Carillion and Alfred McAlpine: it's a done deal worth £572m

It’s a done deal – Carillion and Alfred McAlpine have shaken hands and will merge to create a giant UK construction and support services giant with an annual turnover of £4.7bn.

Carillion has trimmed its original offer of 585p a share back to 558p after the process of due diligence allowed for a closer look at McAlpine’s books.

As a result, the deal values McAlpine at £572m rather than the original figure of £600m.

There are expected to be annual cost savings of £30m a year by the end of 2009, the first full year after completion of the acquisition. The deal is expected to enhance Carillion’s future profits.

The offer price of 558p represents a premium of:

• 24% over the closing price for McAlpine shares on 1 August (449p) which was the last day before McAlpine announced its demerger plans
• 5% over the closing price on 15 October (532p), the last day before Carillion’s approach was first officially announced

McAlpine’s directors have recommended the deal and shareholders representing 18% of all shares have already given it their thumbs-up.

Philip Rogerson, chairman of Carillion, said: “The acquisition represents a further step in Carillion’s development and its strategy for profitable growth. There is an excellent strategic fit between the two companies.”

Roger Urwin, chairman of McAlpine, said: “Over the past five years we have repositioned Alfred McAlpine into a valuable support services group, with leading positions in a number of growth markets.”

The deal is that for each McAlpine share, there will be 1.08 new Carillion shares valued at 392p (which is 29p higher than the market price of Carillion’s shares at the close of play on Friday, the last day before trading before the announcement) plus 165p in cash.

The enlarged group’s main two operations will be:

• Support services – combined turnover running to £2.3bn
• Construction services – combined turnover also running to £2.3bn

Carillion itself was only formed in 1999 as a result of Tarmac’s decision to demerge its aggregates business from its construction wing. The former kept the safe old name, while the latter did a beauty contest before settling on its new title.

Since then Carillion has transformed itself from what was a predominantly construction player into today’s business model whereby half its turnover and two-third of profits come from support services and equity investments in PPP projects.

As a result of buying Mowlem in the near past, Carillion is expecting that its net debt in 2007 will run to close to a figure of £150m, though the recent sales of Pall Mall and Sovereign Soft Services in September should see that debt figure cut to £80m by the end of the year.