* Carillion outlines merits of deal to Balfour shareholders
* Says tie-up would generate savings of 175 mln a year
* Balfour sceptical on synergies, rationale of deal
(Adds Balfour statement, analyst reaction, shares)
By Paul Sandle and Karolin Schaps
LONDON, Aug 14 British construction firm
Carillion told Balfour's shareholders a merger would
deliver 175 million pounds in cost savings a year, hoping to get
them on side after its UK target twice spurned its approaches.
Balfour Beatty has rejected two takeover proposals by
Carillion to create a 3 billion pound ($5 billion) group better
placed to compete for major international contracts against the
likes of Spain's Ferrovial. Carillion now has until
Aug. 21 to make a final offer.
The two companies revealed in July they were in talks, but
Balfour walked away only days later after Carillion insisted it
cancel the planned sale of its U.S. engineering and design
business Parsons Brinckerhoff.
Carillion remains undeterred. On Thursday it issued a
summary of the arguments it had taken to Balfour's big
shareholders this week at the request of the Takeover Panel.
It said it could save more than 175 million pounds a year by
the end of 2016, more than some analysts expected, by
streamlining offices, supply chains and IT.
The synergies were worth more than 1.5 billion pounds in
stock market value, before any re-rating, it said.
It also said it would give Balfour's shareholders an
additional cash dividend of 8.5 pence a share.
Balfour said it had "serious reservations" about whether the
synergies could be achieved.
It said shareholders would benefit more from its own plan
to develop its British construction business rather than
Carillion's ambition to scale it back, and it was too risky to
end the process of selling Parsons Brinckerhoff.
"The Board is confident that pursuing its strong
independent strategy based around a recovering UK business,
growing U.S. market and significant investments business is more
attractive than a merger on the terms proposed," it said.
Shares in Balfour Beatty, which have come off highs of 322
pence when talks were disclosed, were up 1.5 percent at 240
pence by 0932 GMT. Carillion's stock was up 6.3 percent at 340
pence, the highest level since Balfour walked away on July 31.
Analysts at Liberum said Carillion had been spurned but not
"The synergy prize is too big to walk away from, with
Carillion confident of achieving at least 175 million pounds,"
they said. "We believe final synergies could be higher - perhaps
250 million pounds. Egos aside, this deal should happen."
Carillion said it would overhaul Balfour's British
construction business along the same lines as it rescaled its
own activities by taking a more selective approach to bidding on
contracts and growing its services.
The company said on Thursday that restructuring helped it
post a 3 percent rise in first-half underlying pretax profit of
75.9 million pounds on slightly lower revenue of 1.87 billion
pounds. It said it was still targeting revenue growth for the
full year, for which its expectations were unchanged.
($1 = 0.5995 British Pounds)
(Editing by Sophie Walker)