CB&I to Buy Shaw for $3.04 Billion

Chicago Bridge & Iron Co. agreed to acquire Shaw Group Inc. for $3.04 billion in cash and stock as the oil- and natural gas-focused energy infrastructure construction company looks to diversify its offerings in growth areas such as nuclear power generation.

The combination would create one of the largest global energy engineering and construction companies, CB&I Chief Executive Philip K. Asherman said.

"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," Mr. Asherman said in a statement.

Shaw, whose businesses range from power plant engineering to restoration of contaminated land and government services, had seen its revenue decline for more than two years before the trend turned around late last year. The Baton Rouge, La.-based company had said its power segment started to benefit from U.S. nuclear projects, though at a slower-than-expected rate. The company is building the first U.S. nuclear reactors permitted since the 1970s, and expects contributions from those projects throughout the fiscal year.

The combined company, Mr. Asherman said on a conference call to discuss the deal, will be "one of the largest Western companies in the business, and likely the largest company in resources targeted to the energy sector."

Shaw holders will receive $46 a share, a 72% premium over Friday's close. The stock surged 61% to $42.92 and briefly topped the offer price in premarket trade, suggesting investors might be expecting a higher bid. Shares last traded above the offer price in summer 2008. Shaw had almost 66 million shares outstanding as of July 5.

About 80% of CB&I's revenue comes from outside the U.S., Mr. Asherman said, a percentage he said he expects to decline to roughly 50% after the Shaw acquisition.

CB&I has posted stronger topline results every quarter for more than a year as it has won contracts for large infrastructure projects. Demand has been particularly strong in the energy sector, including storage projects in Russia and liquefied natural-gas facilities elsewhere. Mr. Asherman said 90% of CB&I's revenue is directly tied to oil and natural gas.

"We've needed to diversify," Mr. Asherman said.

CB&I has had its eye on Shaw for a couple years, Mr. Asherman said. Shaw, he said, became a more attractive target after it sold its 20% stake in nuclear-plant designer Westinghouse Electric Co. last year and sold most of its energy and chemicals business in May, eliminating an area of overlap with CB&I.

Mr. Asherman said the company had no plans to divest any of Shaw's current assets, adding that CB&I "bought [Shaw] for all the components of the company."

CB&I said it will use cash on hand at both companies, along with about $1.9 billion in debt, to finance the purchase. The acquisition is expected to close in early 2013 and will add to per-share earnings in that year and beyond. Mr. Asherman said he expects the combined company to retain "an investment grade type profile."

CB&I will operate Shaw under the brand name CB&I Shaw. The new company will have about 50,000 employees and a nearly $30 billion backlog.

Last week, CB&I said its second-quarter earnings increased 17% on improved results in its three main businesses, led by growth at its project engineering and construction segment. And earlier this month, Shaw said its fiscal third-quarter loss narrowed as revenue grew faster than expected.

CB&I is based in the Netherlands and has its administrative headquarters in The Woodlands, Texas.

Copyright (c) 2012 Dow Jones & Company, Inc.

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