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Balfour Beatty PLC (BBY)

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Monday 11 August, 2014

Balfour Beatty PLC

Rejection of Carillion's Merger Proposal

RNS Number : 7413O
Balfour Beatty PLC
11 August 2014
 



NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION, IN WHOLE OR IN PART, IN OR INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF SUCH JURISDICTION

 

THIS ANNOUNCEMENT IS NOT AN ANNOUNCEMENT OF A FIRM INTENTION TO UNDERTAKE ANY TRANSACTION UNDER RULE 2.7 OF THE CITY CODE ON TAKEOVERS AND MERGERS (THE "CODE") AND THERE CAN BE NO CERTAINTY THAT ANY TRANSACTION WILL PROCEED NOR AS TO THE TERMS OF ANY TRANSACTION

 

FOR IMMEDIATE RELEASE

 

Balfour Beatty plc

 

11 August 2014

 

Rejection of Carillion's Merger Proposal

 

Following Balfour Beatty's announcement on 31 July 2014 that discussions with Carillion had been terminated, Balfour Beatty wishes to inform the market about the initial proposal put to it by Carillion, a subsequent revised proposal and the reasons for Balfour Beatty's rejection of those proposals.

 

Initial Proposal

 

Carillion initially approached Balfour Beatty on 27 May 2014 with a nil premium merger proposal. Based on closing share prices on this date the implied ownership split would have been 51% of the combined entity to Balfour Beatty shareholders and 49% to Carillion shareholders.

 

Following successive negotiations with Carillion over several weeks Balfour Beatty agreed to engage with Carillion at the end of June on the basis of the following key terms:

·      All-share combination with 56.5% undiluted ordinary equity to Balfour Beatty shareholders; 43.5% to Carillion shareholders. Respective percentage shares fixed with no variation with any share price movement 

·      Confirmation from Carillion that they were supportive of the Parsons Brinckerhoff disposal process and in the event of a leak, a joint leak announcement would be released including a public statement of support for the sale process from Carillion, subject to achieving acceptable value and terms for this business

·      At Carillion's request, the equity split was predicated on Balfour Beatty retaining the proceeds from the sale of Parsons Brinckerhoff as freely available cash

·      Balfour Beatty would nominate three non-executive director positions in a total board of 10. Steve Marshall would be Deputy Chairman while the Chairman, CEO and CFO roles would be appointed by Carillion.

 

In addition, it was agreed between Balfour Beatty and Carillion that a possible offer announcement would be made under Rule 2.4 of the Code prior to the start of more detailed due diligence. This announcement would include a pre-condition related to a minimum level of synergies required to be identified for the merger to proceed. The synergy level was to be quantified through joint work teams and in due course validated, and reported on, by reporting accountants. The transaction would then be subject to mutual due diligence including agreeing an acceptable business plan and achievable delivery of synergies.

 

Following the agreement of the terms of engagement above, discussions between Balfour Beatty and Carillion continued until the meeting on 30 July when it was first communicated to Balfour Beatty that Carillion wished to change the terms so as to retain the Parsons Brinckerhoff business. This followed the joint leak announcement on 24 July and the presentation by Philip Green, Chairman of Carillion, and Richard Howson, CEO of Carillion, to the Board of Balfour Beatty on 28 July where the terms were reaffirmed. Following the meeting on 30 July, Balfour Beatty announced that discussions had been terminated on 31 July on the basis of a fundamental concern regarding the proposed treatment of Parsons Brinckerhoff.

 

Revised Proposal

 

Carillion proposed a revised set of terms at a meeting, requested by Mr Green, between himself and Mr Marshall on 3 August 2014. At the meeting Mr Green proposed to keep the 56.5% / 43.5% split of the business as previously agreed but made the following changes and additions to the key terms of the proposal:

·      Parsons Brinckerhoff to remain in a combined business, as per Carillion's proposed change to the terms; however, Carillion would agree to cover appropriate bidder costs for the remaining bidders in the sale process, if these bidders could be persuaded to proceed on the basis that the merger did not ultimately happen

·      Balfour Beatty shareholders receive the final dividend payment for 2014

·      Extension of the Put-up or Shut-up deadline to 28 August with the interim results for both companies deferred to the same date. The intention was to also release an announcement in accordance with Rule 2.7 of the Code on this date and to accelerate detailed due diligence to meet this timeline.

 

In addition, Mr Green indicated that Carillion had expressed confidence in a higher level of announced synergies.

 

Reasons for Rejection of Carillion's Proposal

 

Balfour Beatty's Board has carefully considered the revised proposal from Carillion including the business plan for the combined business. While the Board is mindful of the synergies that might be achieved through a combination with Carillion, the Board has concluded that there are a number of significant risks many of which cannot be mitigated. These risks include:

·      The risk of undermining the Parsons Brinckerhoff sales process which is a key strategic objective of the Group, particularly as there is no strategic logic for its retention other than to enhance the earnings of the combined group

·      Bidders for Parsons Brinckerhoff may not regard the cost cover as adequate to remain fully committed to the process with the resultant risk that the sale process would be terminated

·      Risk that a failed sale process would materially impact the motivation and retention of Parsons Brinckerhoff management and employees and damage its competitive position in a rapidly consolidating professional services market

·      Impact of terminating the Parsons Brinckerhoff sale process would be compounded if the merger with Carillion did not complete, in which case any associated loss of value would be entirely for the account of Balfour Beatty's shareholders

·      Significant execution risk associated with the integration of the two businesses would be substantially increased by any material revenue reduction in Balfour Beatty's Construction Services UK business

·      Any material reduction in Balfour Beatty's revenues in Construction Services UK would create unacceptable operational and financial risks:

-    Increase restructuring costs and cash and working capital outflows

-    Reduce the addressable cost base and bankable synergies

-    Remove profitable business opportunities, taking away future earnings recovery potential

·      The risk of engaging in detailed due diligence with a competitor while having serious reservations about the transaction and its deliverability

·      The risk of not meeting the envisaged announcement date under the revised proposal of 28 August given Balfour Beatty's due diligence requirements and the impact on the Parsons Brinckerhoff process should an alternative, later announcement date be required.

 

In light of these considerations on the revised proposal, the Board has lost confidence in the likely delivery of a successful transaction and has therefore concluded that the current proposal from Carillion is not in the best interests of Balfour Beatty shareholders. With the Parsons Brinckerhoff sale process proceeding in line with the Board's expectations, the Board is clear that its current plans to refocus and simplify the Group, including the sale of Parsons Brinckerhoff, remains the most attractive option. In this case, 100% of cost savings achieved by refocusing and simplifying the Group would accrue to Balfour Beatty shareholders.

 

The Board remains open to strategic value creating opportunities across the Group while it concentrates on the restoration of value to its shareholders. It will consider all such opportunities, and the risks associated with their execution, taking full account of the significant recovery potential within the Balfour Beatty business. Balfour Beatty is also today updating the market on its first half performance with the publication of its interim results.

 

There can be no certainty that an offer will be made by Carillion for Balfour Beatty nor as to the terms of any such offer.

 

This announcement is not being made with the consent of Carillion.

 

Enquiries:

Balfour Beatty

 

Anoop Kang, Head of Investor Relations
+44 (0) 20 7216 6913

anoop.kang@balfourbeatty.com

Patrick Kerr, Director of Corporate Communications
+44 (0) 20 7963 4258

patrick.kerr@balfourbeatty.com

 

Maitland

 

Liz Morley

James Isola

+44 (0) 20 7379 5151

 

Directors' Responsibility Statement

The Directors of Balfour Beatty accept responsibility for the information contained in this document. To the best of the knowledge and belief of the Directors, who have taken all reasonable care to ensure such is the case, the information contained in this document is in accordance with the facts and does not omit anything likely to affect the import of such information.

This announcement is for information purposes only and does not constitute an offer to sell or an invitation to purchase any securities or the solicitation of an offer to buy any securities, pursuant to the offer or otherwise.

Disclosure requirements of the Code

Under Rule 8.3(a) of the Code, any person who is interested in 1% or more of any class of relevant securities of an offeree company or of any securities exchange offeror (being any offeror other than an offeror in respect of which it has been announced that its offer is, or is likely to be, solely in cash) must make an Opening Position Disclosure following the commencement of the offer period and, if later, following the announcement in which any securities exchange offeror is first identified. An Opening Position Disclosure must contain details of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror(s). An Opening Position Disclosure by a person to whom Rule 8.3(a) applies must be made by no later than 3.30 pm (London time) on the 10th business day following the commencement of the offer period and, if appropriate, by no later than 3.30 pm (London time) on the 10th business day following the announcement in which any securities exchange offeror is first identified. Relevant persons who deal in the relevant securities of the offeree company or of a securities exchange offeror prior to the deadline for making an Opening Position Disclosure must instead make a Dealing Disclosure.

Under Rule 8.3(b) of the Code, any person who is, or becomes, interested in 1% or more of any class of relevant securities of the offeree company or of any securities exchange offeror must make a Dealing Disclosure if the person deals in any relevant securities of the offeree company or of any securities exchange offeror. A Dealing Disclosure must contain details of the dealing concerned and of the person's interests and short positions in, and rights to subscribe for, any relevant securities of each of (i) the offeree company and (ii) any securities exchange offeror, save to the extent that these details have previously been disclosed under Rule 8. A Dealing Disclosure by a person to whom Rule 8.3(b) applies must be made by no later than 3.30 pm (London time) on the business day following the date of the relevant dealing.

If two or more persons act together pursuant to an agreement or understanding, whether formal or informal, to acquire or control an interest in relevant securities of an offeree company or a securities exchange offeror, they will be deemed to be a single person for the purpose of Rule 8.3.

Opening Position Disclosures must also be made by the offeree company and by any offeror and Dealing Disclosures must also be made by the offeree company, by any offeror and by any persons acting in concert with any of them (see Rules 8.1, 8.2 and 8.4).

Details of the offeree and offeror companies in respect of whose relevant securities Opening Position Disclosures and Dealing Disclosures must be made can be found in the Disclosure Table on the Takeover Panel's website at www.thetakeoverpanel.org.uk, including details of the number of relevant securities in issue, when the offer period commenced and when any offeror was first identified. You should contact the Panel's Market Surveillance Unit on +44 (0)20 7638 0129 if you are in any doubt as to whether you are required to make an Opening Position Disclosure or a Dealing Disclosure.

Publication on website

A copy of this announcement will be made available subject to certain restrictions relating to persons resident in restricted jurisdictions on Balfour Beatty's website at www.balfourbeatty.comby no later than 12 noon (London time) on 12 August 2014.

The content of the website referred to in this announcement is not incorporated into and does not form part of this announcement.

 

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION. THIS ANNOUNCEMENT DOES NOT CONSTITUTE A TAKEOVER OFFER OR AN OFFER OF SECURITIES. NO OFFER OR SALE OF SECURITIES MAY OCCUR IN THE UNITED STATES UNLESS THE TRANSACTION HAS BEEN REGISTERED UNDER THE US SECURITIES ACT OF 1933 (THE "SECURITIES ACT") OR IS EXEMPT FROM REGISTRATION THEREUNDER. NO SECURITIES HAVE BEEN OR WILL BE REGISTERED UNDER THE SECURITIES ACT AND THERE WILL BE NO PUBLIC OFFER OF SECURITIES IN THE UNITED STATES.

 


This information is provided by RNS
The company news service from the London Stock Exchange
 
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