LONDON Builder Carillion (CLLN.L) has agreed to buy energy-saving scheme operator Eaga EAGA.L for 306.5 million pounds to enter the high-growth energy efficiency market.
Carillion, a building and support services firm, generates much of its revenue from government work, which is under threat from spending cuts, and public private partnership projects.
"We identified energy management and low carbon services as a huge, key growth area," Carillion Chief Executive John McDonough told Reuters. "The market that Eaga addresses is very large and will grow significantly over the coming years."
European construction groups are seeking more profitable activities outside their core businesses as heavily indebted governments cut infrastructure spending.
Eaga installs energy-saving products such as insulation in homes under government schemes.
Carillion will pay Eaga 118.79 pence per share, a 29 percent premium to Eaga's closing price on Thursday and 49 percent above its price on February 2 when the offer was first made public.
Eaga shareholders will also get an interim dividend of 1.21 pence, for a total offer price of 120 pence, Carillion said.
Eaga shares, which had lost more than 40 percent of their value over the past year, were up 30.7 percent at 12:21 p.m. to 120.03. The stock rose marginally above the offer price and touched its highest level since June.
Peel Hunt analysts said the offer price was "slightly ahead" of their fair value range of 90-106 pence per share.
"We see the logic in the transaction, but note that it dilutes the international earnings profile," Peel Hunt said in a note. "At first glance, we estimate the transaction will be around 8 percent enhancing in the first full year."
Carillion sees cost synergies of 9 million pounds by the end of 2013 and expects the deal to add to earnings immediately.
"Carillion has a good track record when it comes to integrating acquisitions giving us confidence in management's view over synergy benefits," analysts at Seymour Pierce said.
Carillion shares were up 0.7 percent at 388 pence.
The deal came two weeks after Eaga, which has been hit by government spending cuts, posted first-half results below market expectations.
"We believe shareholders are unlikely to receive a better offer for their shares," analysts at Canaccord Genuity said.
Separately on Friday, Zenergy Power ZEN.L, which makes specialised wires and coils for the renewable-energy sector using superconductor technology, said it was looking for a buyer.
(Reporting by Adveith Nair; Editing by Rhys Jones and Erica Billingham)