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URS to pay $1.5B for Flint Energy

by Paul Whitfield  |  Published February 21, 2012 at 8:03 AM ET
URS Corp., an acquisitive San Francisco-based engineering and construction group, will offer C$1.48 billion ($1.49 billion) including debt for Flint Energy Services Ltd. to expand its services in Canada's huge oil sands and shale gas fields.

URS said late Monday, Feb. 20, it will bid C$25 per share for Calgary, Alberta-based Flint, valuing the target's equity at C$1.25 billion. The offer values Flint's shares at a 67% premium to their closing price of C$14.90 on Feb. 17. URS will also assume C$225 million of debt. Flint had C$80 million of cash and cash equivalents at the end of September.

"Expanding our presence in the oil and gas sector has been a longstanding strategic priority for URS," said chairman and CEO Martin M. Koffel. "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."

The offer, which has the support of the target's board, comes lafter URS agreed last April to pay $260 million for communications services business Apptis Holdings Inc. from New Mountain Capital LLC. Days earlier URS paid an undisclosed fee for Columbia, S.C. civil engineering company BP Barper, while in 2010 it paid £223 million ($354 million) for British engineering consultancy Scott Wilson Group plc.

The deal values Flint at 11.2 times it Ebitda of C$131 million for 2010. Flint's Ebitda for the first nine months of 2011, the last period for which figures are available, was C$76 million, down 29% compared with the same period in 2010. Sales for the first nine months of this year were C$422 million, compared with C$301 million over the same period in 2010.

Flint makes about 80% of its revenue from companies tapping Canada's oil sands and gas fields, to which it provides various services, including in construction, production and maintenance. The company has about 10,000 employees working at 80 locations in Canada and the U.S.

Acquiring Flint will add about $3.5 billion of new contracts to URS books, expanding URS's revenue from the oil and gas sector to about 22% of the total. URS said it expected to post sales of about $9.9 billion to $10.1 billion in 2012 and net income of as much as $300 million.

URS Chief Financial Officer H. Thomas Hicks said if the deal closes in the second quarter, the acquirer expects pretax cost synergies of $10 million to $15 million in 2012, rising the following year. The deal should boost URS's 2012 earnings per share by between 20 cents and 30 cents per share, he added, including acquisition-related costs and the estimated amortization of intangible assets, as well as cost synergies.

URS said that the deal would be financed using existing credit facilities and new debt that is already in place.

The acquisition will be implemented through a Plan of Arrangement under Canadian law, meaning it will require the support of at least two-thirds of Flint shareholders. Flint's board and other senior managers have pledged their 8% stake. The deal will be put to a vote on April 3.

The deal "delivers a significant cash premium to our stockholders while also allowing Flint to accelerate the growth of its business by offering a more complete suite of services to clients," Flint Chairman Stuart O'Connor said in a statement.

Flint has agreed on a C$42 million break free and not to solicit alternative offers.

URS is taking financial advice from Morgan Stanley & Co. Osler, Hoskin & Harcourt LLP are providing URS's Canadian legal counsel, while Latham & Watkins LLP and Cooley LLP have provided additional legal advice.

Flint is taking financial advice from Credit Suisse Securities (Canada) Inc. Its lead legal advisor is Bennett Jones LLP, while U.S. advice comes from Hall, Estill, Hardwick, Gable, Golden, & Nelson PC.