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Is Carillion now ripe for a takeover?

Carillion’s woes have sparked speculation that the firm is now a takeover target.

The Wolverhampton-based group has been rocked to the core after a “monster” profit warning, as one analyst branded it, parting ways with its chief executive, and suspending its dividend. 

The FTSE-250 firm’s share price was down again this morning, some 17 per cent at about midday, after plunging nearly 39 per cent yesterday.

Interim chief executive Keith Cochrane has said “no option is off the table” as he carries out a root-and-branch strategic review of the business.

But will Carillion’s problems mean the vultures will gather? And who might be lurking in the wings?

The spectre of Brexit and the collapse of the pound have meant that UK firms have become more attractive to foreign rivals. It has already led to Atkins being gobbled up by Canada’s SNC-Lavalin in a £2.1bn deal.

RBC analyst Andrew Gibb said he expects Carillion’s rivals to be “running the slide rule over the business”.

He added: “In our view, the group would need to raise a significant amount – £500m plus – to restore stability.”

The question for suitors is whether they would want the whole of the business or just part of it.

Carillion still has a “decent underlying construction business” in the UK, according to one source, and the UK market has a reasonable outlook despite Brexit concerns.

“It would be attractive to anyone who wants to expand in the UK infrastructure sector,” the source said, with plenty of government-funded mega civils contracts still up for grabs.

Balfour Beatty has been mentioned as an obvious bidder for Carillion, which would be ironic given that only three years ago Carillion failed in an attempt to acquire the London-based giant. Spain’s Ferrovial has also been mentioned as a possible interested party.

Carillion’s services unit would also be an attractive target, given that this part of the business brings in the lion’s share of its revenue and profit.

This could bring Sodexo or Mitie into play. “Sodexo is looking to diversify and get more into facilities management,” the source said.

But a buyer may not appear immediately.

“In reality any suitor may wait and see the outcome of the strategic review [expected in September], let Carillion do the due diligence and then make a decision subject to what comes out of that,” the source said.

And some have suggested that a suitor may not emerge at all. 

As Hargreaves Landsdown analyst Laith Khalaf said: “Carillion looks like it’s trying to bail out a supertanker with a soup spoon. 

He added: “Judging by this announcement, the board is prepared to do everything it takes in order to save the ship. But talk of a review of capital structure, and the ongoing debt problem, will leave investors worried that a significant rights issue could be on the horizon.”

Liberum analyst Joe Brent added: “Never say never, but I think it is fair to say [a takeover is] very unlikely. There are still considerable risks in UK construction and the true debt is much higher than it appears.” 

Either way, Carillion’s rollercoaster ride appears to have some distance left to go.

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