Carillion plc (LON:CLLN) has become a potential takeover target after a disastrous trading update sent its share price crashing today.
The UK construction and support services group cut its full year revenue guidance, raised its debt estimate and suspended its dividend payments, blaming “difficult” markets and withdrawals from certain territories.
Chief executive Richard Howson has decided to step down in the wake of the company’s struggles and Carillion said it will undertake a “comprehensive review of the business and capital structure”.
Shares tumbled 30.45% to 133.60p in late morning trading following the announcement.
READ: Carillion shares plunge as it warns on full year revenue and chief executive departs
Carillion will now need to raise significant funds to support a restructuring of the business, according to analysts.
Rights issue could be on the cards for Carillion
Nicholas Hyett, equity analyst at Hargreaves Lansdown, said debt is continuing to climb at an increasing rate while the construction business seems to be “hitting one hurdle after another”.
“Judging by this announcement, the board are prepared to do everything it takes in order to save the ship,” Hyett said.
“But talk of a review of capital structure, and the ongoing debt problem, will leave investors worried that a significant rights issue could be on the horizon.”
Liberum also believes Carillion will need to raise cash to fund an overhaul of the business as it cut its underlying earnings (EBIT) forecast by 16% to £205mln. It said it expects the company’s full year debt to rise to £800mln from £586.5mln last year, including a £70mln adverse impact from the provisions in the year.
“At the moment, we question whether Carillion has the funds to restructure,” the broker warned.
“Given the weaker profits, higher debt, need for restructuring, limited proceeds from disposals and working capital unwind in Construction, we believe that Carillion will need to raise a significant amount of more money.”
Carillion faces takeover bids
With international firms taking advantage of cheap deals on the back of the pound’s Brexit-driven slump, Carillion may also become a takeover target after its share price took a beating. The absence of a chief executive and the need for funds also make it a prime target.
Other UK firms that are expected to become takeover targets include British Gas owner Centrica (LON:CNA), ITV plc (LON:ITV) and Burberry Group.