Another turn­around

McDer­mott In­ter­na­tional’s CEO plans to re­vive Chicago Bridge & Iron.

Houston Chronicle Sunday - - BUSINESS - By Thomas Black

David Dick­son, chief ex­ec­u­tive of­fi­cer of McDer­mott In­ter­na­tional of Hous­ton, has turned around one trou­bled con­struc­tion com­pany. Now he’s try­ing to per­suade in­vestors he can do it again.

The tar­get this time is Chicago Bridge & Iron Co., The Wood­lands-based builder of petro­chem­i­cal fa­cil­i­ties and power plants that has debt of $2.1 bil­lion — more than its mar­ket value — and four projects drag­ging down its prof­its. McDer­mott agreed in De­cem­ber to ac­quire the com­pany in an all-stock deal val­ued at $6 bil­lion in­clud­ing debt.

The deal prompted McDer­mott’s big­gest stock swoon in two years. But shares are tick­ing back up as Dick­son vows to do at Chicago Bridge what he did at McDer­mott, a builder of off­shore plat­forms. Of nine projects that were los­ing money when Dick­son took the reins in late 2013, eight are now prof­itable. Op­er­at­ing in­come jumped to al­most $300 mil­lion last year from less than $20 mil­lion in 2014.

“It has all the hall­marks of the McDer­mott of three or four years ago,” said Dick­son, a 49-year-old Scot­land na­tive. “Ev­ery­thing is fix­able.”

The shares have mostly re­cov­ered from a 12 per­cent drop on Dec. 19, the day af­ter the deal was an­nounced. Chicago Bridge, which also sank af­ter the deal was an­nounced, has erased its losses.

In ad­di­tion to ex­tend­ing McDer­mott’s reach into petro­chem­i­cal projects, the com­bi­na­tion also adds tech­no­log­i­cal ca­pa­bil­i­ties and a big­ger U.S. foot­print. The Mid­dle East ac­counts for two-thirds of McDer­mott’s sales. Only 2 per­cent comes from the U.S., a mar­ket that ac­counts for 80 per­cent of rev­enue at Chicago Bridge.

When Dick­son ar­rived at McDer­mott, he re­fi­nanced debt to pro­vide give the com­pany fi­nan­cial breath­ing room and changed three­quar­ters of the lead­er­ship in an ef­fort to tear down bar­ri­ers within the or­ga­ni­za­tion.

As U.S. crude prices fell be­low $30 a bar­rel in 2016 from more than $100 in 2014, Dick­son wooed state-run oil com­pa­nies be­cause their bud­gets are more sta­ble. He spent 70 per­cent of his time on the road, trav­el­ing to coun­tries such as Saudi Ara­bia, In­dia and Mex­ico, re­pair­ing and build­ing re­la­tion­ships.

“David is ab­so­lutely the right guy to do this. He’s proven him­self,” said Marie Lor­den, co-founder of Fair­pointe Cap­i­tal in Chicago, which owns shares in McDer­mott and Chicago Bridge. “He un­der­stood the cul­ture and what had to change and was able to make the hard de­ci­sions.”

The com­bi­na­tion still heaps new risk on McDer­mott, which was poised to reap the ben­e­fits of re­newed spend­ing on off­shore drilling projects as oil prices rise. Power-plant con­struc­tion is fac­ing head­winds in the U.S. as re­new­able en­ergy projects and slack de­mand throw the eco­nomics of new gen­er­a­tors into ques­tion. A glut of liq­ue­fied nat­u­ral gas is weigh­ing on the kind of ex­port projects that Chicago Bridge was con­tracted to build.

Chicago Bridge’s four trou­bled projects — two liq­uid nat­u­ral gas pro­ces­sors and two gas-fired power plants — re­sulted in sec­ond-quar­ter charges of $548 mil­lion. On top of its debt, the com­pany has $920 mil­lion of net li­a­bil­i­ties tied to projects.

The trou­bles at Chicago Bridge, a com­pany founded in 1889, are rooted in the pur­chase about five years ago of the Shaw Group, which had won a large con­tract to build nu­clear plants in the U.S. The work ran into de­lays and cost over­runs, drain­ing cash. Then the en­ergy mar­ket crashed. The builder’s mar­ket value sank to about $1.8 bil­lion from as much as $9 bil­lion in 2014.

“We’re go­ing to ap­ply the McDer­mott play­book,” Dick­son said, “and hope­fully through that, get the com­pany back to where it should be.”

“David is ab­so­lutely the right guy to do this. He’s proven him­self.” Marie Lor­den, Fair­pointe Cap­i­tal


McDer­mott CEO David Dick­son on CB&I’s fi­nan­cial sit­u­a­tion: “Ev­ery­thing is fix­able.”

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