URS Corp. will acquire Flint Energy Services for $25 per share in cash, or $1.25 billion. URS (NYSE: URS) also will assume approximately $225 million in Flint (TSX: FES) debt. The transaction was approved unanimously by both the URS and Flint boards of directors.
The acquisition will significantly expand URS’ opportunities to serve clients in the oil and gas industry. Flint 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 Chief Executive Officer, as the Division President.
Martin M. Koffel, Chairman and Chief Executive Officer 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.”
Stuart O’Connor, Chairman of Flint’s Board of Directors said, “We are very pleased with the arrangement with URS. It 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.”
Mr. Lingard added, “Having access to URS’ pool of talented and experienced construction managers will allow Flint to oversee more projects simultaneously and drive revenue growth. Flint’s employees should also benefit from and enjoy more opportunities to work on a wider range of complex projects in both Canada and the United States. We look forward to working with our URS colleagues to achieve the exciting potential of the combination.”
H. Thomas Hicks, Chief Financial Officer 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. Said Mr. Hicks, “URS intends, as in past acquisitions, to use its strong cash flows to reduce debt quickly, while retaining the flexibility to continue to invest in the business and, when debt levels have been reduced, pursue additional growth opportunities.”
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 acquisition will be implemented through a Plan of Arrangement under Canadian law and is subject to a number of customary conditions for a transaction of this nature including, but not limited to, the approval of at least 66 and 2/3% of the votes cast in person or by proxy by Flint shareholders and option holders at a special meeting of Flint's security holders, as well as court and relevant regulatory approvals. The terms and conditions of the arrangement and additional details of the transaction will be summarized in Flint’s management information circular, which is expected to be filed and mailed to Flint’s shareholders in early March 2012. A copy of the arrangement agreement will be filed on Flint’s SEDAR profile and will be available for viewing at www.sedar.com. The special meeting of Flint security holders is scheduled to be held on April 3, 2012, with closing expected to occur in the second quarter of 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.
After receiving financial and legal advice, the members of the Board of Directors of Flint voting on the resolution unanimously determined that the arrangement is in the best interests of Flint, and resolved to support the arrangement and to recommend that its shareholders and option holders vote in favor of the arrangement. The financial advisor to Flint’s Board of Directors has provided an opinion that subject to the assumptions, limitations and qualifications set forth therein, the consideration to be received by holders of common shares pursuant to the arrangement is fair, from a financial point of view, to such holders.
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.
Advisors on the Transaction
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 U.S. legal counsel was provided to Flint by Hall, Estill, Hardwick, Gable, Golden, & Nelson P.C. A copy of the Credit Suisse opinion and other factors considered by the Flint Board of Directors and other relevant background information will be included in the management information circular that will be mailed to Flint security holders.
Conference Call Information
URS and Flint will host a conference call on Tuesday, February 21, 2012, at 8:00 a.m. ET to discuss the transaction. The dial-in number for United States callers is (877) 479-8714 and the dial-in number for participants located outside of the United States is (706) 634-5188. The passcode for all callers is 51655009. A slide presentation and live audio webcast of the call will be available at www.urs.com and at http://ursflint.acquisitioninformation.com. A replay of the conference call will be available beginning the afternoon of Tuesday, February 21, 2012, and can be accessed by dialing (855) 859-2056 from within the United States or (404) 537-3406 from outside of the United States. The passcode for the replay is 51655009.
About URS Corporation
URS Corporation (NYSE: URS) is a leading provider of engineering, construction and technical services for public agencies and private sector companies around the world. The Company offers a full range of program management; planning, design and engineering; systems engineering and technical assistance; construction and construction management; operations and maintenance; information technology; and decommissioning and closure services. URS provides services for power, infrastructure, industrial and commercial, and federal projects and programs. Headquartered in San Francisco, URS Corporation has more than 47,000 employees in a network of offices in more than 40 countries (www.urs.com ).
About Flint Energy Services Ltd.
Flint Energy Services Ltd. (TSX: FES) is a leading service company providing an expanding range of integrated products and services for the oil and gas industry including: production services; infrastructure construction; oilfield transportation; and maintenance services. With approximately 10,000 employees, Flint provides this unique breadth of products and services through 80 strategic locations in the oil and gas producing areas of Western North America, from Inuvik in the Northwest Territories to Mission, Texas on the Mexican border. Flint is a preferred provider of infrastructure construction management, module fabrication, maintenance services for upgrading, and production facilities in Alberta's oil sands sector (www.flintenergy.com ).