At 16 minutes past 9:00 am GMT yesterday, 24 July 2014, Carillon (LSE:CLLN) announced that it had won a contract with the Ministry of Defense worth £2.8 billion. Carillon’s share price barely budged, despite analysts describing the deal as a game changer for the company. The contract for maintaining and upgrading military facilities was won as part of a joint venture with Amey, a subsidiary of Ferrovial (ESE:FER), an infrastructure-focused company located in Spain. The MoD contract win was the JV’s fourth this week, adding to the combined £955 million from those contract.
Carillon’s share price closed yesterday at 338.50, but news after Carillon and Balfour Beatty (LSE:confirmed that merger talks have been underway, its share price surged in early trading to open this morning at 365.50, rocketed to 385.80 before 8:30 am, and is continuing to hover just above the 360.00 mark, up almost 7.0% approaching the 4:00 pm mark.
The Balfour Beatty share price has followed a similar pattern, closing yesterday at 232.10, to open today at 262.00. It is still trading above 252.00 an increase of more than 8.5%, as shares have been traded unusually heavily today as investors anticipate the potential of a £3 billion merger of the two companies.
The merger, should it come to pass, would result in a company with a potential market cap of £4 billion, revenues in excess of £14 billion, an order book of more than £31 billion, and potential annual cost savings of £200 million. The combined market cap right now would be at £3.29 billion.
A marriage with Balfour is one made in heaven for Carillon, which has been seeking to broaden its services to include the oil, power distribution, and highway maintenance arenas as well as taking its footprint beyond the UK, Canada, and MENA. Balfour Beatty would open a whole new world for Carillon with its current presence in over 80 different countries.
Following today’s formal announcement, 21 August becomes the deadline for the two to move from proposal to firm intent to complete either the merger or the discussions thereof. At this point, both parties have agreed that there “can be no certainty,” but that is normative table talk at this juncture.
Whilst Carillon would gain from the reach of Balfour Beatty, the latter would gain from Carillon’s leadership, something that Balfour, at least in terms of a CEO, is lacking. It’s not that their CEO is bad. It’s that they haven’t had one for awhile, and the company has been floundering, issuing profit warnings that have driven its share price down. Even with the spike today, Balfour’s shares remain some 10% below the last profit warning in May.
As Carillon and Balfour Beatty see it, “The merger…has the potential to create a market-leading services, investments and construction business of considerable depth and scale.” I have to agree.