URS Agrees to Activist Investor Demand for Reshaped Board
URS Corp. has agreed to a call from a key investor, activist hedge fund JANA Partners, to reshape the firm's board to allow JANA more input in choosing a successor to Martin M. Koffel, who has run URS for more than 25 years and intends to step down.
The moves follow the firm's recent announcements of weaker-than-exected fourth-quarter and year-end 2013 results and the termination of President and Chief Operating Officer William J. "Bill" Lingard, who had been seen as Koffel's heir apparent.
Lingard's departure came amid Koffel's announcement in February of "significiant execution" issues in the company's oil and gas division which eroded project earnings by about $40 million, he said.
That unit was created with the firm's 2012 acquisition of Canada-based Flint Energy Services.
The departure of Lingard, who had been Flint's CEO and a key player in the URS division, was of concern to Wall St. analysts because it left the succession plan "in question," said Andrew Wittman, industry analyst for Baird Equities.
URS announced on March 17 an agreement with Jana, which owns about 6.7 million shares or about 9.2%, to add four new board members, effective March 27. Under the deal, Jana reduced its stake from 9.7%
They include Diane Creel, former CEO of Earth Technology Corp., now an AECOM unit, who later became president of wastewater technology firm Ecovation; and V. Paul Unruh, former Bechtel Group vice chairman and chief financial officer.
Both are board veterans of such Fortune 500 companies as Foster Wheeler, Goodrich Corp., Symantec Corp. and recruiter Heidrick & Struggles, says URS.
Also named to the board are William H. Schumann III, former FMC Technologies executive vice president and David N. Siegel, CEO of Frontier Airlines.
Two current URS directors, Donald R. Knauss and William P. Sullivan, say they will leave its board.
Under the agreement, URS will form a "value creation committee" to explore ways to boost its stock.
Koffel says he wants a successor in place ths year. Recruiter Korn Ferry has been hired to seek outside candidates.
In a statement, Jana Managing Partner Barry Rosenstein said he expected the steps announced would "unlock" more value for shareholders.
One source close to the firm says Jana wants company shares, which closed on March 24 at $47.29, trading "in the 60s."
Institutional Investor said in January that URS was Jana’s fourth largest single-stock position.
URS “experienced some choppy trading over the past five years,” said analyst David Zanoni in a March 7 post on the Seeking Alpha website.
He noted a 16% drop in federal sector volume, which makes up 34% of the firm’s $11 billion in 2013 revenue. But he still sees oil-and-gas as a “bright spot,” adding, “if URS restructures the federal segment successfully and capitalizes on stronger segments, the stock is likely to respond favorably.”
Analysts predict revenue growth in URS’ power, industrial and infrastructure segments this year, but the source says value-boosting options include more integration of its units or possible sale of all or parts of the firm, pointing to the Washington Group construction business.
But such a split is “least attractive,” says the source.
"I think the fact that the company sharply cut its earnings outlook last month and the timing of this announcement isn’t a coincidence," says Steve Gido, a principal of AEC financial consulting firm Rusk O'Brien Gido + Partners, Boston.
"Also, many firms are also taking a more critical evaluation of their board and governance issues and Jana is directly asking for a bigger seat at the table with regard to organizational and leadership clarity," he adds.