff's performance in the nine months ended 31 July 2009, the strength and momentum of its order book, and its robust cash position, have given the Board confidence in Parsons Brinckerhoff's full year results for its current financial year, its long-term prospects and the infrastructure markets it serves.

In addition, the Board of Balfour Beatty believes that there are strong prospects for Parsons Brinckerhoff as part of the Enlarged Group and that the combination of Balfour Beatty and Parsons Brinckerhoff should give rise to the revenue and certain cost synergies.

  Directors' intentions in relation to the Rights Issue

The Directors are fully supportive of the Rights Issue and each intends to take up his rights in full under the Rights Issue for his current shareholding.

Pursuant to Balfour Beatty's share dealing code, the Directors have been in a close period while evaluating the Acquisition and the Executive Directors have therefore been unable to exercise the awards granted under the Balfour Beatty Performance Share Plan 2006. During this period the relevant Ordinary Shares have been held by the trustee of the Balfour Beatty Performance Share Plan 2006. As part of the Rights Issue, the trustee intends, on behalf of its beneficiaries and in relation to these awards, to sell sufficient of the Nil Paid Rights to which it is entitled during the period for the trading of Nil Paid Rights to meet the costs of taking up the balance of its entitlements to New Shares under the Rights Issue.

All of the Executive Directors will be making a net investment in the Rights Issue, but those with significant shareholdings may sell sufficient Ordinary Shares to cover any tax charges arising from the exercise of their respective awards under the Balfour Beatty Performance Share Plan 2006 following Completion and up to 50 per cent. of the balance.

General Meeting

The Acquisition is conditional on, amongst other things, the approval of Shareholders in a general meeting. The Rights Issue is also conditional on the passing of the Resolutions. A General Meeting to seek Shareholders' approval will be held on 7 October 2009.

Dividends and dividend policy

For the year ended 31 December 2008, the Board recommended interim and final dividends which in aggregate provided a full year dividend of 12.8 pence per Ordinary Share, an increase of 11 per cent. on the prior year. For the half-year ended 27 June 2009, the Board declared the 2009 Interim Dividend of 5.5 pence per Ordinary Share, an increase of 8 per cent. on the prior year. The New Shares will not include the right to receive the 2009 Interim Dividend.

Following completion of the Rights Issue, Balfour Beatty intends to maintain its current dividend policy which is to grow the dividend broadly in line with the growth in earnings, taking into account the investment needs of the business. Future dividend payments per Ordinary Share (which, for the avoidance of doubt, shall not include payment of the 2009 Interim Dividend) shall take account of the bonus element of the Rights Issue.

J.P. Morgan Cazenove Limited, J.P. Morgan Securities Ltd., Citigroup Global Markets Limited, Citigroup Global Markets U.K. Equity Limited and RBS Hoare Govett Limited, which are all authorised and regulated in the United Kingdom by the Financial Services Authority, are acting for Balfour Beatty and for no-one else in relation to the Rights Issue, and will not be responsible to any other person for providing the protections afforded to each of its respective clients nor for providing advice in connection with the Rights Issue.

No person has been authorised to give any information or to make any representations other than those contained in this announcement and, if given or made, such information or representations must not be relied on as having been authorised by Balfour Beatty, J.P. Morgan Cazenove Limited, J.P. Morgan Securities Ltd., Citigroup Global Markets Limited, Citigroup Global Markets U.K. Equity Limited or RBS Hoare Govett Limited. Subject to the Listing Rules, the Prospectus Rules and the Disclosure and Transparency Rules, the issue of this announcement shall not, in any circumstances, create any implication that there has been no change in the affairs of Balfour Beatty or Parsons Brinckerhoff since the date of this announcement or that the information in it is correct as at any subsequent date.

This announcement does not constitute an offer to sell, or a solicitation of an offer to subscribe for, the securities being issued in connection with the Rights Issue, in any jurisdiction in which such offer or solicitation is unlawful.

This announcement is not a prospectus but an advertisement and investors should not subscribe for any securities referred to in this announcement except on the basis of the information contained in the Prospectus. A copy of the Prospectus is available from the registered office of Balfour Beatty at 130 Wilton Road, London, SW1V 1LQ. The Prospectus is currently available for inspection during usual business hours on any weekday (Saturdays, Sundays and bank holidays excepted) until Admission at the offices of Linklaters LLP, One Silk Street, London, EC2Y 8HQ.

This announcement is not for distribution, directly or indirectly, in or into the United States (including its territories and possessions, any state of the United States and the District of Columbia), Australia, Japan or South Africa. This announcement does not constitute or form a part of any offer or solicitation to purchase or subscribe for securities in the United States. The securities mentioned herein (the 'Securities') have not been, and will not be, registered under the United States Securities Act of 1933 (the 'Securities Act').

The Securities may not be offered or sold in the United States absent registration or an applicable exemption from the registration requirements of the Securities Act. There will be no public offer of the Securities in the United States, and the Securities have not been approved or disapproved by the US Securities and Exchange Commission, any state securities commission in the United States, or any US regulatory authority, nor have any of the foregoing authorities passed upon or endorsed the merits of the Rights Issue, the Securities, or the accuracy or adequacy of any of the documents or other information contained herein.

The contents of the websites of Balfour Beatty and Parsons Brinckerhoff (or any other websites, including the content of any website accessible from hyperlinks on Balfour Beatty's and Parsons Brinckerhoff's websites) are not incorporated in, and do not form part of, this announcement.

The distribution of this announcement and/or the Prospectus and/or the Provisional Allotment Letters and/or the transfer or offering of New Shares into jurisdictions other than the United Kingdom may be restricted by law. Persons into whose possession this announcement comes should inform themselves about and observe any such restrictions. Any failure to comply with these restrictions may constitute a violation of the securities laws of any such jurisdiction.

This announcement has been prepared for the purposes of complying with applicable law and regulation in the United Kingdom and the information disclosed may not be the same as that which would have been disclosed if this announcement had been prepared in accordance with the laws and regulations of any jurisdiction outside of the United Kingdom.

This announcement includes statements that are, or may be deemed to be, 'forward-looking statements'. These forward-looking statements can be identified by the use of forward-looking terminology, including the terms 'believes', 'estimates', 'plans', 'anticipates', 'targets', 'aims', 'continues', 'expects', 'intends', 'hopes', 'may', 'will', 'would', 'could' or 'should' or, in each case, their negative or other variations or comparable terminology. These forward-looking statements include matters that are not facts. They appear in a number of places throughout this announcement and include statements regarding the Directors' intentions, beliefs or current expectations concerning, amongst other things, the Company and/or the Enlarged Group's results of operations, financial condition, liquidity, prospects, growth, strategies and the industries in which the Company and/or the Enlarged Group operates. By their nature, forward-looking statements involve risk and uncertainty because they relate to future events and circumstances. A number of factors could cause actual results and developments to differ materially from those expressed or implied by the forward-looking statements including, without limitation: whether certain conditions are met which are required for the Acquisition to proceed; developments in the global economy; changes in UK and US government policies, spending and procurement methodologies; the inherent risks from operating in international markets; failure in Balfour Beatty's and the Enlarged Group's health, safety or environmental policies; the occurrence of a major catastrophic incident affecting Balfour Beatty and the Enlarged Group's projects; the ability of Balfour Beatty and the Enlarged Group to recruit and retain senior management and other key employees; potential liability due to an industry-wide investigation by the OFT; the occurrence of material losses not covered by insurance; a failure by Balfour Beatty and the Enlarged Group to estimate effectively risks, costs or timing when bidding on contracts and to manage such contracts efficiently; the impact on cash flows of reductions in revenue; the success of Balfour Beatty's and the Enlarged Group's strategy of offering integrated project services; Parsons Brinckerhoff's ability to retain customers and maintain relationships with construction partners following the Acquisition; the availability of surety bonding; the availability, management and performance of subcontractors and service providers; the accuracy of certain key assumptions from which investments in PPP projects and infrastructure assets are based; potential increases in pension deficit liabilities; and potential violations of or changes in various regulations. These and other factors could adversely affect the outcome and financial effects of the plans and events described herein.  These statements are further qualified by the risk factors set out in the Prospectus.

These forward-looking statements speak only as at the date of this announcement. Forward-looking statements contained in this announcement based on past trends or activities should not be taken as a representation that such trends or activities will continue in the future. Subject to any requirement under the Listing Rules, Prospectus Rules, the Disclosure and Transparency Rules or other applicable legislation or regulation, The Company, J.P. Morgan Cazenove Limited, J.P. Morgan Securities Ltd, Citigroup Global Markets Limited, Citigroup Global Markets U.K. Equity Limited and RBS Hoare Govett Limited undertake no obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise. You should not place undue reliance on forward-looking statements, which speak only as at the date of this announcement.

  Appendix
Definitions

2009 Interim Dividend	the interim dividend of 5.5 pence declared by the Board on 11 August 2009 and which is scheduled to be paid on 4 December 2009 to Shareholders on the Balfour Beatty plc register of members on 9 October 2009.
Acquisition	the proposed merger by Balfour Beatty Acquisition Corp., a wholly-owned indirect subsidiary of Balfour Beatty plc, with and into Parsons Brinckerhoff, thereby  acquiring the entire issued share capital of Parsons Brinckerhoff pursuant to the Merger Agreement.
Admission	the admission of the New Shares, in nil paid form (i) to the Official List and (ii) to trading on the London Stock Exchange's main market for listed securities.
Balfour Beatty	the Balfour Beatty group, comprising the Company and its subsidiaries and subsidiary undertakings from time to time or any one of them as the context so requires.
Board	the board of Directors of the Company.
certificated or in certificated form	where a share or other security is not in uncertificated form.
Company or Balfour Beatty plc	Balfour Beatty plc of 130 Wilton Road, London, SW1V 1LQ.
Completion	completion of the Acquisition under the Merger Agreement in accordance with its terms.
CREST	the relevant system, as defined in the CREST Regulations (in respect of which Euroclear UK is the operator as defined in the CREST Regulations)
CREST Regulations or Regulations	the Uncertificated Securities Regulations 2001 (SI 2001 No. 01/378), as amended.
Directors	the executive and non-executive directors of the Company.
Disclosure and Transparency Rules	the rules relating to the disclosure of information made in accordance with Section 73A(3) of the FSMA.
Disposition of Stock Agreement	the Disposition of Stock Agreement dated 1 April 1980, as amended, among Parsons Brinckerhoff, the Parsons Brinckerhoff Stockholders and the trustees under Parsons Brinckerhoff's retirement savings plan and employee stock ownership plan.
Dutco	the Dutco group of companies.
Enlarged Group	Balfour Beatty as enlarged by the Acquisition.
ENR	Engineering News Record.
Euroclear UK	Euroclear UK & Ireland Limited, the operator of CREST.
Excluded Territories and each an Excluded Territory	Australia, Japan and South Africa.
Existing Shares	the existing issued Ordinary Shares.
Financial Services Authority or FSA	the Financial Services Authority of the UK acting in its capacity as the competent authority for the purposes of Part IV of FSMA.
FSMA	the Financial Services and Markets Act 2000, as amended.
General Meeting	the general meeting of the Company to be convened in respect of the Rights Issue and the Acquisition.
IFRS	International Financial Reporting Standards as adopted for use in the European Union.
Issue Price	180 pence per New Share.
J. P. Morgan Cazenove	J.P. Morgan Cazenove Limited of 20 Moorgate, London, EC2R 6DA.
Listing Rules	the Listing Rules made by the FSA under Part VI of FSMA.
London Stock Exchange	London Stock Exchange plc.
Merger Agreement	the Merger Agreement dated 17 September 2009 among Balfour Beatty plc, Balfour Beatty Acquisition Corp. and Parsons Brinckerhoff pursuant to which Balfour Beatty Acquisition Corp. will merge with Parsons Brinckerhoff, thereby acquiring the entire issued share capital of Parsons Brinckerhoff.
New Shares	the new Ordinary Shares to be allotted and issued pursuant to the Rights Issue.
Official List	the Official List of the FSA pursuant to Part VI of FSMA.
OFT	the Office of Fair Trading of the UK.
Ordinary Shares	ordinary shares of 50 pence each in the share capital of the Company (including, if the context requires, the New Shares).
Parsons Brinckerhoff	the Parsons Brinckerhoff group, comprising Parsons Brinckerhoff Inc. and its subsidiaries and subsidiary undertakings from time to time or any one of them as the context so requires.
Parsons Brinckerhoff Inc.	Parsons Brinckerhoff Inc. of One Penn Plaza, New York, NY 10119, USA.
Parsons Brinckerhoff Stock	the voting Series A Common Stock of US$5 per share, the convertible Series A Preferred Stock of US$100 per share, the non voting Series B Common Stock of US$5 per share and the convertible Series B Preferred Stock of US$100 per share.
Parsons Brinckerhoff Stockholders	holders of Parsons Brinckerhoff Stock.
pounds sterling or £	the lawful currency of the UK.
Prospectus	the combined prospectus and circular issued by the Company in connection with the Rights Issue and the Acquisition.
Prospectus Rules	the Prospectus Rules published by the FSA under section 73A of FSMA.
Provisional Allotment Letter	the renounceable provisional allotment letter expected to be sent to Qualifying Non-CREST Shareholders (other than, subject to certain exceptions, Shareholders with a registered address in the US or any Excluded Territory) in respect of the New Shares to be provisionally allotted to them pursuant to the Rights Issue.
Qualifying Non-CREST Shareholders	Qualifying Shareholders holding Ordinary Shares in certificated form.
Qualifying Shareholders	holders of Ordinary Shares on the register of members of the Company at the Record Date.
RBS Hoare Govett	RBS Hoare Govett Limited of 250 Bishopsgate, London EC2M 4AA.
Record Date	close of business on 2 October 2009.
Resolutions	the ordinary resolutions to be proposed at the General Meeting.
Rights Issue	the offer by way of rights to Qualifying Shareholders to subscribe for New Shares.
Shareholder(s)	a holder of Ordinary Shares in the Company.
UK	the United Kingdom of Great Britain and Northern Ireland.
uncertificated or in uncertificated form	recorded on the relevant register of the share or security concerned as being held in uncertificated form in CREST and title to which, by virtue of the CREST Regulations, may be transferred by means of CREST.
Underwriting Agreement	the underwriting agreement dated 17 September 2009 between the Company, J.P. Morgan Cazenove, J.P. Morgan Securities Ltd, Citigroup Global Markets Limited, Citigroup Global Markets U.K. Equity Limited and RBS Hoare Govett relating to the Rights Issue.
US	the United States of America, its territories and possessions, any state of the US and the District of Columbia.
US dollar or US$	US dollars.
US Securities Act	the US Securities Act of 1933, as amended.

 

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