Carillion Chairman Philip Green dismisses talk of fire sale; rivals Balfour Beatty and Kier not interested in takeover
Carillion [LON:CLLN] Chairman Philip Green has dismissed talk of a distressed sale of the FTSE-250 construction services group, The Daily Telegraph reported. Green, speaking on Tuesday evening, 11 July, said suggestions of a fire sale were “not true.” He added, however, that no options have been ruled out.
Carillion reported its 1HY17 results on Monday, in which Green said the company would miss its debt reduction targets for FY17 and that overall FY performance is expected to be below management's previous expectations. The company also announced that it would conduct a strategic review and that in order to reduce borrowings, it would look to make disposals of businesses in non-core markets and geographies to raise GBP 125m (EUR 141m).
The investment bank Lazard is advising Carillion on the strategic review, the report said. The article added that Carillion’s GBP 2.3bn pension scheme, which was in deficit by GBP 393m as of the end of 2015, is thought to be a central focus of the strategic review.
It is believed that Carillion’s UK-based rival Balfour Beatty [LON:BBY] was not currently thinking about making an offer for the company, the report said. Carillion tried to acquire Balfour Beatty in 2014, the item noted.
The newspaper cited unspecified sources who said Kier [LON:KIE], another UK-based construction services company, would also probably avoid a deal with Carillion due to worries about Carillion’s future viability and the prospect of profit warnings in the future.
Separately, the report said some of Carillion’s major institutional shareholders have sold down their stakes in the company over the past few months. Standard Life, which had been one of Carillion’s top 10 shareholders, declined to comment on Carillion’s position as it’s stake now stands at 0.1%, the article continued. A Standard Life spokesperson quoted in the report said the company had been reducing its stake in Carillion for the past two years.
The fund manager Schroders, which a couple of years ago held a 4.6% stake in Carillion, said it now holds a stake of just 0.5%, the report continued. Blackrock, another fund manager, is Carillion’s biggest shareholder with a stake of 8.45% and has been shorting Carillion shares while also lending part of its own shareholding to other fund managers, according to the newspaper.
Seven funds added to their short positions in Carillion in the 10 days before the company issued its profit warning, the report said, adding that those short positions will probably attract the interest of the UK Financial Conduct Authority. More than 25% of Carillion’s shares are now shorted by hedge funds, the item added.
One industry source cited by the report cast doubt on the prospects of Carillion conducting a rights issue successfully, arguing that companies who warn on profits once tend to do so again.
The item went on to cite a senior banker with knowledge of the situation who suggested that if Carillion needs to raise funds, it will probably not rush into doing so, as investors will want some indication of the lower limit for the company’s share price.
Analysts cited by a report in The Times said on Tuesday that savings of GBP 205m from cancelling dividend payments and exiting operations in Egypt, Qatar and Saudi Arabia would not suffice to fix Carillion’s balance sheet.
Analysts at Liberum suggested that Carillion’s problems would require equity to fix, while an analyst at RBC said Carillion may require a GBP 500m cash call, the newspaper said.
Carillion’s interim CEO Keith Cochrane said on 10 July that “all options” are being considered to cut the company’s debt, but downplayed the prospects of a rights issue, according to The Times.
Carillion disclosed on Monday that its net debt had increased to GBP 695m. The company also has off-balance sheet liabilities exceeding GBP 100m, according to the report.
Carillion’s share price closed 39.2p down at 77.9p on the London Stock Exchange on Tuesday, giving the company a market capitalisation of GBP 335m.