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Costain FD plans swift integration with May Gurney

Costain’s finance director will look to execute a swift integration plan in the proposed merger with May Gurney, which would see a review of top management and the loss of up to 150 back office staff.

Tony Bickerstaff, who will become group FD of the new company Costain May Gurney should the merger plan be approved by shareholders, told CN they will be looking to integrate the businesses quickly, rather than leave the firms to operate as separate entities as some acquisitive contractors have done in the past.

The tie up would see Costain acquire the entire share capital of May Gurney to create a £1.6 billion infrastructure and services company.

Mr Bickerstaff said a lot of work has been done over the past few months to establish the right structure and integration plan, which he said is “pretty well advanced”.

Documents detailing the deal to the Stock Exchange said the merger will result in the loss of “fewer than 150” jobs, primarily from overhead roles, out of the 11,000-strong combined staff.

”There are no huge overlaps in terms of divisions, therefore for the vast majority of 11,000 people in the group it will be business as usual,” Mr Bickerstaff told CN.

He added: “I would want to do the integration quickly because I think that’s the best way to do it.”

Documents show the aim is to complete integration within 18 months.

Costain chief executive Andrew Wyllie, who will become group chief executive if the proposal is approved by shareholders, said it was too early to reveal full details of how the May Gurney’s regional office and staff structure may be affected by the merger.

But he said there would be a management “selection process” that “takes the best from both businesses”. He said the May Gurney management will be in “exactly the same position as Costain’s”in terms of the process.

Mr Wyllie said the firm will be looking to create synergies of £10m, “primarily as a result of the combined businesses at an overhead-type level”. He stressed the focus of the merger is on growth, rather than taking out cost.

But it would cost £20m; including a one off exceptional cost of £14m, plus a £6m investment cost in IT.

Costain chairman David Allvey said earlier today that the group remains committed to May Gurney’s Trowse headquarters in Norfolk.

Mr Wyllie declined to comment on plans for offices or any type of rationalisation, but he described the Norfolk base as being of “strategic significance”. It would become a shared services centre and operational office under the plan.

Mr Bickerstaff said while May Gurney brings a front-end design service, there could be further opportunity for further expansion at the front-end, potentially consultancy, via organic growth and acquisition. But he stressed any move would be led by customers’ demands.

He said the firm will also manage the May Gurney supply chain in line with customer demands, but could not provide further detail on whether suppliers will see a change in management or a more centralised approach under the new group.

Mr Wyllie said the merger with May Gurney, which will see Costain buy up the shares of the support services company, valued at £178m, will strengthen its bidding position, as major clients in sectors such as water look to single service engineering and maintenance providers ahead of joint ventures in three to four years’ time.

“What these organisations are looking to do is work with a fewer number of larger organisations that can provide a full range of services they need,” he said.

Costain has repeatedly stressed the changing demands of clients, many of whom are blue chip firms, and the trend to a consolidated supply chain that can deliver end-to-end services.

The CEO highlighted the £200m Magnox framework contract, exclusively revealed by CN in July last year, as an example of where clients are looking for an end-to-end package from one supplier.

Magnox, which has 10 nuclear sites and one hydroelectric plant in the UK, selected Costain and Balfour Beatty for nationwide works including design, construction, modification, repairs and refurbishment.

May Gurney chairwoman Baroness Margaret Ford said the move had nothing to do wiith “operational difficulties” May Gurney had last year, when it issued a profit warning and parted ways with chief executve Philip Fellowes-Prynne.

She said the merger is a long-term strategy rather than a short-term move.

The group would be rebranded Costain May Gurney, with plans to publicly list and keep that brand in the long term. Shareholders will vote on the proposal in May.

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