Energy Giants McDermott, CB&I Agree To $6-Billion Stock Swap Merger
Energy contracting giants CB&I and McDermott International on Dec. 18 announced that they will combine in a $6-billion, all-stock deal to form an EPC mega-firm with projected combined revenue of $10 billion and a backlog of about $14.5 billion. If the deal is completed, McDermott shareholders will own 53% of the combined firm, and CB&I shareholders will own 47%.
CB&I ranks at No. 28 on ENR’s list of the Top 250 Global Contractors, reporting $10.4 billion in 2016 global construction revenue; McDermott reported about $2.6 billion in 2016 total revenue.
The deal stems from CB&I’s effort to sell its technology business, which will stay in the combined firm. McDermott President and CEO David Dickson will hold those same roles in the new firm. CB&I CEO Patrick Mullen will remain for a transition period in an undisclosed role.
Reuters says CB&I has missed analysts’ estimates on revenue and profit for the past four quarters and shares have lost 44% of value this year.
The deal, set to complete in mid-2018, “creates a more diverse and complementary energy offering, both onshore and offshore as well as by geography and customer,” says Jamie Cook, E&C-sector lead analyst at Credit Suisse. “The pushback will be risks associated with CBI’s problem projects (which are difficult to handicap) and the fixed price risk associated with the combined companies.”
She said that CB&I on Dec. 19 said it settled with owners of the Cameron LNG project in Louisiana over unspecified construction claims.
But the market is cautious on the deal, with both firms' stock falling by low double-digits after the announcement, according to a late Dec. 19 Motley Fool stock report.
"Given the challenges in the energy infrastructure market, it's possible that both McDermott and Chicago Bridge could continue to lose ground even if the merger goes through," said investor and analyst Dan Caplinger.