Shares in Carillion (CLLN) and Balfour Beatty (BBY) have jumped 7 per cent and 9 per cent, respectively, since news broke late last week of a possible merger between the two construction and support services-focused groups.
The news follows an especially tough 18 months for Balfour during which it announced several profit warnings and saw its chief executive Andrew McNaughton step down (in May). The company has since announced a strategic review and plans to put its US project management business, Parsons Brinckerhoff, up for sale - a move that won't be affected by the merger. Accordingly, Carillion - despite being the smaller player in terms of turnover and market value - is thought likely to emerge as the senior partner in any deal.
Despite Balfour's woes, however, the City is getting excited about potential cost savings. Indeed, broker Liberum has dubbed the merger the "deal of the decade", while Carillion's track record with absorbing Alfred McApline in 2008 has left broker Numis Securities estimating that £178m of savings are possible. Merging could provide a boost for the construction sector more generally, too, through a "significant reduction in industry overcapacity", according to Numis. "Fundamentally, the likes of Kier, Morgan Sindall and Interserve will be indirect beneficiaries," adds the broker.
