Suppliers: Washington Group to join URS fold

Engineering and construction firms URS Corp. (URS-N) and Washington Group International (WNG-N) have joined the merger madness taking place in the mining sector.

San Francisco, Calif.-based URS will pay US$2.6 billion in cash and stock for the Boise, Idaho-based Washington Group.

The deal will combine two of the world’s largest engineering and construction companies, and help corner the market in growing sectors such as power generation, infrastructure construction and design, and environmental management.

Based on the closing price of URS’ stock on May 25, 2007, the last trading day before the announcement, the offer is valued at US$80.00 per Washington Group share, with 55% in cash and 45% in stock. The offer represents a premium of about 14% to the May 25 closing price of Washington Group shares.

Under the terms of the takeover — which has been unanimously approved by the boards of directors of both companies — Washington Group stockholders will receive US$43.80 in cash and 0.772 shares of URS common stock for each Washington Group share.

Once the deal goes through, Washington Group shareholders would own roughly 31% of the combined company, which will be known as URS Corp.

If the companies had teamed last year, their combined 2006 revenues would have totalled US$7.6 billion, the fourth highest among U.S. publicly traded engineering and construction companies.

The combined company would have projects in over 50 countries and more than 54,000 employees.

The merged company will have one of the largest teams of nuclear scientists and engineers among engineering firms. The nuclear decommissioning and remediation business is expected to grow substantially as older reactors are retired and new ones brought into service.

In the infrastructure market, the new URS Corp. will be positioned to meet the growing demand for service on large transportation and water/wastewater projects around the world.

In addition, the combined entity is expected to be a major contractor to the U.S. federal government, especially as a provider of technical and engineering services to the U.S. Departments of Defense and Energy.

“URS has a history of anticipating change in the industry, and this transaction is the next logical step in building for future growth,” says Martin Koffel, chairman and CEO of URS. “Both companies will be better positioned to capture growth from favourable trends across the engineering and construction sectors.”

“We have great respect for the URS team, our businesses complement each other, and we have highly compatible cultures,” says Stephen Hanks, CEO of Washington Group.

URS expects to achieve annual pretax cost savings of around US$50 million in 2008. URS has a loan guarantee from Wells Fargo and Morgan Stanley to provide debt financing for the cash portion of the deal.

The transaction is expected to close in the second half of 2007, at which time URS is will have about $1.5 billion in debt and a debt-to-total capital ratio of roughly 37%.

Major posts major quarter

Major Drilling Group International (MDI-T) recorded its best quarter yet, with revenue jumping 45% to $129 million from $89 million during the same period a year earlier.

Net earnings totalled $17.8 million or 75 per share in the driller’s fourth quarter ended April 30, up from a profit of $11.7 million or 50 per share in the same period last year.

Earnings for the full fiscal year hit $58.8 million or $1.98 per share, including $12.3 million extra from discontinued operations as Major Drilling retreated from China. In fiscal 2006, net income was $28.6 million, $1.09 per share.

Revenue for the fiscal year ending April 30, 2007, increased 31.2% to $415.4 million from $316.5 million for the corresponding period of 2006. Almost half of this increase in revenue was related to South and Central America.

On June 18, Major Drilling will be added to the S&P-TSX composite index, the first New Brunswick-based company to be included in the list.

Francis McGuire, president and CEO of Major Drilling, says his company expects further growth to come from three main drivers: “additional investments in people and equipment, strong market conditions, and from Africa.”