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Aecom Technology Agrees to Buy URS for About USD 4 Billion

Aecom will pay the equivalent of $56.31 a share for URS, or about 19 percent more than its 30-day average closing price, the companies said in a statement today. Including debt, the value of the transaction would be about $6 billion. The price per share is about 8.2 percent more than URS’s July 11 close.

The transaction brings together providers of support and planning services for governments and large engineering and construction projects in the U.S.,  Canada  and other countries. Aecom will gain new services in markets such as oil and gas, while URS expands its reach overseas. The Los Angeles-based acquirer gets about 41 percent of its sales  outside the U.S. , compared with 17 percent for San Francisco-based URS.

“Together we will be one of the largest companies in the engineering and construction industry,” Michael Burke, Aecom’s president and chief executive officer, told reporters on a conference call. It’s a “transformational” deal for the two companies, which have worked together on the Barclays Center and World Trade Center developments in New York, he said.

Burke will be the CEO of the combined company, and Aecom Executive Chairman John Dionisio will lead the combined board. URS stockholders will get the equivalent of $33 in cash and 0.734 shares of Aecom for each URS share they own, with the option of receiving all cash or all stock. Aecom said it expects the deal to add to earnings in fiscal 2015.

Jana Pressure

Jana, the $10 billion hedge fund run by  Barry Rosenstein  that’s known for corporate management shake-ups, disclosed its URS holding in August. In March, the firm reached an agreement for URS to hire an investment bank to conduct a strategic review and establish a “value creation committee” on its board.

As part of the March accord, URS added four new independent directors and had two incumbents step down, leaving the board with 12 members. Two of the new directors formed half of the value-creation panel, and two were named to a separate committee finding a successor for CEO Martin Koffel.

“The board and management of URS conducted a thorough review of all options and reached the right result for shareholders,” Rosenstein said in an e-mailed statement. “We congratulate both companies on forging a combination that should deliver significant value.”

Jana’s most recent filing showed about a 9.8 percent URS stake, making it the largest shareholder, data compiled by Bloomberg show.

One-Stop Shopping

The combined company will have more than 95,000 workers in 150 countries, according to today’s statement.

“The days when our clients would hire three or four engineering firm is over,” Koffel said on today’s conference call. “It’s one-stop shopping.”

Based on the enterprise value of $6 billion, the deal represents about 4.6 times URS’s earnings before interest, taxes, depreciation and amortization of $1.3 billion in 2013. That compares with a median of 11.6 times for U.S. engineering and construction services deals valued at more than $1 billion in the past five years, according to data compiled by Bloomberg.

“You couldn’t have had a better marriage of two companies that complement each others’ skill sets, scope and capabilities so well,” said Will Gabrielski, an analyst at Stephens Inc. in  New York .

“They both have the Federal government as a large customer, but there is very little overlap in what they do,” he said. “It’s a great value for both companies.”

URS Shares

URS  rose  2.1 percent to $52.02 on July 11 after Reuters reported the company had hired Citigroup Inc. and DBO Partners as advisers. The gain capped a 16 percent rally over 12 trading days, giving the company a market value of $3.59 billion.

URS has been involved in the building of the Fred Hartman Bridge, which spans the  Houston Ship Channel  in  Texas , and the renovation of the National Archives Building in  Washington . It was among the companies most affected by the 2013 U.S. government shutdown, with 3,000 workers on furlough.

URS bought engineering adviser  Scott Wilson  Group Plc for 223 million pounds ($382 million) in 2010, beating a bid from CH2M Hill Cos. U.K.-based Scott Wilson managed  London ’s Crossrail train project, which is now part of URS’s portfolio.

While most of New York-based Jana’s investments aren’t activist -- where a fund uses its stake to push for changes that boost shareholder returns -- those campaigns attract the most attention. Jana’s recent targets include PetSmart Inc., Oil States International Inc., QEP Resources Inc., and Agrium Inc.

Once activist investors buy more than 5 percent of a company’s stock, they’re required to flag their intention to engage with executives and directors by disclosing the holding in a Form 13D filing with the U.S. Securities and Exchange Commission.

(Source: Bloomberg)