Carillion: Mowlem bid 'a blinder'

Carillion has admitted that the trickiest moment in the chase to acquire Mowlem was the
deliberation over whether to lift the initial value of the bid.

“We knew that there was someone else making moves, but we didn’t know it was Balfour Beatty,” said Carillion finance director Chris Girling.

While Carillion’s bid team might have been biting their nails after opting to make a new offer of 220p a share – a 15p rise on the initial 205p bid – with hindsight the move turned out to be a “blinder of a play” according to Girling, as it was the move that won the day.

Integration will result in the Mowlem name progressively disappearing in the UK. A further consequence is that Carillion will carry an armful of debt for some  time: the group’s average debt this year will run to £200m.

Carillion’s £100m of cash before the acquisition was wiped out by Mowlem’s £100m debt. The terms of the takeover offer, a mix of cash and new shares, has resulted in Carillion generating a new £120m debt.

In addition, Girling said: “The working capital situation in the first year will get worse before it gets better and the demand will rise by £80m.

“This year our average debt will be £200m, but I think we should look to exit 2007 with less than £100m of debt. Our management of working capital will account for some of that fall, leaving another £50m to come from somewhere else.”

But where? Analysts have predicted the sale of Mowlem’s Australian division as well as some of the enlarged group’s PFI equity stakes.

With a cheeky grin, Girling said: “Everything is for sale at the right price.” But turning back to the serious business, and to detail, he added: “Australia will not necessarily go. The rule that applies to every division is that if it is capable of following the mother-ship, it has a long-term future in the group and on the face of it, Australia fits that requirement. I’ve been there to say welcome.”

Carillion had been tracking Mowlem for three years, said Girling. The three main attractions were: the degree of overlap was very small; there was the opportunity to take cost out, mainly from within Mowlem; and Mowlem’s workforce.

“A constraint to Carillion’s growth has been people,” said Girling. “When we are combined with Mowlem, we will have more flexibility.”

Mowlem found itself on its knees as a result of its past management’s decision making.

“Its risk management wouldn’t have passed muster in Carillion’s processes,” said Girling, “although more recently, everything Simon Vivian [Mowlem’s new chief executive] was doing was what we did.

“We wouldn’t be tunnelling in Dublin or doing other lump-sum civils contracts and we wouldn’t do trophy projects,” said Girling. Asked if Twickenham was a trophy project, Girling classified it as being borderline.

Mowlem intended to sell half of its £60m equity investment in the £7bn PPP Allenby Connaught project as soon as the deal with the MoD was clinched. Carillion has scrapped this plan.