CB&I, Shaw deal reactions mixed
by ted griggs
Advocate business writer
August 07, 2012
Reactions to CB&I’s planned $3 billion purchase of The Shaw Group Inc. remain mixed so far, with at least five stock analysts downgrading the firms’ stock on speculation that CB&I shareholders might reject the deal and that Moody’s might cut Shaw’s debt rating.
After closing at a four-year high of $41.49 following Monday’s announcement of a $46-per-share offer from CB&I, Baton Rouge-based Shaw’s stock slipped Tuesday to $38.95, with 3.9 million shares changing hands, then rose 11 cents Wednesday to $39.06.
CB&I’s offer is $41 in cash and $5 worth of its stock for each share of Shaw.
Reuters attributed the share price dip to concern that CB&I shareholders might block the deal.
In particular, Reuters cited a $64 million breakup fee if CB&I shareholders reject the deal, an amount that King She, a special situations analyst for Susquehanna Financial Group, described as “pretty weak.”
“There are a lot of conditions for the deal to go through,” She told Reuters. “The issue is still whether CB&I shareholders are going to approve the deal.”
Another potential issue was cited: A requirement that Shaw post earnings of $200 million before interest, tax, depreciation and amortization for four consecutive quarters before the deal closes.
Meanwhile, Credit Suisse, Lazard Capital and Tudor Pickering downgraded CB&I shares. Credit Suisse dropped the rating from outperform the market to neutral. Lazard and Tudor lowered their ratings from buy recommendations to hold.
After the deal was announced Monday, CB&I shares fell 14 percent to close at $34.55, rose Tuesday to $35.75 and dipped Wednesday to $35.13.
The Wall Street Journal’s CFO Report says the acquisition will add a large amount of debt, $1.9 billion, to CB&I’s books. The report quotes Moody’s as saying the combined company’s liquidity will decline substantially while the company is taking on greater financial and business risk.
During Monday’s conference call, CB&I executives said the firm intends to pay the debt down rapidly.
CB&I Chief Executive Officer Phillip K. Asherman said in Monday’s conference call with analysts and investors said that CB&I will operate Shaw as CB&I Shaw, a business unit.
CB&I, known as Chicago Bridge & Iron, is based in The Woodlands, Texas, with its parent company in the Netherlands.
“We plan to create the most complete energy-focused, engineering services company in the world,” Asherman said.
He said the deal is expected to increase 2013 earnings per share by 10 percent or more.
The combined company will be one of the largest in the Western hemisphere with annual revenue of more than $10 billion, a project backlog of more than $28 billion and around 50,000 employees, Asherman said.