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Carillion cuts McAlpine bid terms

Created:
10 December 2007
Written by:
Jonas Crosland

Carillion has cut the value of its bid for Alfred McAlpine, blaming a fall in equity markets for the reduced terms. The agreed deal now values Alfred McAlpine at around £572m and the terms have been reduced to a cash payment of 165.4p per share plus 1.08 Carillion shares for every McAlpine share, equivalent to 558p against the 585p deal agreed earlier.

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Carillion stressed that it was market weakness, rather than anything discovered after looking over McAlpine's books, that prompted the reduction in terms. Earlier this year, McAlpine announced plans to break itself up, following a fundamental review. Its slate business had previously been embroiled in a sales fraud that ended up costing the group £22.6m.

Even so, Carillion expects to generate annual cost savings of around £30m by the end of 2009 from its McAlpine takeover, with underlying EPS growth at the enlarged group of 20 per cent this year. Its track record at integrating acquisitions is a good one, having done a sterling job with Mowlem, which had been struggling before Carillion picked it off in late 2005.

TIP UPDATE:

Buy

Analysts were surprised that Carillion did not reduce the terms by even more, and also expressed concern about the need to issue so much new paper for the deal. Still, given its track record, it deserves the benefit of doubt. So, despite being down 18 per cent on our buy advice (432p, 1 June 2007), the shares remain a buy at 353p.

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