Venerable engineering firm sold
Washington Group International, the Boise engineering and construction firm that built Hoover Dam and whose name is associated with a century’s worth of public projects in the West, will be sold to rival URS Corp. of San Francisco for $2.6 billion.
Washington Group will retain its headquarters in Boise, where it employs about 600 people, officials said Tuesday. After the sale closes, a new division of URS Corp. will be based in Idaho.
Washington Group has a long legacy in public infrastructure. Known as Morrison Knudsen Corp. before a 1996 merger with Montana-based Washington Construction, the company helped build the San Francisco Bay Bridge, trans-Alaska pipeline and the Cabinet Gorge Dam on the Clark Fork River in Idaho. The company’s more recent work includes a 1,000-mile power transmission line across the Democratic Republic of Congo.
The sale will combine two of the nation’s largest engineering and construction firms. URS has 29,500 employees working in 20 countries, while Washington Group employs 25,000 worldwide. The sale is subject to approval by stockholders and regulators. If the deal closes later this year as expected, the transaction would create the fourth largest publicly traded engineering and construction company, with annual revenues of $8.6 billion.
Under the offer, Washington Group stockholders would receive $43.80 in cash and .772 shares of URS stock for each Washington Group share. The market reacted favorably to the news of the proposed sale, which was first announced Monday. Shares of Washington Group closed at $85.04 per share on Tuesday, up more than 20 percent in heavy trading on the New York Stock Exchange.
By joining forces with its former rival, URS Corp. can better position itself for growth in key markets, including the power industry, public infrastructure and Department of Defense contracts, said Martin Koffel, URS’ chairman and chief executive officer. He’s also projecting $50 million in “cost synergies” from the deal in 2008.
The combined company would operate as URS Corp. According to company officials, it would have one of the largest teams of nuclear scientists and engineers in the industry, and a backlog of projects exceeding $11 billion in more than 50 countries.
Stephen Hanks, CEO of Washington Group, said the combined company would be ready to tap “the anticipated resurgence of the nuclear industry,” including power generation and the reprocessing of spent fuel.
Koffel would remain as CEO of the combined company, and one member of Washington Group’s board of directors would serve on the new company’s board.
Washington Group International earned nearly $81 million on more than $3.4 billion in revenue during the 2006 fiscal year, but business has not always been so good for the company.
In May 2001, it emerged from its second bankruptcy filing in six years. At the time, executives blamed the company’s financial troubles on liabilities it incurred when it bought Raytheon Engineers and Constructors, the power unit of defense and aircraft giant Raytheon Co.
The purchase gave Washington Group a foothold in the energy and defense market, but it came with hidden costs. Of more than 300 contracts acquired in the purchase, a dozen cost much more to complete than Raytheon had disclosed to Washington Group. Raytheon estimated its costs at less than $800 million, while Washington Group later pegged them at $3 billion.
Washington Group sued Raytheon, and the companies later settled without any cash changing hands or either company admitting any wrongdoing. Eventually, Raytheon was required to pay $2.5 billion to complete the projects because of previous guarantees to project owners.
Former Washington Group shareholders also sued Raytheon for their losses. Raytheon settled that lawsuit in 2005 for $39 million without admitting any wrongdoing.
URS Corp. describes itself as one of the world’s largest engineering design firms, with extensive federal contracts. Last year, work for the U.S. government contributed about 45 percent of the company’s revenue.
The Associated Press contributed to this report.