Engineering and construction group Costain has seen its offer to subsume infrastructure company May Gurney outbid by rival Kier.

Costain had previously put in a £177 million bid to merge with the infrastructure group, which was agreed with May Gurney in March. However, the new offer from Kier is £44 million higher than their rival’s offer, coming it at £221 million.

Both Kier and May Gurney operate waste services for a number of local authorities and if merged, could become a major player in the waste management sector.

If the merger is to go ahead, it is expected that around 200 fulltime employees will lose their jobs.

Deal subject to shareholders’s approval

May Gurney’s board has agreed to the Kier takeover, subject to approval from the company’s shareholders.

According to May Gurney, the Kier bid will see current shareholders own 27 per cent of the ‘enlarged group’. The two companies will have a shared order book of £5.7 billion.

A statement from Kier said that it believed the enlarged group ‘would be a leading provider of services to the local authority and regulated utility sectors, able to build on the existing businesses’ individual strengths’.

If the latest takeover bid goes ahead, current Kier CEO Paul Sheffield will become CEO of the enlarged group, with Kier Chairman Phil White becoming Chairman.

Commenting on the bid, White said: “Scale, performance and reputation are three essential elements of a successful services business. The combination of Kier and May Gurney has all three and is a natural fit.

“The combined businesses will offer more services to more clients. The acquisition accelerates Kier's planned growth in the sector and is significantly value enhancing.”

Baroness Margaret Ford, Chairman of May Gurney, echoed White’s sentiments: “This is a compelling transaction for May Gurney shareholders. It offers a highly attractive combination of a significant premium, a cash element and, through the scale and strategic fit of the enlarged group, allows May Gurney shareholders to share in the growth of one of the UK’s leading integrated services and construction companies.”

Speaking to the Guardian, William Shirley at brokers Liberum Capital said it was unlikely that Costain would now be able to outbid Kier: “Whilst the price looks relatively full (35 per cent premium to Costain's bid) synergies are higher (£20m versus £10m) and management still target return on invested capital of 15 per cent in 2015. The balance sheet looks relatively stretched in 2014 (net debt of £185m) but should deliver rapidly thereafter.

“It is impossible to rule out a further Costain bid. However, we do not believe Costain could justify the same level of synergies (less overlap) and we see this price as full. We expect the deal to go though on current terms.”

In light of the Kier bid, Costain has announced it is considering its position and will make a further announcement in due course.