When engineering company and Energy Department contractor CH2M was looking for potential merger partners this past spring, eventual buyer Jacobs Engineering wasn’t the only party showing interest, CH2M noted in a mammoth filing Tuesday with the U.S. Securities and Exchange Commission.
On Aug. 2, the two companies announced they had entered into an agreement for Jacobs to acquire all outstanding shares of CH2M for $3.27 billion, including the assumption of more than $400 million in CH2M debt.
Since the third quarter of 2016, CH2M had been looking at ways to restructure its operations and consolidate some facilities.
CH2M had looked at potential merger partners for several months and in May and June of this year had expressions of interest from Jacobs and at least two other companies, according to a “preliminary proxy statement” published Oct. 24. The disclosure document is intended, in part, to provide shareholders with additional information on the proposed merger prior to an as-yet unscheduled vote by the company’s owners.
During the first week in May, CH2M had representatives of Bank of America Merrill Lynch reach out to a senior vice president at Jacobs to see if the company was interested in discussing a business combination. Also in early May, CH2M approached a couple large publicly traded engineering services companies to assess their interest. These two organizations were identified only as “Company B” and “Company C” in the SEC filing.
CH2M could not be reached for additional detail Friday.
Jacobs and one of the other companies did make preliminary, nonbinding offers before CH2M agreed to focus on Jacobs in mid-to-early June.
On June 14, 2017, the two companies entered into an “exclusivity agreement” to last through July 29, 2017, for Jacobs to perform a due diligence review and negotiate a deal to acquire CH2M. The merger agreement was finalized between July 28 and July 31.
Founded in 1946, CH2M is a large firm providing various engineering and construction-related services internationally. It has about 20,000 employees.
Jacobs and CH2M have publicly announced that CH2M CEO Jacqueline Hinman will not remain with Jacobs following the merger. In fall 2016, CH2M said it would go from four to three business units, with DOE nuclear cleanup contracts slotted under the national governments group. This came after CH2M had reduced its total workforce by about 1,500 people.
Headway is being made on the regulatory front for the merger. On Aug. 15, 2017, Jacobs and CH2M filed the required notices with the antitrust division of the Justice Department and the Federal Trade Commission. On Oct. 18, the two companies received early termination of the Hart-Scott-Rodino Act waiting period. This is a premerger notification process that certain large companies must file with Justice and the FTC.
Assuming approval from regulators and CH2M stockholders, the deal would close in the first quarter of 2018. “Meanwhile, Jacobs and CH2M remain two separate, independent companies, competing in the marketplace business as usual, each of which continue to win and deliver great work,” CH2M said in a 20-page question-and-answer package aimed at employees and shareholders of the companies.
CH2M is a significant presence in the DOE nuclear cleanup complex, with large contracts at the Hanford Site in Washington state and Oak Ridge Reservation in Tennessee, among other sites. Last week, a CH2M-headed team took over remediation of the Paducah Gaseous Diffusion Plant in Kentucky, under a contract awarded in May that is worth $1.5 billion over five years, according to DOE. It is believed to have competed for the $4.7 billion liquid waste contract at the Savannah River Site in South Carolina that earlier this month went to a joint venture of Bechtel, BWX Technologies, and Honeywell.
Jacobs is part of a team, with Honeywell and Stoller Newport News Nuclear, that in May won a contract worth up to $5 billion over 10 years to manage the Nevada National Security Site for DOE’s semiautonomous National Nuclear Security Administration. It replaces a Northrop Grumman-led group that features CH2M. Jacobs is also a partner in Mission Support Alliance, the support services provider at Hanford.
Jacobs is scheduled to have its quarterly earnings conference call on Nov. 21. CH2M’s last earnings call was in August; no fall earnings date was listed yet as of Friday on the company’s website.
CH2M Expects DOE to Fight $33M Decision in Idaho Cleanup Case
Separately, CH2M anticipates the Energy Department will pursue a legal challenge to a $33.2 million decision from the Civilian Board of Contract Appeals last month in favor of a CH2M joint venture that was the former prime cleanup contractor for the Idaho National Laboratory.
“The DOE is expected to seek relief from the decision, and, if unsuccessful, to appeal,” CH2M said in the SEC document on the Jacobs deal. The company said it believes the outcome of the dispute won’t have a major adverse impact on its financial condition.
CH2M-WG Idaho, or CWI, was the prime remediation contractor at DOE’s Idaho site from May 2005 through March 2016. The contractor would ultimately file an appeal with the contract board regarding CWI’s final fee for the base contract period from May 2005 through September 2012, maintaining that DOE had failed to pay all the fees it was owed from that period.
The Energy Department has said previously it is weighing its legal options and declined to elaborate on that this week.
Fluor last year assumed the Idaho remediation work, valued at $1.4 billion over five years. The contract covers waste removal and other cleanup operations as well as the Advance Mixed Waste Treatment Project.
