UK's Balfour Beatty in merger talks with construction rival Carillion

UK construction major Balfour Beatty Plc is in talks with rival Carillion Plc on a possible merger between the two to create the country's largest infrastructure services provider with market valuation of approximately £3 billion ($5 billion).

Confirming recent media reports on the matter, both the companies yesterday said in a statement,  ''In view of recent media speculation the boards of Carillion and Balfour Beatty can confirm that, following an approach from Carillion to Balfour Beatty, they are engaged in preliminary discussions in relation to a possible merger of Carillion and Balfour Beatty,''

Both the companies' boards believe that the merger of the two majors has the potential to create a market leading services, investments, and construction business of considerable depth and scale.

London-based Balfour Beatty is an international infrastructure group, with operations principally in the UK and the US, and developing businesses in Australia, Canada, the Middle East and South East Asia.

Wolverhampton, England-based Carillion is one of the UK's leading integrated support services companies with extensive construction capabilities and is expanding  its maintenance offerings for the rail, oil and telecommunication industries.

The company employs over 40,000 people worldwide, with established businesses in the UK, Canada, the Middle East and North Africa.

Balfour and Carillion will develop a strategy and outline a business plan for a combined entity, based on the evaluation of achievable synergies, future financing arrangements and a number of other essential supporting work streams to ensure that a merger plan would lead to very significant value creation for the shareholders of both the companies.

Balfour's CEO Andrew McNaughton quit the company in May after forecasting a fall in profits due to lack of construction activity in the UK and in Australia.

Some analysts believe that in case the merger deal goes ahead, Carillion's CEO would be expected to lead the combined entity.

Balfour's sale process for its US infrastructure consultancy firm Parsons Brinckerhoff, which is already underway, will not be affected by the potential merger. Balfour had acquired Parsons for $626 million in 2009.

The agreement of any transaction is subject to due diligence by Balfour and Carillion and recommendation to their shareholders.

No final decision has been reached regarding the structure of any merger, the statement said.

Under the UK takeover rules, both the parties have to stick to a deadline of 21 August to decide on a possible merger.