URS wants to cash in on nuclear power
Company hopes to increase profits by cutting $50 million in annual expenses, with few layoffs
May 30, 2007
By Michael Liedtke – The Associated Press
URS Corp.’s $2.6 billion acquisition of Boise-based engineering and construction rival Washington Group International Inc. represents the latest power play on the world’s need for more energy.
With the cash-and-stock deal announced Monday, URS hopes to be in a better position to capitalize on renewed interest in nuclear power as an alternative energy source — and to win lucrative oil and gas contracts to help meet the ongoing demand for fossil fuels.
The combination also figures to make URS an even more formidable bidder for government contracts from the U.S. Departments of Defense and Energy and state agencies that rely on the San Francisco-based company to help build and maintain roads and bridges.
URS hopes to boost the profits of the combined company by trimming $50 million to $55 million in annual expenses. Relatively few layoffs are envisioned, with URS committed to keeping Washington Group in Idaho as a separate division. Most of the savings will be achieved by eliminating overlapping administrative and technology operations and combining offices located within near proximity of each other.
In a Tuesday conference call, URS and Washington Group executives made clear that the lucrative opportunities in the energy market are the main reason the two sides decided to team up.
With Washington Group’s team of scientists, URS believes it will add valuable expertise as concerns about global warming and the high cost of fossil fuels pave the way for more nuclear power plants, particularly in the booming economies of India and China.
URS pegs the market for new nuclear power at $100 billion during the next decade. Cleaning up the nuclear power equipment at existing plants is expected to bring in billions of dollars more.
Meanwhile, the search for more oil and gas sources is expected to become more complicated and expensive, contributing to a $2 trillion market over the next decade.
Bolstered by the Washington Group acquisition, URS hopes to get a sliver of that revenue by contracting with major oil companies.
“The combination with Washington Group is the next logical step for URS,” Chairman Martin Koffel said during Tuesday’s conference call.
Investors seemed to agree as URS shares gained $2.38, or 5.1 percent, to $49.27 in trading Tuesday.
Washington Group shares surged $15.07, or 21.5 percent, to $85.04.
The sharp rise in Washington Group’s stock price indicated Wall Street is expecting URS shares to climb even higher.
Through Tuesday, the deal’s value stood at $81.84 per Washington Group share, up from $80 per share when the transaction was first announced, and will increase if URS’s market value continues to rise.
The acquisition price consists of $1.4 billion, or $43.80 per share, in cash and 0.772 URS shares for each of Washington Group’s 32 million shares.
The marriage would create a company with 54,500 employees in more than 50 countries and $8.6 billion in annual revenue, based on analysts’ 2007 projections for URS and Washington Group.
After the deal is completed, URS would rank as the fourth-largest publicly traded engineering and construction company in the United States, trailing Irving, Texas-based Fluor Corp., Houston-based KBR Inc. and Pasadena-based Jacobs Engineering Group Inc.
URS has muscled into the top tier with a series of deals that increased its revenue from just $300 million in 1996 to $4.2 billion last year.
Washington Group traveled a rockier road as it wrestled with serious financial problems.
In 2001, the Boise, Idaho-based company — once known as Morrison Knudsen Corp. — emerged from its second bankruptcy reorganization in six years.
But Washington Group has since bounced back and posted an $81 million profit on $3.4 billion in revenue last year.