Aecom Technology Agrees to Buy URS for About $4 BillionCaelainn Barr, Beth Jinks and Matthew Monks
Aecom Technology Corp. agreed to acquire URS Corp., the engineering and construction-management company targeted by activist hedge fund Jana Partners LLC, for about $4 billion, gaining new services in markets like oil and gas.
Aecom will pay the equivalent of $56.31 a share for URS in the cash-and-stock deal, or about 19 percent more than its 30-day average closing price, the companies said in a statement yesterday. Including debt, the value of the transaction would be about $6 billion. The per-share price is about 8.2 percent more than URS’s July 11 close.
The transaction brings together companies that provide support and planning services for governments and large engineering and construction projects in the U.S., Canada and other countries. It will combine Aecom’s reach overseas with URS’s services such as pipeline repair.
“You couldn’t have had a better marriage of two companies that complement each other’s skill sets, scope and capabilities so well,” said Will Gabrielski, an analyst at Stephens Inc. in New York.
“They both have the federal government as a large customer, but there is very little overlap in what they do,” he said. “It’s a great value for both companies.”
Gabrielski rates the shares overweight. Aecom shares rose 3.9 percent in New York to $32.99 at 10:17 in New York and URS increased 9 percent to $56.71.
Aecom was upgraded to buy from hold by Adam Thalhimer, analyst at BB&T Capital Markets. The decision was based on an increase in anticipated cash flow and cost synergies.
“To say the least, this is a significant acquisition for Aecom, which is acquiring a company that is about 40 percent larger based on our 2014 revenue projections,” Thalhimer wrote in a note to clients today.
“Together we will be one of the largest companies in the engineering and construction industry,” Michael Burke, Aecom’s president and chief executive officer, told reporters on a conference call yesterday. It’s a “transformational” deal for the two companies, which have worked together on the Barclays Center and World Trade Center developments in New York, he said.
The Los Angeles-based acquirer gets about 41 percent of its sales outside the U.S., compared with 17 percent for San Francisco-based URS.
Burke will be the CEO of the combined company, and Aecom Executive Chairman John Dionisio will lead the combined board. URS stockholders will get the equivalent of $33 in cash and 0.734 shares of Aecom for each URS share they own, with the option of receiving all cash or all stock. Aecom said it expects the deal to add to earnings in fiscal 2015.
Jana, the $10 billion hedge fund run by Barry Rosenstein that’s known for corporate management shake-ups, disclosed its URS holding in August. In March, the firm reached an agreement for URS to hire an investment bank to conduct a strategic review and establish a “value creation committee” on its board.
As part of the March accord, URS added four new independent directors and had two incumbents step down, leaving the board with 12 members. Two of the new directors formed half of the value-creation panel, and two were named to a separate committee finding a successor for CEO Martin Koffel.
“The board and management of URS conducted a thorough review of all options and reached the right result for shareholders,” Rosenstein said in an e-mailed statement. “We congratulate both companies on forging a combination that should deliver significant value.”
Jana’s most recent filing showed about a 9.8 percent URS stake, making it the largest shareholder, data compiled by Bloomberg show.
The combined company will have more than 95,000 workers in 150 countries, according to yesterday’s statement.
“The days when our clients would hire three or four engineering firm is over,” Koffel said on the conference call. “It’s one-stop shopping.”
Based on the enterprise value of $6 billion, the deal represents about 4.6 times URS’s earnings before interest, taxes, depreciation and amortization of $1.3 billion in 2013. That compares with a median of 11.6 times for U.S. engineering and construction services deals valued at more than $1 billion in the past five years, according to data compiled by Bloomberg.
URS rose 2.1 percent to $52.02 on July 11 after Reuters reported the company had hired Citigroup Inc. and DBO Partners as advisers. The gain capped a 16 percent rally over 12 trading days, giving the company a market value of $3.59 billion.
URS has been involved in the building of the Fred Hartman Bridge, which spans the Houston Ship Channel in Texas, and the renovation of the National Archives Building in Washington. It was among the companies most affected by the 2013 U.S. government shutdown, with 3,000 workers on furlough.
URS bought engineering adviser Scott Wilson Group Plc for 223 million pounds ($382 million) in 2010, beating a bid from CH2M Hill Cos. U.K.-based Scott Wilson managed London’s Crossrail train project, which is now part of URS’s portfolio.
While most of New York-based Jana’s investments aren’t activist -- where a fund uses its stake to push for changes that boost shareholder returns -- those campaigns attract the most attention. Jana’s recent targets include PetSmart Inc., Oil States International Inc., QEP Resources Inc., and Agrium Inc.
Once activist investors buy more than 5 percent of a company’s stock, they’re required to flag their intention to engage with executives and directors by disclosing the holding in a Form 13D filing with the U.S. Securities and Exchange Commission.