Construction firm Balfour Beatty has spurned a third offer to merge with Carillion, after its smaller rival upped the ante with an improved bid valuing the combined company at £2.1bn.
As the clock ticked down to the takeover deadline of 5pm Thursday that will force Carillion to abandon its suit, Balfour Beatty announced it had rejected Carillion's latest proposal.
The board "has unanimously concluded that the proposal is not in the best interests of its shareholders", Balfour Beatty said, stressing it would not seek an extension to Thursday's "put up or shut up deadline", as Carillion had requested.
Carillion asked for talks to continue, as it sweetened its offer that would give Balfour's shareholders 58.3% of the combined group, a 3% improvement on its previous proposal. Carillion said it had discussed the proposal with Balfour's major shareholders. Under UK takeover rules Carillion will not be able to make another approach until February 2015.
Carillion argues that the tie-up to create a £3bn construction giant employing 80,000 workers has a "powerful strategic logic" that would allow the combined group to make savings of £175m a year by 2016.
Balfour Beatty, the UK's largest construction firm and builder of the aquatic centre at London'sOlympic Park, rejected Carillion's renewed offer for the same reasons it had spurned previous approaches – it reiterated its determination to sell Parsons Brinckerhoff, the US design and consultancy business that Carillion wants to keep in a combined company.
Balfour also deems the merger too risky and voiced unhappiness with a business plan that it said would mean a significant reduction in "the scale of the UK construction business when it is poised to benefit from a recovery in the market".
While housebuilding has been booming over the last year, the large-scale engineering and construction projects that are Balfour Beatty's stock and trade typically lag 18 months behind an economic recovery.
Steve Marshall, executive chair of Balfour Beatty, said earlier this month that the firm was already witnessing a recovery and predicted further improvement over the next three to four years.
Analysts at Liberum Capital said there was little, if anything, Carillion could do ahead of Thursday's 5pm deadline, although as "a final throw of the dice", it could try to persuade Balfour Beatty shareholders to veto the sale of Parsons Brinkerhoff.
Alastair Stewart, an analyst at Westhouse Securities, advised investors to sell Balfour Beatty stock. He warned that the construction business faced "considerable risks", while Balfour Beatty's effort fending off Carillion and selling Parsons Brinckerhoff, may have meant that the firm's management had "taken its eye off the ball" from the intensive action needed on UK construction contracts.
Balfour Beatty, which has issued four profit warnings in two years, has been struggling with the downturn in the UK construction business since the onset of the recession. In May, the company announced it was cutting £30m off profit forecasts for its UK construction business, as it announced that chief executive Andrew McNaughton was leaving.
With no successor in place, several analysts have questioned Balfour's decision to offload its US business, which is seen as a more reliable source of income than the volatile construction trade.
Stewart said Parsons Brinckerhoff was the "crown jewel [that] should have been central to its strategy" and that it was being sold with "undue haste".