URS Corp. (NYSE: URS) and Flint Energy Services Ltd. (TSX: FES) have entered a definitive agreement under which URS will acquire Flint for C$25.00 per share in cash, or C$1.25 billion (US$1.25 billion). URS also will assume approximately C$225 million (US$225 million) in Flint debt.
Flint, a provider of construction services for the oil and gas industry, currently supports many of the largest companies operating in the oil, oil sands and gas producing regions of Western Canada and in the Southwest, Appalachian and Rocky Mountain regions of the United States.
The acquisition will be implemented through a court-approved Plan of Arrangement under Canadian law and is subject to the approval of Flint security holders, relevant regulatory approvals and other customary closing conditions. The transaction is expected to close in the second quarter of 2012, to be accretive to URS’ 2012 GAAP earnings, and to increase URS’ revenues from the oil and gas sector to approximately 22% of total revenues.
Flint has approximately 10,000 employees and a network of approximately 80 locations in North America. The company’s diversified activities span the full cycle of oil and gas exploration and production, including constructing well pads, moving rigs, manufacturing processing equipment, installing small and mid-diameter pipelines, transporting fluids, performing a wide range of mid-cycle production services, and constructing and maintaining large oil sands facilities. Revenues from Western Canada’s oil, oil sands and gas producing regions accounted for approximately 80% of Flint’s revenues for the trailing twelve months from September 30, 2011, with the remaining 20% coming from the United States. Flint is expected to add approximately $3.5 billion to URS’ book of business upon closing. Following the close of the transaction, Flint will become a new division of URS, led by W. J. (Bill) Lingard, Flint’s president and CEO, as the division president.
Martin M. Koffel, chairman and CEO of URS, said, “Expanding our presence in the oil and gas sector has been a longstanding strategic priority for URS. Flint is one of North America’s leading fully integrated production and construction services providers to the oil and gas sector, with many long-duration construction contracts and multi-year maintenance agreements. Through this combination, URS will be well positioned in segments of the oil and gas industry that we expect to have attractive margins and growth rates. In addition, by joining with URS, Flint will be able to offer its base of multinational clients the full range of engineering, procurement and construction management services through URS’ existing operations.”
H. Thomas Hicks, CFO of URS, said, “We expect this transaction will build significant long-term value for our stockholders. 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. Assuming a second quarter close, we expect to achieve pre-tax cost synergies of US$10-$15 million in 2012, with additional savings expected in the following years as we benefit from economies of scale. We expect the transaction to be accretive to URS’ 2012 EPS between US$0.20 and US$0.30 per share, which reflects expected acquisition related costs, estimated amortization of intangible assets and the estimated cost synergies discussed above.”
URS has financing in place to complete the acquisition under its existing credit facility and a financing commitment for a new bridge facility. Permanent financing is expected to consist of borrowings under URS’ existing credit facility and new debt.
URS Fiscal 2012 Outlook
On a standalone basis, URS expects that its fiscal 2012 revenues will be between $9.9 billion and $10.1 billion, net income will be between $292 and $300 million and EPS will be between $3.95 and $4.05. URS will provide full details about its financial results for 2011, and expectations for 2012, on its previously announced fourth quarter and full year 2011 earnings conference call on Monday, February 27, 2012.
The arrangement agreement is subject to customary non-solicit provisions and Flint’s right to consider and accept superior proposals. In the event of a superior proposal, URS will have a five-business-day right to match the superior proposal. If the arrangement is not completed as a result of a superior proposal, or for other certain specified circumstances, a termination fee equal to C$42 million will be paid by Flint to URS.
All of the members of Flint’s Board of Directors and certain senior officers and certain related shareholders, who collectively own approximately 8% of the outstanding Flint shares, have agreed to vote their shares in favor of the acquisition.
Morgan Stanley & Co. LLC acted as financial advisor to URS, and Osler, Hoskin & Harcourt LLP served as URS’ Canadian legal counsel. Additional legal counsel was provided by Latham & Watkins LLP and Cooley LLP. Credit Suisse Securities (Canada) Inc. acted as financial advisor to Flint, and Bennett Jones LLP served as Flint’s legal counsel. Additional US legal counsel was provided to Flint by Hall, Estill, Hardwick, Gable, Golden, & Nelson PC.
