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Carillion crisis: Four questions that won't go away

As Carillion officially drops out of the FTSE 250, we take a look at four crucial questions still swirling around the troubled firm.

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Stock market

Share price rollercoaster – when will it end?

Nearly two months since Carillion’s share price collapsed after a major profit warning, the group’s fortunes remain on a knife-edge.

The contractor and services firm saw its share price dive 70 per cent last month on the day it revealed chief executive Richard Howson was to step down following an £845m writedown.

The group has remained in the headlines as its share price has, with every announcement or non-announcement, seen significant fluctuations.

Last week shares slid to a new low as investors were seemingly spooked by the fact that it had delayed the announcement of its half-year results – even though this had been revealed at the time of Carillion’s July trading update. Its stock then subsequently edged back up – apparently off a £300m contract win in Manchester, revealed by Construction News.

Such fluctuations show no signs of abating, giving some credence to suggestions from analyst UBS that, while the firm can potentially be recapitalised, a worst-case scenario could even see shares eventually fall to zero.

Carillion’s interim chief executive Keith Cochrane will be hoping to steady the ship next month when he reveals the results of a strategic review.

Richard Howson chief executive Carillion

Richard Howson chief executive Carillion

Why is Richard Howson still there?

As the man at the helm of Carillion for the last five-and-a-half years, it was no surprise that Richard Howson immediately stepped down as chief executive after last month’s damaging update. 

However, interim boss Keith Cochrane told Construction News Mr Howson was being kept on for up to a year to essentially help collect money from problem contracts.

Eyebrows were then raised even higher by the news, as revealed by CN, that Mr Howson was taking back his old title of chief operating officer as part of Carillion’s “leadership” team. As one commenter on our website put it: “You’ve got to be joking!”

Yet analysts have been less moved, with one saying: “[Howson’s] background is construction, so it makes sense that he’s at the forefront of getting cash through the doors from these contracts.”

Each of the senior people I’ve spoken to about Carillion’s woes has, without fail, described Mr Howson as being a well-liked and respected character. But questions remain over how such a situation arose on his watch.

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Will Carillion be bought?

So far, no suitors have emerged. 

One senior industry executive told me the major deterrent for any buyer would be the size of Carillion’s pension deficit, which stands at around £600m. 

Apple Value analyst Stephen Rawlinson told Construction News: “Any predator will be mindful of the pension liability, which could be a barrier to any deal.”  

Balfour Beatty, one tipped suitor, has already ruled itself out. It appears its boss Leo Quinn is resisting the chance of a sweet irony, as it was only three years ago that Carillion sought to take over a struggling Balfour.

Now the tables have turned.

But parts of the business could still be bought, as Carillon has said it is looking to sell assets to pay off debts, along with reducing net borrowing. It is hoping to raise £125m in the next 12 months.

What happens next and can Carillion survive?

Consensus among analysts still appears to be that Carillion will do a debt-for-equity swap to escape its woes. “This appears the most logical outcome,” Mr Rawlinson says.

But he adds: “There’s no way of understanding the value of the equity at the moment because you don’t know what’s going to happen. You don’t know where they’re up to with the debt, but there has to be some kind of debt-for-equity swap.”

What should be remembered is that Carillion is an integral part of a number of high-profile government contracts. “Carillion is a major player on PFI and government contracts, so the government won’t want to see it collapse because of debt,” says Greg Malpass, an independent M&A construction industry analyst.

Meanwhile, Balfour’s Leo Quinn has tipped Carillion to survive and emerge a “smaller” but “better” company.

Mr Rawlinson echoes this sentiment. “I think they will survive. You have to remember Carillion is the UK’s largest FM business. They know what they’re doing.” 

Readers' comments (1)

  • Just cannot see them surviving - to have an accumulation of £2bn of problems, debt, provisions and pension deficit. This is too great for a 4-5bn sized company to withstand - it will have no resilience to any future problems which can be guaranteed will happen in this sector.

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