The recommended offer of 315p a share represents a 71% premium on May Gurney’s share price when Costain announced it had agreed £178m merger plans with the May Gurney board.

Kier said it believed the offer, which is 35% higher than Costain’s, would be a better fit than its rival’s and could generate annual savings of £20m.

This would see around 200 job cuts from overlapping services in the new enlarged business, turning over around £2.6bn.

The offer has to be cleared by shareholders but looks set to be nodded through unless Costain can up its bid.

Costain said in a statement following the Kier offer that it is “considering its position and will make a further announcement in due course.”

Kier’s bid is a serious setback for Costain which also lost out when it attempted to buy Mouchel.

It is now faced with finding another good merger target to create a business that weighs in at the right size to bid major schemes.

Phil White, chairman of Kier, said: “Scale, performance and reputation are three essential elements of a successful services business.

“The combination of Kier and May Gurney has all three and is a natural fit.

“The combined businesses will offer more services to more clients. The acquisition accelerates Kier’s planned growth in the sector and is significantly value enhancing.”

Baroness Margaret Ford, Chairman of May Gurney, said: “This is a compelling transaction for May Gurney shareholders.

“It offers a highly attractive combination of a significant premium, a cash element and, through the scale and strategic fit of the enlarged group, allows May Gurney shareholders to share in the growth of one of the UK’s leading integrated services and construction companies.”

May Gurney shareholders will own around 27% of the enlarged group, once new shares have been issued.

The offer also includes a mix and match facility that allows May Gurney shareholders to elect to vary the proportions of cash and new Kier shares they receive.

Kier said the enlarged group would boast a combined order book of approximately £5.7bn.

It would be a major force offering an extensive range of services to local authorities, as well as a comprehensive portfolio of services to the regulated sector.