AMEC Tunnelling is to be merged with Morgan Est’s tunnel unit following a disposal deal agreed by UK parent groups Amec and Morgan Sindall.

The merged UK tunnelling business could have revenues approaching US$158M and the separate units could be integrated within a year. In combining comparable sized tunnelling businesses, the deal would bring together Amec’s shield driving experience with Morgan Est’s skills in sprayed concrete lining.

Currently, Amec is driving the twin bore DLR light rail extension under the river Thames to Woolwich, east London (T&TI, April, p16-19), and Morgan is upgrading Shepherd’s Bush metro station at the other side of the city. Recently, Morgan won a cable tunnel job in south London and sewerage upgrade contract in Belfast. Earlier this year, both firms won contracts from Thames water to extend branches of the Ring Main in the capital, and are planning EPBM drives.

Amec’s tunnelling unit is part of its Design & Project Services (DPS) division, which is being bought in its entirety by Morgan Sindall. Under the deal, Morgan will take DPS along with another division, Amec Developments, an urban regeneration business. The deal is subject to approvals, including that of Morgan Sindall’s shareholders with clearance for the move to be sought at an extraordinary general meeting. The parties hope the transaction can be completed before the end of July.

Morgan is buying ongoing contracts and assets in exchange for US$51M net, after accounting for liabilities of US$57M from the top line agreed purchase figure of US$108M in goodwill. In cash terms, the net outflow is US$35.4M. Morgan’s balance sheet, at 31 December 2006, had a fund of US$187M to draw on for purchases.

In the 2006 financial year, the DPS division had an operating loss of US$54M on revenues of US$1.35bn, noted Morgan Sindall. Its balance sheet has gross assets of US$212M at year-end. Amec said that DPS was expected to return to profit this year. The division had been troubled by some road projects.

Morgan Est saw a strengthening order book last year with projects gearing up following a quieter year, in 2005, as major projects came to completion, such as tunnelling works at Heathrow airport.

In a separate disposal of a ‘non-core’ activity, Amec sold the precast manufacturer Buchan Concrete Solutions, which makes tunnel segments, to UK foundation specialist Roger Bullivant. Terms were not disclosed.

Amec said Buchan’s revenues last year were US$57M though the tunnel share was not broken out. Previously, Amec said Buchan had been loss making and for 2006 it booked provisions of US$29M against the business.

Amec has been disposing of non-core activities to re-focus its portfolio to serve the energy and process industries.