AECOM and WSP Halt Talks to Create Megafirm, Sources Say
Value uncertainty created by COVID-19 pandemic is apparent reason
The COVID-19 crisis has ended merger discussions between industry giants WSP Global Inc. and AECOM, according to financial news service reports and industry sources with knowledge of the negotiations.
The financial uncertainty created by the pandemic halted the push to create a new mega-company.
In a March 24 report, online financial news service Dealreporter stated that "talks ... about a potential merger are said to have fallen apart," based on intelligence from two sources, who were not named. The report was subsequently cited by Bloomberg and other financial websites.
The Los Angeles Business Journal also reported on March 24 that the deal was "sidelined."
The two design-focused companies declined to comment on the status of any deal discussions, as they have since rumors of a combination began to surface late last year. The link was set to create a 100,000-person company, although it was not clear if it was an acquisition by WSP or a 50-50 merger.
But according to an industry executive with a link to deal discussions, talks could resume as early as summer, assuming initial COVID-19 impacts clear.
The firm said on April 3 a "temporary" 20% salary cut, with no duration stated, for board directors, "the executive leadership team and other senior leaders."
AECOM also said it was "keeping teams intact as response moves to recovery," citing a "strong financial foundation and substantial liquidity position" from the sale of its management services business for about $2.4 billion in a deal that closed Jan. 31.
The firm will report is second quarter results on May 5.
Los Angeles-based AECOM is traded on the New York Stock Exchange, and Montreal-based WSP on the Toronto exchange.
"There were significant and detailed discussions, and both sides had strong interest, but with the current state of things, they could not find a way through" the negotiations, one industry executive with knowledge of transaction talks told ENR. "The intent, as I understand, was for WSP management to lead the combined company."
CEO Mike Burke Stays On
In a statement, AECOM said that "at the request" of its board of directors, Chairman and CEO Michael S. Burke "has agreed to extend his tenure until the company’s CEO search is complete,” with no end date provided. He had been set to retire at month's end based on a company announcement last year.
Burke had built AECOM into a $20-billion revenue giant since taking the top roles in 2014 and 2015, but an activist firm investor, hedge fund Starboard Value LLP, had pushed management more recently to boost sagging profits.
At closing on April 2, AECOM's share price was $27.53, down from a February peak of about $52. WSP stock closed at $52.00 per share on March 27.
According to one industry observer who declined to be identified, AECOM's earnings "languished despite a growth-potential environment," since its acquisition of URS Corp., a $4-billion deal announced in mid-2014.
With added stock price gyrations prompted by the COVID-19 uncertainty, "the banks got nervous in making a new loan in uncertain times," Andrew Wittmann, lead construction sector analyst for R.W. Baird, told ENR.
Burke will remain in his roles, under a month-to-month contract. The company had announced last year that he would retire when a successor was named or after the firm's March 10 annual meeting. Burke's continued arrangement was noted in a March 12 AECOM filing to the U.S. Securities and Exchange Commission that stipulated his salary continuation and "incentive retention award payment."
Observers speculate that the decision for him to remain in the firm was a hint that plans for a CEO replacement were on hold due to the pending merger talks.
New Board Faces
The filing also noted shareholder approvals of new AECOM board directors, including Jacqueline Hinman, former CEO of CH2M until its 2017 sale to Jacobs; and Robert Card, another former CH2M executive who went on to lead Montreal design-build firm SNC Lavalin Group Inc. from 2012 to 2015 after its former CEO was ousted when an alleged contract bribery scheme surfaced.
Resigning from AECOM's board is William H. Frist, a former U.S. Senator and physician. Burke was named to fill the Frist vacancy, says the filing. He will serve as chairman until "completion of the [CEO] succession search process."
Wittmann had previously speculated that Hinman and Card also are CEO candidates for AECOM. They received the largest two vote totals from shareholders among new and re-elected directors, according to the March 12 filing.
But one industry executive said that Card is not a candidate because he was on the search committee.
Hinman "had tough going at CH2M but made good decisions to create value and a strong outcome for shareholders," said Wittmann.
It is not known who else is being considered for the top role, including possible non-industry candidates. "AECOM needs someone to keep the staff engaged," said the analyst.
He speculated that with pandemic-generated uncertainty for the next few months, the "firms will execute as standalones for the foreseeable future," but he added, "no deal is totally dead. The door's still open, although no one is walking through any time soon."
WSP chief Alexander L’Heureux said in a Feb. 27 quarterly earnings call that “it’s very, very hard to time the large-size acquisitions.”
AECOM declined to discuss virus-related staffing changes ahead, but in a statement, said actions include "temporarily halting all nonessential business travel, enabling remote work environments where possible, and enhancing our in-office cleaning procedures and operating best practices."
More detaill is available here.