Statement by the Board of Carillion

RNS Number : 1133P

Carillion PLC

14 August 2014

 



THIS ANNOUNCEMENT IS NOT AN ANNOUNCEMENT OF A FIRM INTENTION TO UNDERTAKE ANY TRANSACTION UNDER RULE 2.7 OF THE CITY CODE ON TAKEOVERS AND MERGERS (THE "CODE") AND THERE CAN BE NO CERTAINTY THAT ANY TRANSACTION WILL PROCEED, OR AS TO THE TERMS OF ANY SUCH TRANSACTION.

NOT FOR RELEASE, PUBLICATION OR DISTRIBUTION IN WHOLE OR IN PART IN, INTO OR FROM ANY JURISDICTION WHERE TO DO SO WOULD CONSTITUTE A VIOLATION OF THE RELEVANT LAWS OR REGULATIONS OF THAT JURISDICTION.

FOR IMMEDIATE RELEASE                                                                                                                       14 August 2014

Statement by the Board of Carillion

Carillion has, since Monday morning 11 August 2014, held meetings with a number of Balfour Beatty's major shareholders. At the request of the Panel on Takeovers and Mergers and those shareholders, Carillion is now making public all material new information given during those meetings.

Synergies

The Board of Carillion is confident that, as a direct result of the merger, the cost-base of the combined group could be reduced by at least £175 million per annum by the end of 2016¹ and that earnings would consequently be significantly enhanced from that year². These cost savings would represent a capitalised value of over £1.5 billion before any re-rating³.

As required by Rule 28.1(a) of the Code, Ernst & Young LLP ("EY"), as reporting accountants to Carillion, have provided a report stating that, in their opinion, the synergy statement has been properly compiled on the basis stated. In addition, Lazard, Greenhill and HSBC, as financial advisers to Carillion, have provided a report stating that, in their opinion and subject to the terms of such report, the synergy statement, for which the directors of Carillion are solely responsible, has been prepared with due care and consideration.

Substantial synergies have been identified across the following areas:

·     Businesses and Functions: back office, head office, business and support function savings as well as from applying Carillion's business operating model to Balfour Beatty's UK business;

·     Supply Chain: utilising Carillion's category management and demand planning solution, and through purchasing and procurement efficiencies;

·     Information and Communications Technology ("ICT"): utilising Carillion's outsourced back office solution, and through standardisation of systems and processes;

·     Property: consolidation of the two groups' property portfolios in overlapping areas, including head office; and

·     Other: agency labour, fleet, insurance and general overhead savings, including through the application of Carillion's lean operating structure.

The Board of Carillion expects that it would deliver these synergies progressively, anticipating that 40% of them would be achieved by the end of 2015 and the full 100% by the end of 2016 (assuming, for these purposes, that completion of the merger occurred by 31 December 2014).

It is expected that the realisation of the identified synergies would result in one-off exceptional cash costs of approximately £225 million, largely incurred in financial years 2015 and 2016.

Please refer to Appendix I for further detail on synergies.

¹ Statement made on the basis of publicly available Balfour Beatty information
² This statement is not a profit forecast

³ Calculated using weighted LTM multiple applied to cost-base reduction achieved by the end of 2016. See Appendix II

Dividend

Carillion has proposed that Balfour Beatty's shareholders receive an additional cash dividend (or equivalent) of 8.5 pence per Balfour Beatty share (£59 million in total) at the time Balfour Beatty's final 2014 dividend would have otherwise been paid in 2015. This would be in addition to the final 2014 dividend they would be entitled to receive as shareholders in the enlarged group.

Carillion also proposed that the enlarged group would maintain Carillion's progressive dividend policy.

Financing

Based on initial discussions with banks and assuming the retention of Parsons Brinckerhoff, the Board of Carillion is highly confident that £3 billion of available funding would be accessible to the combined group, providing substantial headroom above its actual borrowing requirements after transaction costs and the costs of the proposed restructuring.

Other Material Information

·     Carillion's envisaged business plan for the group is to refocus significantly the UK construction services business in a similar manner to the rescaling it undertook in respect of its own construction business, principally through focus on contract selectivity, and to grow its services business, such that, within the medium term, two thirds of the combined group's operating profit would derive from services and investments with one third coming from construction. The business plan envisages that overall, the combined group's UK revenue would rise through the period, providing a cost base against which the synergies would be achieved.

·     Before discussions between the two parties ended, mutual due diligence had included meetings with management and divisional management heads, meetings with auditors, sharing of data and information exchange through an electronic data room, reviews of recent trading, reviews of longer term standalone business plans, the evaluation of the achievability of synergies and the evaluation of future financing arrangements. For the avoidance of doubt, the synergies referred to earlier in this announcement and which have been reported on by EY and Carillion's financial advisers, are not based on this due diligence but on publicly available Balfour Beatty information.

·     Carillion believes that finalising due diligence will take three to four weeks from re-engagement with Balfour Beatty.

·     Carillion would maintain its existing policy of recycling PPP investments over the combined investment portfolio.

Carillion continues to believe in the powerful strategic logic and financial benefits of a merger with Balfour Beatty and is therefore continuing to consider its position.

Carillion will make a further announcement in due course. In the meantime, there can be no certainty that any offer will be made by Carillion or as to the terms on which any such offer might be made.

Carillion reserves the right to introduce other forms of consideration and/or to vary the mix of consideration.

In addition, Carillion reserves the right to make an offer for Balfour Beatty at any time on less favourable terms:

i.    with the agreement or recommendation of the Board of Balfour Beatty;

ii.   if, otherwise than in the ordinary course, Balfour Beatty declares, makes or pays any dividend  or other return of capital to its shareholders;

iii.   if a third party announces a firm intention to make an offer for Balfour Beatty on less favourable terms; or

iv.  following the announcement by Balfour Beatty of a whitewash transaction pursuant to the Code.

As required by Rule 2.6(a) of the Code, Carillion is required, by not later than 5.00 p.m. on 21 August 2014, to either announce a firm intention to undertake a transaction in accordance with Rule 2.7 of the Code or announce that it does not intend to undertake a transaction, in which case the announcement will be treated as a statement to which Rule 2.8 of the Code applies. This deadline may be extended with the consent of the Takeover Panel in accordance with Rule 2.6(c) of the Code. Carillion understands that, in accordance with Rule 2.6(c), the Takeover Panel will take into account the views of Balfour Beatty in considering whether to grant such an extension.

This announcement is not being made with the consent of Balfour Beatty.

Enquiries:

Carillion
John Denning, Director Group Corporate Affairs                                     [phone]

Lazard & Co., Limited (Lead Financial Adviser)                                     [phone]

Nicholas Shott

Vasco Litchfield

Cyrus Kapadia

Greenhill & Co. International LLP (Financial Adviser)                             [phone]

Anthony Parsons

Alex Usher-Smith

HSBC Bank plc (Financial Adviser)                                                       [phone]

Charles Packshaw

Morgan Stanley & Co. International plc (Joint Corporate Broker)
Peter Moorhouse                                                                                   [phone]

Oriel Securities (Joint Corporate Broker)
David Arch                                                                                           [phone]

Finsbury (PR Adviser)
James Murgatroyd                                                                                 [phone]
Gordon Simpson

Important Notices

This announcement is not intended to and does not constitute or form part of any offer to sell or subscribe for or any invitation to purchase or subscribe for any securities or the solicitation of any vote or approval in any jurisdiction. 

Lazard & Co., Limited ("Lazard"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as lead financial adviser to Carillion plc ("Carillion") and no one else in connection with the possible transaction and will not be responsible to anyone other than Carillion for providing the protections afforded to clients of Lazard & Co., Limited nor for providing advice in relation to the possible transaction or any other matters referred to in this announcement. Neither Lazard & Co., Limited nor any of its affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Lazard & Co., Limited in connection with this announcement, any statement contained herein, the possible transaction or otherwise.

Greenhill & Co. International LLP ("Greenhill"), which is authorised and regulated in the United Kingdom by the Financial Conduct Authority, is acting as financial adviser to Carillion and no one else in connection with the possible transaction and will not be responsible to anyone other than Carillion for providing the protections afforded to clients of Greenhill & Co. International LLP nor for providing advice in relation to the possible transaction or any other matters referred to in this announcement. Neither Greenhill & Co. International LLP nor any of its affiliates owes or accepts any duty, liability or responsibility whatsoever (whether direct or indirect, whether in contract, in tort, under statute or otherwise) to any person who is not a client of Greenhill & Co. International LLP in connection with this announcement, any statement contained herein, the possible transaction or otherwise.

Morgan Stanley & Co. International plc, which is authorised by the Prudential Regulation Authority and regulated by the Financial Conduct Authority and the Prudential Regulation Authority in the United Kingdom, is acting as joint corporate broker to Carillion, and no one else in connection with the matters referred to in this announcement. In connection with such matters, Morgan Stanley & Co. International plc, its affiliates and its and their respective directors, officers, employees and agents will not regard any other person as their client, nor will they be responsible to any other person other than Carillion for providing the protections afforded to their clients or for providing advice in connection with the contents of this announcement or any other matter referred to herein.

Oriel Securities Limited, which is authorised and regulated by the Financial Conduct Authority in the United Kingdom, is acting as joint corporate broker to Carillion, and no one else in connection with the matters referred to in this announcement. In connection with such matters, Oriel Securities Limited, its affiliates and its and their respective directors, officers, employees and agents will not regard any other person as their client, nor will they be responsible to any other person other than Carillion for providing the protections afforded to their clients or for providing advice in connection with the contents of this announcement or any other matter referred to herein.

HSBC Bank plc ("HSBC"), which is authorised by the Prudential Regulation Authority and regulated in the United Kingdom by the Financial Conduct Authority and the Prudential Regulation Authority, is acting as financial adviser to Carillion and no one else in connection with the possible transaction and will not be responsible to anyone other than Carillion for providing the protections afforded to clients of HSBC Bank plc nor for providing advice in relation to the possible transaction or any other matters referred to in this announcement.

Cautionary Note Regarding Forward-Looking Statements

This announcement contains certain forward-looking statements with respect to the financial condition, results of operations and business of Carillion and Balfour Beatty and the combined group.  These forward-looking statements can be identified by the fact that they do not relate only to historical or current facts.  Forward-looking statements often use words such as "anticipate", "target", "expect", "estimate", "intend", "plan", "goal", "believe", "hope", "aims", "continue", "will", "may", "should", "would", "could", or other words of similar meaning.  Forward looking statements include statements relating to the following: (i) future capital expenditures, expenses, revenues, earnings, synergies, economic performance, indebtedness, financial condition, dividend policy, losses and future prospects; (ii) business and management strategies and the expansion and growth of Carillion's or Balfour Beatty's operations and potential synergies resulting from the transaction; and (iii) the effects of government regulation on Carillion's or Balfour Beatty's business.  These statements are based on assumptions and assessments made by Carillion, in light of their experience and their perception of historical trends, current conditions, future developments and other factors they believe appropriate. 

By their nature, forward-looking statements involve risk and uncertainty, because they relate to events and depend on circumstances that will occur in the future and the factors described in the context of such forward-looking statements in this document could cause actual results and developments to differ materially from those expressed in or implied by such forward-looking statements.  They are also based upon assumptions.  Many factors may cause the actual results, performance or achievements of Carillion to be materially different from any future results, performance or achievements expressed or implied by the forward-looking statements. Important factors that could cause actual results, performance or achievements of Carillion to differ materially from the expectations of Carillion, include, among other things, general business and economic conditions globally, industry trends, competition, changes in government and other regulation, changes in political and economic stability, disruptions in business operations due to reorganisation activities, tax rates, interest rate and currency fluctuations, the failure to satisfy any conditions for the merger on a timely basis or at all, the failure to satisfy the conditions of any merger if and when implemented (including approvals or clearances from regulatory and other agencies and bodies) on a timely basis or at all, the failure of Carillion to combine with Balfour Beatty on a timely basis or at all, the inability of the combined group to realise successfully any anticipated synergies or cost reductions if and when the merger is implemented, the inability of the combined group to integrate successfully Carillion and Balfour Beatty's operations and programmes if and when the merger is implemented, the combined group incurring and/or experiencing unanticipated costs and/or delays or difficulties relating to the merger when the merger is implemented. Such forward-looking statements should therefore be construed in light of such factors.

Neither Carillion, nor any of its associates or directors, officers or advisers, provides any representation, assurance or guarantee that the occurrence of the events expressed or implied in any forward-looking statements in this announcement will actually occur. You are cautioned not to place undue reliance on these forward-looking statements, which speak only as of the date hereof. 

Carillion does not assume any obligation to update or correct the information contained in this document (whether as a result of new information, future events or otherwise), except as required by applicable law.

No Profit Forecasts Or Estimates

No statement in this announcement is intended as a profit forecast or estimate for any period and no statement in this announcement should be interpreted to mean that earnings or earnings per share for Carillion or the combined group, as appropriate, for the current or future financial years would necessarily match or exceed the historical published earnings or earnings per share for Carillion, as appropriate.

Rounding

Certain figures included in this announcement have been subjected to rounding adjustments.

Publication On Website

A copy of this announcement will be available, subject to certain restrictions relating to persons resident in restricted jurisdictions, for inspection on Carillion's website by no later than 12 noon (London time) on the day following this announcement. For the avoidance of doubt, the contents of such website is not incorporated and do not form part of this announcement.

THIS ANNOUNCEMENT IS NOT AN OFFER TO BUY BALFOUR BEATTY SECURITIES OR AN INVITATION TO SELL CARILLION SECURITIES IN ANY JURISDICTION. THE CARILLION SHARES ARE NOT, AND WILL NOT BE, REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933 AND MAY NOT BE OFFERED OR SOLD WITHOUT AN APPLICABLE EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT OF 1933.

APPENDIX I

The announcement states that: -

"The Board of Carillion is confident that, as a direct result of the merger, the cost-base of the combined group could be reduced by at least £175 million per annum by the end of 2016."

The cost savings identified relate only to the UK businesses of Balfour Beatty and Carillion held directly (rather than through joint ventures) and not to any overseas businesses (including Parsons Brinckerhoff). In considering and reviewing these cost savings, the directors of Carillion have used only publicly available sources of information relating to Balfour Beatty.

In identifying these cost savings, the directors of Carillion have formulated the following bases of belief:

·     Businesses and functions: £82 million of annual recurring cost savings from back office, head office, business and support functions as well as from applying Carillion's business operating model to Balfour Beatty's UK business;

·     Supply Chain: £36.5 million of annual recurring cost savings from utilising Carillion's category management and demand planning solution, and through purchasing and procurement efficiencies;

·     Information and Communications Technology: £13 million of annual recurring cost savings from utilising Carillion's outsourced back office solution, and through standardisation of systems and processes;

·     Property: £17.5 million of annual recurring cost savings from consolidation of the two groups' property portfolios in overlapping areas, including head office; and

·     Other: £26 million of annual recurring cost savings from agency labour, fleet, insurance and general overhead savings, including through the application of Carillion's lean operating structure.

Any savings arising from expected outsourcing arrangements, where there will be associated recurring costs, have been included net of such incremental costs.

The Board of Carillion expects that it would deliver these synergies progressively, anticipating that 40% of them would be achieved by the end of 2015 and the full 100% by the end of 2016 (assuming, for these purposes, that completion of the merger occurred by 31 December 2014).

It is expected that the realisation of the identified synergies would result in one-off exceptional cash costs of approximately £225 million, largely incurred in financial years 2015 and 2016.

Aside from the one-off costs referred to above, the directors of Carillion do not expect any material dis-synergies to arise in connection with the merger of Carillion and Balfour Beatty.

The cost bases used as the basis for the quantification exercise are those contained in Balfour Beatty's 2013 annual report and accounts.

In considering and reviewing these cost savings, the directors of Carillion have used only publicly available sources of information relating to Balfour Beatty and Carillion's knowledge of the industry in which Balfour Beatty operates. These publicly available sources have included:

·     Balfour Beatty's 2013 annual report and accounts;

·     2012 statutory accounts in respect of certain UK subsidiaries of Balfour Beatty plc;

·     Balfour Beatty's interim management statements;

·     Balfour Beatty's presentations to analysts;

·     Balfour Beatty's website;

·     analysts' research; and

·     other publicly available information (including press articles and third party analysis).

In preparing the analysis, Carillion has used an experienced team of senior personnel from across its business. This team has a proven track record of integrating businesses, re-scaling operations, delivering cost synergies and creating improved prospects for growth (including by way of internal cost reduction projects in its supply chain and property cost rationalisation projects). Carillion already has the centralised enterprise and risk management systems that it considers are essential for the successful execution of such cost savings. The Carillion team has used Carillion's experience of previous synergy exercises, in particular in relation to the acquisitions of Mowlem plc and Alfred McAlpine plc, its experience of the right-sizing of Carillion's construction business, its own market intelligence and experience and its knowledge of Carillion's similar businesses to assess the expected savings.

In arriving at the estimate of synergies set out in this announcement, the directors of Carillion have made the following principal operational assumptions:

·     as regards headcount, Balfour Beatty has a similar mix of staff in each grade to Carillion and Balfour Beatty's salaries by grade are the same as those for Carillion;

·     as regards supply chain, Balfour Beatty has the same profile of supply chain spend by category as Carillion;

·     as regards property, Balfour Beatty's rental costs per square metre are the same as for Carillion and Balfour Beatty's properties are of a similar size and occupancy to Carillion's properties;

·     as regards ICT, that the Balfour Beatty group's ICT architecture is less standardised than Carillion's;

·     as regards fleet, that Balfour Beatty's cost per vehicle is in line with Carillion's cost per vehicle;

·     as regards insurance, that cost efficiencies can be generated as a consequence of diversifying risk across a larger combined group;

·     as regards general overheads, the proportion of general overheads within administrative expenditure is constant between both groups; and

·     as regards organisational structure, Balfour Beatty has a devolved approach to business organisational management.

The directors of Carillion have, in addition, assumed that:

·     there will be no significant impact on the underlying operations of either business or their ability to win business from customers;

·     there will be no material change to macroeconomic, political or legal conditions in the markets or regions in which Carillion and Balfour Beatty operate that materially impact on the implementation or costs to achieve the proposed cost savings; and

·     there will be no material change in tax legislation or tax rates in the countries in which Carillion and Balfour Beatty operate that could materially impact the ability to achieve any benefits.

Although some of the identified savings result from Carillion's plans to restructure Balfour Beatty's business, the directors of Carillion consider that the expected benefits will only accrue in the manner set out above as a direct result of Balfour Beatty being combined with Carillion and coming under the control of Carillion's management and could not be achieved in this form independently of the merger.  While it may be possible for Balfour Beatty to seek a certain reduction in its costs on a standalone basis, the ability of its management to deliver such reductions in these circumstances is untested and the directors of Carillion therefore consider it appropriate to describe all the identified benefits, as set out above, as resulting directly from the merger.

On this basis, the directors of Carillion consider that the expected benefits will accrue as a direct result of the merger and could not be achieved independently of the merger.

As required by Rule 28.1(a) of the Code, EY, as reporting accountants to Carillion, have provided a report stating that, in their opinion, the synergy statement has been properly compiled on the basis stated. In addition, Lazard, Greenhill and HSBC, as financial advisers to Carillion, have provided a report stating that, in their opinion and subject to the terms of such report, the synergy statement, for which the directors of Carillion are solely responsible, has been prepared with due care and consideration.

Copies of these reports are included below. Each of EY, Lazard, Greenhill and HSBC has given and has not withdrawn its consent to the publication of its report in the form and context in which it is included.

Notes:

1.   The statements of estimated cost savings and synergies relate to future actions and circumstances which, by their nature, involve risks, uncertainties and contingencies.  Further, in considering and reviewing the estimated cost savings and synergies, the directors of Carillion have used only publicly available sources of information relating to Balfour Beatty.  As a result, the cost savings and synergies referred to may not be achieved, or may be achieved later or sooner than estimated, or those achieved could be materially different from those estimated.

2.   Due to the scale of the enlarged group, there may be additional changes to the enlarged group's operations. As a result, and given the fact that the changes relate to the future, the resulting cost savings may be materially greater or less than those estimated.

3.   No statement should be construed as a profit forecast or interpreted to mean that the combined group's earnings in the first full year following a merger, or in any subsequent period, would necessarily match or be greater than or be less than those of Carillion and/or Balfour Beatty for the relevant preceding financial period or any other period.

APPENDIX II
SOURCES AND BASES

·     Unless otherwise stated, financial and other information concerning Carillion and Balfour Beatty has been extracted from publicly available sources or from Carillion's management sources (in respect of information relating to Carillion).

·     The figure set out in respect of the proposed aggregate value of the additional cash dividend (or equivalent) for Balfour Beatty shareholders has been calculated by multiplying the amount per Balfour Beatty share by the announced number of Balfour Beatty shares in issue as at 13 August 2014 of 689,500,087 ordinary shares.

·     The figure set out for the capitalised value of cost savings of at least £1.5 billion is based on £175 million of cost savings taxed at the 2014 UK corporate tax rate of 21 per cent. and capitalised at the Last Twelve Month ("LTM") market capitalisation weighted price to earnings multiple of 11.7 times. The LTM price to earnings multiple for each of Balfour Beatty and Carillion is calculated by dividing their respective share prices as at close of business on 24 July 2014 (sourced from FactSet) by their respective underlying earnings per share for the 12 month period to June 2014 ("LTM underlying earnings per share"). The LTM underlying earnings per share is calculated as the sum of the underlying earnings per share in H2 2013 and H1 2014. H2 2013 underlying earnings per share is calculated as full year 2013 underlying earnings per share less H1 2013 underlying earnings per share. The underlying earnings per share information is sourced from the respective company's 2013 annual accounts and their 2013 and 2014 half year results. The implied price to earnings multiples of Balfour Beatty and Carillion are then weighted by their respective market capitalisations (as at close of business on 24 July 2014) to derive the LTM market capitalisation weighted price to earnings multiple of 11.7 times. This calculation is based on historical earnings per share in order that this statement is not construed as a profit forecast under the rules of the Code.

APPENDIX III

The Directors Carillion plc 24 Birch Street Wolverhampton WV1 4HY

14 August 2014

Lazard & Co., Limited

50 Stratton Street

London, W1J 8LL

Greenhill & Co. International LLP

Lansdowne House

57 Berkeley Square

London, W1J 6ER

HSBC Bank plc

8 Canada Square

London, E14 5HQ

Dear Sir,

We refer to the statement regarding the estimate of cost savings ("the Statement") made by Carillion plc ("the Company").  The Statement, including the relevant bases of belief (including sources of information) is set out on pages 7 to 10 of the Rule 2.4 Announcement (the "Document") issued by the Company dated 14 August 2014.   This report is required by Rule 28.1(a)(i) of The City Code on Takeovers and Mergers (the "City Code") and is given for the purpose of complying with that rule and for no other purpose.

Save for any responsibility that we may have to those persons to whom this report is expressly addressed, and for any responsibility arising under Rule 28.1(a)(i) of the City Code to any person as and to the extent there provided, to the fullest extent permitted by law we do not assume any responsibility and will not accept any liability to any other person for any loss suffered by any such other person as a result of, arising out of, or in connection with, this report or our statement, required by and given solely for the purposes of complying with Rule 23.3(b) of the City Code, consenting to its inclusion in the Document.

Responsibility

It is the responsibility of the directors of the Company ("the Directors") to prepare the Statement in accordance with the requirements of the City Code. 

It is our responsibility to form an opinion as required by the City Code as to the proper compilation of the Statement and to report that opinion to you.

It is the responsibility of Lazard & Co., Limited, Greenhill & Co. International LLP and HSBC Bank plc to form an opinion as required by the City Code as to whether the Statement has been prepared with due care and consideration. 

Basis of opinion

We conducted our work in accordance with Standards for Investment Reporting 1000 (Investment Reporting Standards applicable to all engagements in connection with an investment circular) issued by the Auditing Practices Board in the United Kingdom.  We have discussed the Statement together with the relevant bases of belief (including sources of information and assumptions) with the Directors and with Lazard & Co., Limited, Greenhill & Co. International LLP and HSBC Bank plc. Our work did not involve any independent examination of any of the financial or other information underlying the Statement. 

Since the Statement and the assumptions on which it is based relate to the future and may therefore be affected by unforeseen events, we can express no opinion as to whether the actual results reported will correspond to those shown in the Statement and differences may be material.

Our work has not been carried out in accordance with auditing or other standards and practices generally accepted in other jurisdictions and accordingly should not be relied upon as if it had been carried out in accordance with those standards and practices.

Opinion

In our opinion, the Statement has been properly compiled on the basis stated.

Yours faithfully

Ernst & Young LLP

Report from Lazard & Co., Limited, Greenhill & Co. International LLP and HSBC Bank plc

The Board of Directors

Carillion plc

24 Birch Street

Wolverhampton

WV1 4HY

14 August 2014

Dear Sirs,

Possible merger of Carillion plc ("Carillion") and Balfour Beatty plc ("Balfour Beatty")

We refer to the Quantified Financial Benefits Statement, the bases of belief thereof and the notes thereto (together, the "Statement") as set out in Appendix I of this announcement, for which the Board of Directors of Carillion (the "Directors") are solely responsible under Rule 28 of the City Code on Takeovers and Mergers (the "Code").

We have discussed the Statement (including the assumptions and sources of information referred to therein), with the Directors and those officers and employees of Carillion who developed the underlying plans. The Statement is subject to uncertainty as described in this announcement and our work did not involve an independent examination of any of the financial or other information underlying the Statement.

We have relied upon the accuracy and completeness of all the financial and other information provided to us by Carillion, or otherwise discussed with us, and we have assumed such accuracy and completeness for the purposes of providing this letter.

We do not express any opinion as to the achievability of the quantified financial benefits identified by the Directors.

We have also reviewed the work carried out by Ernst & Young LLP and have discussed with them the opinion set out in Appendix I of this announcement addressed to yourselves and ourselves on this matter.

This letter is provided to you solely in connection with Rule 28.1(a)(ii) of the Code and for no other purpose.  We accept no responsibility to Carillion or its shareholders or any person other than the Directors in respect of the contents of this letter; no person other than the Directors can rely on the contents of this letter, and to the fullest extent permitted by law, we exclude all liability to any other person, in respect of this letter or the work undertaken in connection with this letter.

On the basis of the foregoing, we consider that the Statement, for which you as the Directors are solely responsible, has been prepared with due care and consideration.

Yours faithfully,                         Yours faithfully,                                                Yours faithfully,

Lazard & Co., Limited               Greenhill & Co. International LLP                      HSBC Bank plc

 

END

 

 

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