Three industry sources said recently Fluor’s government services group, if not the entire company, could be an acquisition target for another player in the nuclear cleanup industry, Jacobs Engineering.
Such a deal could further consolidate Jacobs’ hold on the business of environmental remediation for the U.S. Department of Energy, following its December 2017 purchase of CH2M.
“There are people having those discussions” between Jacobs and Fluor, one source said on July 19.
Fluor, the Irving, Texas-based global engineering, procurement, and construction provider, declined to comment.
“Fluor Corporation does not provide public information in response to market rumors,” the company said in an email statement Sunday. “As a publicly-traded company, Fluor is always reviewing potential business opportunities to provide better value for our external stakeholders, clients and employees and would publicly communicate any potential material decisions and news at that time.”
Jacobs did not respond to queries regarding its rumored interest in Fluor.
Fluor does business with clients on six continents. It brought in $19.2 billion of revenue in 2018 and has more than 53,000 employees worldwide in a half-dozen markets including government services.
The industry talk is fueled in part by rough financial times at Fluor, which contributed to the May exit of CEO David Seaton after eight years at the helm and 34 years with the company. He was replaced by longtime executive Carlos Hernandez.
Fluor in May reported $4.2 billion in first-quarter 2019 revenue, compared to $4.8 billion during the first three months of 2018. Its net loss of $58 million, or $0.42 per diluted share, was more than triple the $18 million loss, or $0.13 per diluted share, a year ago.
Perhaps more troubling is the longer-term erosion in Fluor’s stock price, hovering around $33 per share Thursday, down from $39 at the time of Seaton’s exit and $50 at this time last year.
Fluor has a large footprint in the U.S. nuclear security enterprise, and in the environmental cleanup programs ongoing across the old nuclear weapons complex.
Fluor is one of two integrated subcontractors to the Battelle-led venture that manages the Los Alamos National Laboratory in New Mexico under a contract valued at $20 billion over 10 years.
The company also leads the management and operations team at the Savannah River Site in South Carolina, which includes the National Nuclear Security Administration’s tritium-harvesting-and-bottling mission at the site. The Savannah River team recently received a 14-month, $1.5 billion extension from DOE. With its pair of one-year extensions, the extension could keep the team on the job through Sept. 1, 2022.
Fluor’s government segment, which includes its DOE work, saw its operating profit drop to $17 million for the quarter ended March 31, from $48 million a year earlier. The group’s revenue dipped to $785 million, from $1.3 billion. This reflects expiration of a electricity restoration contract in Puerto Rico following a hurricane.
Like Fluor, Jacobs is based in the Dallas area and is an international provider of construction and technical services. It has about 80,000 employees worldwide. Company-wide revenue was roughly $15 billion for 2018 and its stock price is hovering around $85 per share, up from $67 a year ago.
In May, Jacobs reported $3.1 billion in revenue for the first three months of 2019, up 7.7% from the $2.9 billion the company took in for the same period of 2018. Its Aerospace, Technology, and Nuclear group took home more than $1 billion in revenue for the latest quarter, up from $923 million a year ago. The ATN group’s customers range from the National Nuclear Security Administration to the broader Department of Energy.
Other Industry Restructuring Possible
Los Angeles-based AECOM announced plans last month to spin off the business that contracts with the U.S. Departments of Energy and Defense into a separate publicly traded company.
AECOM’s Management Services arm would be divested as a yet-to-named stand-alone entity in the latter half of 2020.
AECOM Chairman and CEO Michael Burke said the existing Management Services group already has more than 25,000 employees and $4 billion in annual revenue in government contracting.
AECOM executives believe a stand-alone government services company would be attractive to investors, by providing greater flexibility to seek deals in a growing market for government contracts.
But a longstanding government contracting business seems in some ways a curious candidate for a spinoff, one of the three sources said. It’s very possible this could become a “sell-off” rather than a “spinoff,” he added.
Government contracting is a steady business, but not one that promises dramatic market growth, the source said. It might attract an investment company or another other buyer hoping for a larger presence in areas served by AECOM’s Management Services’ group.
At DOE’s Office of Environmental Management, AECOM is already lead partner on several big contracts – a potential 10-year, $2 billion award through September 2022 at the Waste Isolation Pilot Plant in New Mexico; a potential nine-year, $2.7 billion contract through July 2020 for remediation of the Oak Ridge Site in Tennessee; nearly $7 billion of business over 11 years extending through September for Hanford wsate tank operations. It has managed liquid waste operations at SRS since July 2009 under $5 billion worth of business stretching through September 2020.
AECOM spokesman Keith Wood said Thursday the company is pursuing its plans for a spinoff and does not comment on market speculation.
Finally, sources said to keep an eye on Montreal-based engineering and construction company SNC-Lavalin, which purchased Energy Department contractor WS Atkins in July 2017. SNC-Lavalin has suffered tough times lately, including a legal case accusing it of bribing Libyan officials from 2001 to 2011 while trying to win business there.
The company is currently trading at around $16 (U.S.), down from $43 a year ago.
SNC-Lavalin could now be looking to sell assets, including Atkins, sources said.
The possibility of consolidation among federal contractors will pose a concern for the Energy Department, two sources said. Restructuring could create questions about management stability in affected joint ventures in charge of nuclear remediation.
