Morrison Knudsen Buys Raytheon Engineering and Construction Unit
It comes only days after Raytheon admitted the business was up for sale, more than doubles the size of Morrison Knudsen (MK). Last year, RE&C generated $2.7 billion in revenue, while MK billed $2.2 billion. Together, the two companies will have a $6.7 billion backlog.
MK also announced that it has bolstered its management by promoting Stephen G. Hanks to president and hiring former Fluor Daniel president Vincent L. Kontny as COO.
Raytheon and MK expect to finalize the transaction by May 31, 2000. Raytheon expects to realize $800-820 million from the sale. This includes $10 million in cash at closing; retention of $250 million in first quarter revenue; $185 million in billed receivables; $50 million in other working capital; and net pension assets of $320 million.
In return, Raytheon retains responsibility for four large, fixed-price international turnkey projects that are close to completion. Mounting costs and delays at the four projects have sapped the profitability of the unit over the past two years. Raytheon will also partially indemnify Morrison Knudsen on the completion of one other existing project.
Raytheon expects to record a $250-$300 million first quarter loss on the disposal of the business. The transaction will not have a significant impact on Raytheon's net debt. The sale is subject to Hart- Scott-Rodino antitrust and other regulatory approvals.
Morrison Knudsen has more than 22,000 employees in more than 35 countries. Its key markets include energy; environmental; government; heavy-civil; industrial; mining; operations and maintenance; process; transportation; and water resources. It is a significant player in the food and beverage industry, less so in chemicals and refining.
MK plans to restructure itself into five full-service operating units. These include:
- Power. Combine MK's nuclear power plant steam generator replacement experience with RE&C's power-generation and commercial decontamination/decommissioning capabilities. Had the companies been combined in 1999, the unit would have represented about 18% of company revenues.
Infrastructure. The heavy-civil-construction and mining unit will provide project-execution and design/build capabilities for highways, railways, marine, water-resources, airport, and mining. The unit would have accounted for 24% of company revenues in 1999.
Industrial/Process. At 22% of revenues, it draws together engineering, program, construction management strengths in automotive, aerospace, food and beverage, automated systems, biopharmaceutical, pulp and paper, and operations and maintenance markets.
Government Services. Anchored by MK's Westinghouse Government Services Group, the heart of the business lies in the operation and management of US Dept. of Energy and Dept. of Defense facilities, as well as environmental remediation, decommissioning, and decontamination services. It accounts for 25% of company revenues.
Petroleum & Chemical. The unit consists primarily of RE&C technologies for the refining, chemical, and petrochemical industries. It represents 11% of combined company income.
A newly formed Office of the Chairman will manage the new structure. It will consist of MK chairman/CEO Dennis R. Washington; president Hanks, a 22-year MK veteran who was previously executive VP and chief legal officer; and Kontny, formerly president/COO of Fluor Corp. and president of Fluor Daniel, Inc.
Credit Suisse First Boston and Bank of Montreal will help finance the acquisition and future capital needs, as well as refinance existing debts. Credit Suisse First Boston and Batchelder & Partners, Inc., advised MK on the transaction, one of the largest ever of an engineering and construction company.
By Alan S. Brown