International engineering and construction group Costain and infrastructure services company May Gurney are to merge, the companies announced today (20 March).

The merger, subject to shareholder approval, will reportedly create a combined infrastructure company worth £400 million and present a challenge to current rivals such as Balfour Beatty and Carillion. It will represent combined revenues of £1.6 billion a year, with a reported market capitalisation of £378 million.

The new entity, to be named ‘Costain May Gurney PLC’, will be headed by the current Costain CEO Andrew Wyllie. Costain is a construction company with projects that include infrastructure, environmental services and energy provision.

The merger will see the issuing of 58.1 million new Costain shares to May Gurney shareholders, resulting in approximately 47 per cent of the new combined company being held by former May Gurney shareholders. Costain shareholders will hold the remaining 53 per cent.

Commenting on the merger, David Allvey, Non-executive Chairman of Costain, said: “Together with May Gurney, we will have the added experience and skills to underline our leadership status and to provide a platform for new growth and success. We see this coming together of two established UK companies as good news for all our stakeholders.”

Baroness Margaret Ford, Non-executive Chairman of May Gurney, said: “May Gurney and Costain have highly complementary businesses. The markets in which we operate offer tremendous opportunities for future growth. The combination of our two companies and the strong heritage we bring will position us very well to respond to those opportunities. Our objective is to deliver even stronger partnerships with our clients, superior returns for our shareholders and increased opportunities for our staff.”

‘Operational difficulties’

May Gurney currently provides environmental services, including kerbside waste and recycling collections, street cleansing and managing household waste recycling centres, for 22 local authorities in the UK as part of its environment portfolio.

The merger announcement comes after a difficult few months for the company. In September 2012, it issued a profit warning and saw its shares slump 46 per cent, resulting in the company removing its chief executive Philip Fellowes-Prynne after a series of ‘operational difficulties’.

It came at a time of growing market discomfort with the firm, with city traders fearing it would follow similar business Mouchel into administration.

However, in a statement issued on 4 December 2012, May Gurney announced that it had secured more than £314 million of business in the first half of the year, with £1.5 billion in secured future orders.

The boards of both Costain and May Gurney said in a joint statement that they were confident that the merger will bring a range of benefits, including a larger addressable market than was previously accessible, as well as ‘significant earnings visibility underpinned by long term contracts and a combined order book of approximately £3.9 billion’.

Costain has been advised on the deal by Rothschild, whilst May Gurney have had advice from Canaccord Genuity. The merger is expected to be completed by early June 2013.