PLANS for a new construction firm have collapsed after Balfour Beatty pulled out of a potential £3bn deal with Carillion.

Bosses blamed Carillion's "wholly unexpected decision" to insist Balfour's US business Parsons Brinckerhoff was included in the package.

The two sides had agreed to start merger discussions on the basis Balfour continues with previously announced plans for the sale of Parsons, a business it bought for £380m in 2009.

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The talks followed an approach from Carillion with Balfour struggling after a series of profits warnings and the departure of chief executive Andrew McNaughton.

Balfour, which has bases in Middlesbrough and Newcastle, built the London 2012 Olympic Games swimming centre.

Carillion employs more than 40,000 people worldwide, with established businesses in the UK, Canada, the Middle-East and North Africa.

It said it will continue to keep its options open, saying it still believed in the "powerful strategic rationale" of a combination.

A statement added: "Carillion will make a further announcement in due course.

"In the meantime, there can be no certainty that any offer will be made by Carillion or as to the terms on which any such offer might be made."