U.S. News

URS to Acquire Washington Group for $2.3 Billion


Construction services company URS said Monday it would acquire Washington Group International for about $2.3 billion to expand into the engineering and management of
nuclear, infrastructure and environmental projects.

Under terms of the deal, Washington Group shareholders will get $43.80 in cash and 0.772 shares of URS common stock for each Washington Group share they own. That values Washington Group at about $80 per share, or $2.3 billion based on Washington Group's 29.2 million shares outstanding.

In addition to overseeing massive construction projects such as the development of transportation, water and wastewater systems around the world, the combined company also will offer engineering, construction and maintenance services for fossil fuel and nuclear power plants.

"It positions us in markets that coincide with growth in the economy and markets that are growing," URS Chairman and Chief Executive Martin Koffel said in telephone interview, citing the power and nuclear power industries.

"This whole deal was strategically driven, but it's got attractive financial metrics as well," he said.

The price marks a 14% premium over Washington Group's closing stock price of $69.97 on Friday. U.S. financial markets were closed Monday for Memorial Day.

Washington Group trades at about 24.4 times Wall Street earnings estimates for 2007, slightly below the construction and engineering sector's average valuation of about 26.2 times
earnings. The URS deal values Washington Group at about 28 times earnings.

URS said it expects the acquisition to boost revenue growth, long-term profitability and cash flow. The deal will be neutral or slightly beneficial to earnings per share in 2008, and boost earnings in 2009 and beyond, URS said.

URS estimated cost synergies of $50 million to $55 million in 2008 from the deal. Some layoffs will result as the companies combine administrative staff, said URS Chief Financial Officer Thomas Hicks.

Together, the companies would have 2007 revenues of about $8.6 billion, projects in more than 50 countries, and more than 54,000 employees.

The combined company would be called URS Corp., and be headed by Koffel. The deal is expected to close in the second half of 2007, pending approval by Washington Group and URS
shareholders, and regulators.