AWG considers legal action after discovering shock loss at its Morrison Construction subsidiary.
Gordon morrison's shock departure from the board of utilities company AWG last Tuesday has led to recriminations and threats of legal action.

Morrison left on Tuesday, a day before the group announced a 拢33.8m operating loss for Morrison Construction in the six months before AWG's acquisition of the company last August.

AWG, formerly Anglian Water, also slashed 拢22.9m off the value of top 30 contractor Morrison, which it bought for 拢262.5m.

The utility said legal action was being considered to recoup these losses. A spokesperson said: "There has been a loss where we anticipated a profit and we are looking at ways of recouping that. Legal action is obviously an option."

A source close to Morrison criticised AWG's response to news of the loss. "AWG failed to find anything during the due diligence period when they looked at Morrison, including the major projects." The source added that now was not the time for AWG to make statements to the press.

The source said Morrison had left because of "extreme frustration" with the difficulties of reconciling the cultures of the two companies.

AWG refused to comment on Morrison's departure except to say that the group and Morrison had signed a confidentiality agreement.

One analyst criticised AWG's part in the deal. He said: "It seems that AWG didn't do enough due diligence. Morrison might have looked great from outside but it's not turned out as they would have wished."

AWG said the group had intensely scrutinised Morrison's books following the acquisition. Lawyers acting for the group are carrying out a second investigation into the acquisition process and six loss-making contracts at the 拢510m-turnover group.

The spokesperson denied City speculation that the group was looking to sell Morrison following the losses.

He said: "The problems were on the construction side but the asset management side is performing well and to expectations."

The construction loss centres on six loss-making contracts, five of which have been completed.

Gordon, who was sales director at Morrison before the acquisition, was made executive director in charge of the asset management business in December.

Analysts and rivals said the departure was indicative of troubles that had emerged since the takeover.

One commentator said the losses were the result of Morrison's reliance on its property activities to increase construction margins.

He said the firm had a fantastic property division in Scotland and added that Morrison had boosted its construction margins by working for the property division. "That made the whole deal very messy," he said.

The analyst added that AWG would probably not sell Morrison as this would mean making a loss on the deal.

Rivals said AWG's acquisition of Morrison was against the general shift in the utilities market, which was towards utilities firms outsourcing their construction and maintenance.

In its annual report, AWG said Morrison's performance improved after the acquisition. Morrison made operating profit of 拢12.9m in the six months to 31 March 2000.

The deal: How Morrison surprised the industry

AWG鈥檚 acquisition of Morrison has stunned the industry from the start. Morrison first announced that it was in talks with a mystery suitor in the middle of August last year. By the end of the month, the deal was done. Industry insiders thought that the 拢262.5m price tag was too high and were surprised by AWG鈥檚 move into construction. Gordon and his brother Sir Fraser Morrison, who jointly owned 44% of the group, netted 拢57m each in cash and shares from the deal. Gordon went on to head up the asset management business, although his brother declined a position on AWG鈥檚 board as a non-executive director.