Chicago Bridge & Iron Company N.V. (NYSE:CBI), usually known as CB&I, and internationally as an energy infrastructure company, announced its agreement to acquire The Shaw Group Inc. (NYSE:SHAW), which specializes in power generation and government services, in a $3 billion deal.
The deal will pay $46 a share in cash and stock for Shaw’s shareholders, and represents a whopping 72 percent premium over the closing price of Shaw’s shares as on Friday. Shaw was up almost 70 percent before the opening of trade this morning.
“We will become fully diversified across the entire energy sector, from power generation to LNG, from refining to gas processing, from offshore to oil sands, and beyond,” CB&I Chief Executive Philip K. Asherman said. “We will have the capabilities and the expertise to provide our clients with the full range of solutions, wherever they are in the world.”
“This is a highly compelling transaction that we believe will create significant value for our shareholders,” he said further.
In a conference call, Asherman is quoted as saying “The whole area around power certainly is very, very interesting. We’ll look now at how you can take CB&I’s global footprint and expand those opportunities to some of the overseas markets.” In his view, nuclear facilities in China could be a market full of promise.
According to J.M. Bernhard Jr., Shaw’s chairman, president and chief executive, while his company’s business was growing, the deal was in the best interest of its shareholders, employees and customers. He is expected to retire after consummation of the deal, expected in early 2013. Shaw has been restructuring its business over the past few years. In 2011, it sold a 20 percent stake in its nuclear power company, Westinghouse Electric Co, to Japanese multinational Toshiba Corp, to cut an almost $1.7 billion debt. Earlier this year, it agreed to sell its energy and chemical division to French oilfield services company, Technip, for $300 million. For the latest third quarter, Shaw reported a $16 million loss and $1.56 billion in revenues.
CB&I, on the other hand, has been reporting stronger top-line growth every quarter for more than a year, and its second quarter saw earnings increase by nearly 17 percent.
The combined companies will have almost 50,000 employees, an order backlog of almost $30 billion and boast of being one of the most comprehensive energy-focused EPC companies globally. After the merger, Shaw will operate as “CB&I Shaw,” and be led by CB&I’s Asherman. According the CB&I, the deal will be earnings accretive in double digits in its very first year, excluding transaction costs. Though approved by both boards, the deal is yet to be approved by the shareholders.
CB&I will be using cash on its own books and on Shaw’s, and assume about $1.9 billion in debt financing to fund the acquisition.