Shaw Group purchased

Acquisition valued at $3 billion

The Shaw Group Inc., a Baton Rouge Fortune 500 company, will become part of CB&I, a Dutch firm focused on the oil and gas industry, under a cash-and-stock deal valued at $3 billion.

Both CB&I, with U.S. operations based in The Woodlands, Texas, and Shaw officials said the deal will result in more jobs in Louisiana. However, analysts said duplicated administrative jobs in Shaw’s Baton Rouge headquarters could be eliminated.

CB&I, formerly known as Chicago Bridge & Iron, said it will pay Shaw shareholders $46 per share: $41 in cash and $5 worth of CB&I stock. That’s a 72 percent premium over the $26.69 Shaw’s stock had traded at on Friday.

The deal sent Shaw’s stock soaring 55 percent Monday to $41.49 per share.

CB&I Chief Executive Officer Phillip K. Asherman said CB&I will operate Shaw as CB&I Shaw, a business unit.

“We plan to create the most complete energy-focused, engineering services company in the world,” Asherman said.

Asherman said there won’t be a migration of jobs to CB&I’s administrative headquarters in The Woodlands. CB&I’s objective is to retain the Louisiana workers and increase their opportunities, he said.

“Shaw obviously has a very strong profile and is a great corporate citizen of Louisiana in a number of areas,” Asherman said during a conference call with stock analysts and investors Monday. “So the assurance is we see only additional opportunity for those 4,500 employees in all the areas of Louisiana, and we expect to continue that.”

Brian Konigsberg, an analyst with Vertical Research Partners, said he expects employment will largely remain intact, although he expects reductions in information technology, human resources, marketing and finance.

Senior management responsibilities and some corporate responsibilities will be assumed by CB&I’s administrative headquarters in The Woodlands, Konigsberg said in an email.

Jobs directly related to Shaw’s construction projects — the engineers, construction workers and project managers — are likely safe, said Loren Scott, a retired Louisiana economist. “I’m not so worried about them.”

What’s worrisome, Scott reflected, are what he calls the “back-office folks.”

“One would anticipate there are economies of scale in letting those things be handled by the headquarters office in Houston rather than Baton Rouge,” Scott said.

Of Shaw’s 27,000 employees worldwide, 1,000 are in Baton Rouge, the company said.

During the conference call, CB&I Chief Financial Officer Ron Ballschmiede said the combined company will be able to reduce some costs because it will no longer be required to have two boards, “two of everything at the senior level,” and the costs involved in meeting financial requirements for two publicly traded companies.

CB&I will also be able to reduce costs by working together on some projects, he added.

The combined company will be one of the largest in the Western hemisphere with annual revenue of more than $10 billion, a project backlog of more than $28 billion and around 50,000 employees, Asherman said.

J.M. Bernhard Jr., Shaw’s chairman, chief executive officer and president, said he expects Shaw to add jobs over the next 12 to 36 months in everything from modular facilities to engineering offices.

Hydraulic fracturing work and natural gas liquefaction and gas-to-liquids facilities are among the $40 billion worth of construction projects planned in Louisiana, Bernhard said. Shaw’s expertise in those areas and a workforce skilled in those types of projects should lead to more employment for CB&I Shaw, he said.

Bernhard will retire with the completion of CB&I’s acquisition. Asherman will run the combined company.

As of Jan. 1, Bernhard owned 1.2 million shares of Shaw stock, financial documents show. Under the purchase agreement, for those shares, he would receive $49.2 million in cash and $6 million worth of CB&I stock.

Baton Rouge Area Chamber officials welcomed CB&I to Baton Rouge in a statement and said: “BRAC is reaching out through Shaw management to CB&I to discuss the future.”

Stephen Moret, secretary for the Louisiana Department of Economic Development, said the state’s strong focus in liquefied natural gas activity and petrochemical sectors are huge growth areas for Louisiana now and in coming years, and an obvious market for Shaw’s expertise.

“Netherlands-based CB&I is looking to beef up its domestic workforce with the Shaw acquisition, as most of CB&I’s capacity currently is overseas,” Moret said. “We think there is the potential for significant job growth in Louisiana as a result of the acquisition, particularly in engineering jobs in Baton Rouge and expanded modular fabrication activity in Lake Charles,” Moret added. “We plan to explore a variety of growth opportunities with CB&I in the near future.”

Nearly 80 percent of CB&I’s revenue now comes from projects outside the United States, and 90 percent of its business is tied to the oil-and-gas industry, Asherman said. After the acquisition, the company’s revenue will be balanced across the energy sector, along with environmental and infrastructure work, and revenue will be divided equally between U.S. and non-U.S. projects, he said.

Asherman said CB&I had been looking at Shaw for a couple of years.

Shaw’s decision to sell its Energy and Chemicals Group and sell its 20 percent ownership of Westinghouse, both of which have been a drag on earnings, made Shaw more attractive, he said. Shedding the energy and chemicals unit also removed some of the overlap with CB&I’s existing business.

Asherman said he was excited about the possibilities with the Shaw acquisition. The deal is expected to increase 2013 earnings per share by 10 percent or more, he said. CB&I will finance the deal with some of its own cash, some of Shaw’s and $1.9 billion in debt.

However, stock analysts on Monday’s conference call were less enthusiastic about the deal.

Jamie Cook, with Credit Suisse, and Joe Ritchie, with Goldman Sachs, described Shaw’s business model, particularly the nuclear power segment, as riskier than CB&I’s.

“Any acquisition is risky but just Shaw’s business model seems a little riskier,” Cook said in the conference call. “Is there anything you can do to de-risk Shaw’s business model and if so what?”

Asherman said CB&I was satisfied with both its examination of Shaw’s business and records and the improvements in performance that the sale of Westinghouse and energy and chemicals will bring.

CB&I has taken a careful look at Shaw’s fix-priced contracting on some power plants, an area known to have caused issues in the past, Asherman said. In the United States, the nuclear segment is looking at five Westinghouse AP1000 nuclear reactors, but globally, that segment gets “very interesting.”

China is looking to install 70 of the nuclear reactors, Asherman said.

Shaw is the exclusive builder of nuclear projects using the AP1000 reactors.

CB&I is working on both of Shaw’s nuclear projects in the United States, Asherman said. CB&I has good insights into those projects and good relationships with Southern Co., the co-owner of a Georgia nuclear power plant, and Toshiba, which owns the rest of Westinghouse.

Meanwhile, Shaw’s fabrication and manufacturing businesses and its plant services and maintenance segments are “very, very good and healthy,” Asherman said. With the challenges of LNG and exports, shale gas and petrochemical expansions ahead, the ability to add Shaw’s workforce is very exciting, he said.

Bernhard said he doesn’t think much can be read into the stock analysts’ comments.

“There’s risk in our profile. There’s risk in CB&I’s,” he said.

The analysts he spoke to thought Shaw’s stock was performing admirably, he said. Shares were around $27 Friday and are now worth $46.

Bernhard said there are different things he wants to do — he is involved in public service and education — but he is not certain now what path he will take.

The deal means an end to Shaw as a publicly traded company. Bernhard, who founded the company, took the pipe fabricator public in December 1993. The initial stock sale netted around $34 million, or $54 million when adjusted for inflation.