Fluor is receiving strong interest as it seeks a buyer for the government contracting business that does work for the U.S. Department of Energy and other federal agencies, CEO Carlos Hernandez said Wednesday.
“The interest in that business is very, very substantial,” Hernandez said during an appearance at the Credit Suisse 7th Annual Industrials Conference in Palm Beach, Fla. The CEO made the remarks during a one-on-one discussion with Credit Suisse Managing Director of Equity Research Jamie Cook, which was streamed on Fluor’s website.
Fluor announced in September it was placing the government services unit on the market. Since then, it has seen interest from both investment houses and companies that already have a government contracting presence, Hernandez said.
Some companies wanted to make a “pre-emptive” offer for the unit before September, but Fluor declined in hopes of getting a better price by publicly inviting all interested parties to bid, Hernandez said. He expressed confidence the Texas-based engineering and construction multinational will get an attractive price for the business.
The vendor plans to receive at least $1 billion through the sale, which is expected in 2020.
Once joint ventures are factored in, Fluor’s government sector has more than 28,000 employees working on about 40 projects.
The Fluor branch offers companies already in the government-contracting business an opportunity to increase their presence in the market, Hernandez said: “While the margins [in government work] are not high, they are very steady.”
Fluor is the lead partner in a trio of joint ventures serving DOE’s Office of Environmental Management, with contracts collectively worth almost $20 billion at the Idaho National Laboratory, Portsmouth Site in Ohio, and Savannah River Site in South Carolina.
All three of those contracts will expire by May 2021, although Fluor is a minority partner in other Energy Department contracts that extend further into the future.
During the conversation, Cook noted that AECOM agreed in October to sell its government contracting business for $2.4 billion. The agreement with a joint subsidiary of two New York investment houses happened quicker than many observers expected, the analyst added.
Hernandez is only seven months into his tenure at the helm of Fluor after being named to replace CEO David Seaton in May due to poor financial performance. Hernandez was previously the company’s executive vice president and chief legal officer.
Then in August, Hernandez announced “all options are on the table,” including asset sales following a $555 million quarterly loss. Before the September announcement there was industry chatter that Jacobs might buy Fluor’s government contracting unit.
