URS Corp., the San Francisco-based construction company, agreed to buy Flint Energy Services Ltd. for C$1.25 billion ($1.26 billion) in cash to add projects servicing oil and natural gas producers in Western Canada.
Flint shareholders will get C$25 per share, URS said in a statement, about 67 percent more than Flint’s C$14.90 closing price in Toronto trading on Feb. 17. URS also plans to assume C$225 million of Calgary-based Flint’s debt.
Buying Flint adds 10,000 employees serving companies in the oil and gas producing areas of Western Canada and the Southwest, Appalachian and Rocky Mountain regions of the U.S. to URS's 47,000 staff. The deal will raise URS’s 2012 earnings by 20 cents to 30 cents a share and boost its sales from the oil and gas industry to about 22 percent of total revenue, according to the statement.
“Expanding our presence in the oil and gas sector has been a longstanding strategic priority for URS,” URS Chief Executive Officer Martin Koffel said in the statement.
The deal values Flint at 14.3 times earnings before interest, tax, depreciation and amortization, compared with the average of 9.2 times EBITDA for nine comparable deals, according to data compiled by Bloomberg.
Flint, which has dropped 23 percent in the past year, last traded at C$14.90 before markets in the U.S. and Canada were closed. The decline compares with the 7.1 percent decline in the Morgan Stanley Capital International World Energy Small Cap index in the past 12 months.
Flint’s operations in Canada accounted for about 80 percent of sales in the 12 months ended in September. The deal is expected to be completed in the second quarter of 2012, the companies said.
Financing in Place
URS, which has financing in place to complete the transaction, plans to use an existing credit facility and new debt for permanent financing, according to the statement. Flint Chief Executive Officer Bill Lingard will continue to manage the company’s operations as a new division of URS.
“Flint offers a diversified, full cycle of services, has limited exposure to fixed price contracts and derives its earnings entirely from operations in the stable North American region,” said H. Thomas Hicks, URS’s chief financial officer.
The acquisition will generate cost savings of $10 million to $15 million this year, assuming the deal closes in the second quarter, and additional future cost reductions, Hicks said.
Morgan Stanley and law firms Osler, Hoskin & Harcourt LLP, Latham & Watkins LLP, and Cooley LLP are advising URS on the transaction. Flint is using Credit Suisse Group AG, Bennett Jones LLP and Hall, Estill, Hardwick, Gable, Golden, & Nelson P.C.
(URS and Flint scheduled a conference call today at 8 a.m. New York time at +1-877-479-8714 or +1-706-634-5188. The passcode is 51655009.)