POWER PLAY Powerplant design is among private-sector market niches Lockwood Greene offers. |
(Photo courtesy of Lockwood Greene)
The crown jewel of J. A. Jones Inc. assets left in limbo after the construction firms Sept. 26 bankruptcy has been sold for $95.5 million. Lockwood Greene, its well-regarded engineering unit, is now a wholly owned subsidiary of industry giant CH2M Hill Cos. after a whirlwind auction frenzy that lasted into the wee hours of Dec. 9 and ratcheted up the sale price from an initial $75 million.
Denver-based CH2M Hills persistence and willingness to pay cash clinched the deal, sources say. "The cleaner the deal, the more favorably it was viewed," says one source close to the proceedings. With financial backing from Bank of America, CH2M Hill eventually outlasted Balfour Beatty Inc., the U.S. arm of the British contractor, beating its last bid for the Spartanburg, S.C.-based engineer by $500,000.
Germanys Bilfinger Berger AG, Mannheim, which launched sale proceedings in late October by agreeing to act as the "stalking horse" with a $75-million bid, dropped out last month because of disagreement over terms and conditions, says Carlos Möller, BB international director. The firm still will receive a nearly $1.5-million stalking horse fee.
Lockwood Greene President and CEO Fred Brune says there were at least 30 "interested companies" at one point, but they did not make formal bids and he did not disclose names. "The bid process narrowed the field to those who were most motivated," he says.
CH2M Hill was eager to pick up Lockwood Greene to add significant private-sector design capability and balance a portfolio that has tilted to government, says Chairman and CEO Ralph Peterson. Lockwood Greene, with $600 million in revenue and 2,500 employees, specializes in chemical, biotech, pharmaceutical, power and manufacturing markets. Biotech and food and beverage were among key growth markets targeted by CH2M Hill. "We have a fledgling business in those," says Peterson. "They have a real one." The deal now gives CH2M Hill a 40% private-sector market share and boosts revenue of the combined company to more than $3 billion.
CH2M Hill initially bid $76 million last month, replacing BB as stalking horse. "It was a very peculiar procedure but certainly legal," says Möller. "CH2M Hill thought it was in the drivers seat" until Balfour Beatty put in its $95-million offer, says one source close to the proceedings. "But it got too rich for them." The U.K. firm did not comment.
Some observers believe the price would have been lower in a negotiated acquisition. Others say CH2M Hill did well, based on the price-to-revenue comparison. "This was less than half of the low end of other deals," says Paul Zofnass, president of EFCG Inc., New York. "It looks like CH2M Hill got an awfully good buy."
The final price may please J.A. Jones creditors, but it may still be a drop in the bucket for sureties, lenders and others still owed hundreds of millions of dollars by the bankrupt contractor (ENR 10/13 p. 12). "They have tremendous leverage in court because they have been the most wounded in the process," says one veteran of a bankrupt industry firm.
The deal absolves CH2M Hill of most of the new units liabilities but it has agreed to pay employee vacation, which could cost it more than $4 million, says one executive involved in the proceedings. Also at issue are ownership stakes of Lockwood Greene employees, particularly managers, that appear to be "wiped out," says one source. Peterson could not confirm that, but indicated executives could have ownership opportunities for more highly valued CH2M Hill stock under "retention agreements." CH2M Hill stock has risen in value from $8.40 per share in late 2000 to $11.88 as of Nov. 7, according to federal filings. Peterson says there will be no layoffs. "In fact, we anticipate it will go the other way," says Peterson. "This is not about cost cutting, its about growth."
Even with remaining uncertainties, Lockwood Greene employees are relieved to be rid of financial "encumbrances" that date back to its forced merger with J.A. Jones by their now-insolvent former parent, German contractor Philipp Holzmann AG. "A huge albatross just fell to the ground," says one manager.