Projecting a boom in many global energy markets, particularly in North America, Texas-based engineer-contractor CB&I has moved to add capacity by announcing July 30 that it would acquire The Shaw Group Inc. in a cash and stock deal valued at $3 billion. The companies say Executives say it will create one of the world’s largest firms competing in the sector.
Said one industry expert who follows its merger and acquisition trends, "this has been a long time coming."
He says current and former top executives of both companies have long industry ties and have complimentary capabilities in industrial fabrication, modular construction and maintenance work. The two firms are also involved in construction at two nuclear plant sites in Georgia and South Carolina.
Philip K. Asherman, president and CEO of CB&I said the transaction will enable the firm to become "fully diversified across the entire energy sector.”
Added J.M. Bernhard, Shaw chairman, president and CEO, the Baton Rouge engineer-contractor's "leadership position in the power, environmental and infrastructure industries will complement CB&I’s current business."
The acquisition "creates a formidable entity and a strong competitor," says Michael Landry, a managing director at FMI. "There are definite synergies there."
Under the deal, set to close in the first quarter of 2013, Shaw becomes a "business sector under the brand name CB&I Shaw," says the firm. Both companies' boards have approved the transaction. Shaw says Bernhard, who founded the firm, will leave the to pursue other interests. One industry observer speculates he may run for public office.
The early morning announcement caused shares of Shaw to rise 65% to $44 in premarket trading. The CB&I deal is valued at $46 per share, "a price last seen for the stock four years ago," according to one published report.
The M&A expert says that CB&I is expected to use some excess cash on Shaw's balance sheet, as well as its own, to fund the acquisition.
Shaw ranks at no. 12 on ENR's list of the Top 20 Firms in combined global design, construction and construction management revenue, reporting $5.54 billion in 2011. CB&I ranks at no. 13, reporting $4.55 billion in those categories. Shaw has about $4 billion in contracting revenue, while CB&I reports $3.63 billion in that sector. Shaw has about 25,000 employees, while CB&I has about 18,000.
"This isn't just a merger of two services companies, but consolidates two firms each with a portfolio of technology packages used in petrochemicals and refining processes and two companies with large fixed asset components fabricating pipes, modules and vessels," says independent Wall St. analyst Avi Fisher. "These are unusual assets in the E&C industry, and unlike services they can be ring-fenced, protected and consolidated. i think that's the value in the acquisition."