Support services giant Carillion said today a merger with construction and infrastructure rival Balfour Beatty could save the combined companies £175 million a year from as early in 2016.
The declaration is the latest in an ongoing saga which has already seen Balfour Beatty halt merger talks between the two and then reject a subsequent, revised proposal from Carillion, since news of the possible deal emerged last month.
Key to Wolverhampton-based Carillion has been the retention of Balfour Beatty's consultancy arm Parsons Brinckerhoff which was placed up for sale in May.
In an update to the stock exchange today, Carillion said it had held further meetings this week with Balfour Beatty's major shareholders and was confident the cost base of the combined group could be reduced by at least £175 million per annum by the end of 2016.
The statement said its accountants Ernst & Young had agreed with its estimations and that "substantial savings" could be achieved across business functions such as back office, head office, supply chain and property.
"The board of Carillion expects it would deliver these synergies progressively, anticipating that 40 per cent of them would be achieved by the end of 2015 and the full 100 per cent by the end of 2016 assuming the merger completes by December 31," the update said.
"It is expected the realisation of the identified synergies would result in one-off exceptional cash costs of approximately £225 million."
In response, Balfour Beatty said today's announcement by Carillion did not "address the significant risks set out" in its own statement earlier this week.
It added: "To benchmark a series of theoretical cost reduction opportunities, represent them all as synergies, and further, to represent them as incremental value creation directly arising from the merger proposal, is incorrect.
"Several key business plan assumptions suggest an analysis based on the integration of businesses smaller than Carillion's, rather than one that is substantially larger.
"In particular, the substantial rescaling - possibly by up to two thirds - in the revenue of Balfour Beatty's UK construction business would eliminate future earnings recovery potential."
"As a result, the board has serious reservations as to the achievability of the stated synergy number and believes that it creates unacceptable operational and financial risks.
"Balfour Beatty has been clear that Parsons Brinckerhoff has not provided synergistic benefits for the group over five years of ownership and this has not been disputed by Carillion.
"Their proposed approach would result in the likely termination of the Parsons Brinckerhoff sales process."
This week on the free Birmingham Post iPad and iPhone app: Preview of new theatre season; Profile of book about skater John Curry; British Science Festival special supplement; Tasty treats from city's street food scene as well as daily breaking news. Download it here.