URS Corporation (URS) has won a bidding war for Scott Wilson Group after privately held CH2M Hill withdrew its offer. URS Corporation had increased its offer to acquire Scott Wilson Group Plc from £161 million or $242 million to £223 million or $337 million. The 38% increase in the offer price for Scott Wilson by URS came in response to a higher offer made by the US-based engineering firm CH2M HILL Companies Ltd. CH2M HILL made an offer of 245 pence per share, superior to URS’ initial offer of 210 pence per share. It is to be noted that CH2M HILL currently has a 13.1% stake in Scott Wilson.
URS was to match the offer price of CH2M HILL by July 1, 2010. The revised offer was made by URS within the deadline. The increased offer by URS, per which shareholders of Wilson will receive 290 pence in cash for each share, has been recommended by the board of directors of Scott Wilson.
Scott Wilson is a UK based company, specializing in design and engineering consultancy in the infrastructure sector. The acquisition of Scott Wilson is important for URS as it will increase its growth opportunity in the UK and worldwide, especially in China and India, which hold significant long-term growth opportunities.
The acquisition of Scott Wilson, to be financed by URS from its cash reserves, is expected to be neutral to 2010 earnings. The deal is expected to be accretive to fiscal year 2011 GAAP earnings per share.
As companies explore and develop remote production areas such as the Arctic and the Gulf of Mexico, URS can capitalize on its ability to deploy resources across a range of project sizes and in diverse geographic areas. In addition, URS is well-positioned to help clients build, upgrade or modify refineries capable of handling new types of fuels.
However, demand for its services is cyclical and vulnerable to economic downturns and reductions in government and private industry spending. If the economy remains weak or client spending declines further, then its revenues, profits and financial condition may deteriorate. Global economic conditions may continue to lead clients to delay, curtail or cancel the proposed and existing projects. This in turn decreases the overall demand for services, resulting in weak financial results.
We currently maintain our Neutral Recommendation on URS Corporation.
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