Ballast pension puts buyers off

A major pension fund deficit is thought to have grounded interest in Ballast, the £250m-a-year UK construction business that has been on the market for the past 12 months.

This under-funding problem is also said to have ended a potential management buy-out led by managing director Phil Cooper.

A source said: "I don't think Ballast Nedam will sell the business and as a result Ballast could go bust. The £50m pension under-funding means someone needs to pay about £5m a year to top it up. Ballast Nedam either can't or won't make up this pension deficit."

The parent group might well be unable to find the cash needed to sort out the problem. In its latest financial year (12 months to 31 December 2002), Ballast Nedam's £1.6bn turnover resulted in a loss of £97m.

The UK business was part of the financial problem, plunging £46m into the red last year after losses of £22m in 2001.

Despite the offer of a dowry to top up Ballast's cash reserves, buyers have been surprisingly reluctant to take up the offer of acquiring the business, especially as it has a valuable PFI portfolio and Cooper's restructuring programme has transformed the viability of the on-going business.

The revelation of a pension fund problem explains the lack of progress over a sale.

While Ballast Nedam might have set a medium-term deadline of achieving a sale within two years, the strain of topping up its UK pension fund might force a much faster timetable. "Ballast could be closed down within six months," said the source.

A Ballast spokeswoman said that there was a £34m deficit in the UK pension fund two months ago but this was "nothing unusual" and did not require the group to raise its level of funding input to the scheme.

A construction press headline last week that Bilfinger Berger is still favourite to buy Ballast has prompted a firm denial from Bilfinger.

It issued a statement on Monday saying: "Bilfinger is not progressing a potential acquisition of the UK-based Ballast."