Balfour shares set to fall further after third bid rejection

With Balfour Beatty having rejected an offer to merge with Carillion for the third and in all probability the final time before a deadline passes after which no further bid can be made for 6 months, Balfour stock looks to be at risk of a period of pronounced weakness.

The stock traded close to 8% lower earlier on Wednesday (20th August) in response to infrastructure construction firm Balfour calling the sweetened bid from integrated support services company Carillion only “a small value change” from prior offers.

Balfour stated it would not take up the facility offered by mergers and takeover rules to seek an extension of the so-called ‘Put Up or Shut Up’ deadline.

In this case the deadline expires at 5pm UK time on Thursday.

A very British takeover story

It’s been something of a classic British takeover tussle with the parties having lobbed a volley of offers and eventually, barbed comments back and forth right up to what looks like an inconclusive deadline.

Balfour’s position appears at this point too entrenched for anything save for a significantly improved offer from Carillion after its rival proposed a ratio of 58.27% per share, for Balfour holders, in an enlarged company resulting from a merger.

The prior offer equated to 56.5% of a Carillion share for each Balfour share owned.

Balfour Beatty said it had “consulted with its major shareholders.” But its board “unanimously concluded” rejection of Carillion’s revised terms was the best course of action.

In Balfour’s view, the bid was worth just £55m rather than the £200m Carillion suggested.

Balfour said it would continue its efforts to sell Parsons Brinckerhoff, a US design consultancy and a key division of the UK firm which became a major and persistent sticking point in the merger negotiations. The US firm currently has no CEO.

Carillion had indicated were it successful in agreeing merger terms, it would put a halt to the sale of Parsons.

Balfour’s PPP portfolio a key asset

Overall, Balfour said it remained concerned there were “considerable risks associated with the proposed business plan, including the strategy to significantly reduce the scale of the UK construction business.”

The UK group’s construction interests are concentrated in its portfolio of government-led Public Private Partnership deals. The businesses are thought to be worth between £700m and about £1bn.

It’s these core operations which represent one of the main areas of prospective strength for Balfour looking toward the medium term.

Balfour shares likely to enter period of weakness

As we noted yesterday, Balfour’s nearer-term prospects are likely to be tough.

Balfour Beatty stock has already tumbled through the 241p level noted as an immediate target in the event of a further rejection of Carillion’s offer and has pierced the rising channel it sprung into on 3rd July, when it became clear an opportunity to merge was on the table.

The stock now is trading within the gap created by a leap which touched 248p on 31st July after a period of negligible activity the week before. Prices look to have scope to return to repeatedly observed support around 225.20p, although shares could well move close to 220p in the event of continued weakness.

As for Carillion stock, its fall of almost 2% seems to represent the missed opportunity from its point of view—largely to take the fatter revenues and faster turnover of its partner and combine the business with Carillion’s more adept margin profile, to create a construction and consulting powerhouse.

Without Balfour, Carillion’s issue primarily appears to be a question of scale.

There do not appear to be many alternative means to ramp-up its mass via an acquisition, save for buying an interest in a firm like Balfour.

Even so Carillion’s stock prospects seem to have a more solid feel about them:  319p is expected to serve as good support having acted as such in the past and it also coincides with an important 61.8% retracement mark—November 2013 to March of this year.