Balfour rejects Carillion again

Being valued at a 36% premium to its average share price was not enough for Balfour Beatty. It's rejected Carillion's merger bid for the third time.

News of the rejection rocked the market, with £100 million being wiped from Balfour Beatty's value in morning trading.

Balfour claims the new bid did not address two key concerns about the merger; the risks surrounding the business plan and Carillion's demands that the sale of Parsons Brinckerhoff should be terminated.

Carillion hoped that its new bid would win Balfour over to restart merger talks and see the extension of the "Put Up or Shut Up" deadline. But it seems Balfour wants the support services firm to shut up.

The bid was only slightly sweetened, with Carillion offering Balfour's shareholders 58.3% of the combined company, up from the 56.5% originally proposed. It valued the construction firm at £2 billion (302p per share). Carillion reiterated its plans for an additional 8.5p cash dividend for Balfour shareholders.

Balfour said in a statement on Wednesday: "The board also notes that the revised proposal represents only a small value change in the terms compared to the proposal from Carillion rejected on 11 August 2014."

But Westhouse Securities was concerned about the deal for another reason.

"The real concern, even if a deal had gone ahead was it is based on Carillion's share price, which would have been open to execution risk on the deal and a variety of what we see as risks facing both businesses."

Balfour will now focus on closing the sale of Parsons in order to return up to £200 million of capital back to shareholders, recruiting a new chief executive, improving its UK construction business and realising further cost savings.

Reiterating his 'sell' recommendation and with a 183p target price, analyst Alastair Stewart added: "We believe this is likely to weaken the share price in the short-term, but for Balfour Beatty shareholders it was a case of 'damned if they did, damned if they didn't' re-engage in talks."

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