CH2M sold to Ja­cobs En­gi­neer­ing for $2.85B

The Denver Post - - FRONT PAGE - By Erin Dou­glas and Ta­mara Chuang

In­ter­na­tional en­gi­neer­ing be­he­moth CH2M, one of Colorado’s largest pri­vate com­pa­nies, has agreed to be pur­chased by Dal­las­based Ja­cobs En­gi­neer­ing Group Inc. for $2.85 bil­lion, the com­pa­nies an­nounced Wed­nes­day.

For Colorado, this is a big deal. Panama Canal big. CH2M, af­ter all, was one of the key con­trac­tors hired to man­age con­struc­tion of the third lane for the wa­tery short­cut through the Amer­i­cas. When the third lane opened last year, CH2M CEO Jac­que­line Hin­man was one of the few Coloradans per­son­ally in­vited by the Pana­ma­nian gov­ern­ment to at­tend the event.

“This is a win­ning com­bi­na­tion,” Hin­man said in a con­fer­ence call Wed­nes­day. “It’s not sim­ply about be­ing big­ger, it’s about of­fer­ing bet­ter: bet­ter op­por­tu­ni­ties for em­ploy­ees and out­stand­ing value for stake­hold­ers.”

The ac­qui­si­tion, ex­pected to close — pend­ing ap­provals — at the end of the year, is all about growth, said Steven Demetriou, Ja­cobs’ chair­man and CEO. There is lit­tle business over­lap, and the com­bi­na­tion ex­pands global reach for both. CH2M’s ex­per­tise in wa­ter in­fras­truc­ture and en­vi­ron­ment were tar­get growth ar­eas for Ja­cobs, which pri­mar­ily fo­cuses on the aero­space, in­fras­truc­ture, in­dus­trial and en­ergy sec­tors.

“We’re a grow­ing com­pany. They’re a grow­ing com­pany. We

both needed more ta­lent. We’re ex­cited and mov­ing on­ward and up­ward,” said Demetriou, who spent Tues­day meet­ing with lo­cal CH2M em­ploy­ees. “What we’re ac­quir­ing is ta­lent first and fore­most.”

Ja­cobs, which em­ploys 54,000 peo­ple around the world, op­er­ates a down­town Den­ver of­fice with about 450 peo­ple, he said. CH2M, with 20,000 em­ploy­ees world­wide, has about 1,700 in Colorado, with many work­ing out of the Dou­glas County head­quar­ters at 9191 S. Ja­maica St.

The two have very sim­i­lar cor­po­rate cul­tures, Demetriou said. And that doesn’t worry him. While Ja­cobs is pub­licly traded and CH2M is pri­vate and largely em­ployee owned, Ja­cobs has plenty of ex­pe­ri­ence in­te­grat­ing pri­vate firms. To date, Ja­cobs has ac­quired 74 com­pa­nies that were mostly “pri­vately owned, em­ployee or­ga­ni­za­tions,” Demetriou said.

“We have a very com­mon trans­for­ma­tional jour­ney, clients and qual­ity. It’s all about the peo­ple. I think as ac­qui­si­tions go, the cul­tural op­por­tu­nity is tremen­dous, but we also don’t over­lap on the business side,” Demetriou said. “Their board is made of many CH2M em­ploy­ees that unan­i­mously ap­proved it. But more im­por­tantly, dur­ing the two months of due process, the en­thu­si­asm we wit­nessed was just in­spir­ing. We are off to a run­ning start.”

While it’s too early to say what con­sol­i­da­tion will oc­cur, Hin­man, one of the few women run­ning a ma­jor U.S. en­gi­neer­ing firm to­day, will leave when the deal closes, Demetriou said. Lisa Glatch, CH2M’s ex­ec­u­tive in charge of growth and sales, and Gary Man­del, who served as Ja­cobs’ pres­i­dent of pe­tro­leum and chem­i­cals, will lead the in­te­gra­tion of the com­pa­nies.

“Tech­ni­cally, we’ve ac­quired CH2M, but we’re do­ing this as a com­bi­na­tion. The im­por­tant mes­sage here is our goal is to cre­ate a com­pany that doesn’t ex­ist in our in­dus­try to­day. We think there is tremen­dous op­por­tu­nity to cre­ate an in­no­va­tive com­pany for smart cities and cre­ate the best end re­sult for our clients,” Demetriou said.

Hin­man and other top CH2M lead­ers are ex­pected to fare very well fi­nan­cially. The Tele­graph in Lon­don ear­lier re­ported that Hin­man’s em­ploy­ment con­tract gives “shares worth five times her an­nual $1m salary.”

For­merly known as CH2M Hill, a name de­rived from its founders’ ini­tials, CH2M has a long his­tory in Colorado. Founded in Ore­gon in 1946, it moved to Den­ver in 1982. It be­came one of Den­ver’s big­gest in­ter­na­tional play­ers. Its high­est-pro­file project in Colorado was as a part­ner in Kaiser-Hill, which cleaned up Rocky Flats, the U.S. Depart­ment of En­ergy’s con­tam­i­nated plu­to­ni­umpro­cess­ing plant 16 miles north­west of Den­ver.

Its for­mer CEO, Ralph Peter­son, who died in 2009, was a well-known fig­ure in Den­ver. Gov. John Hick­en­looper called him a men­tor and picked him to serve on his tran­si­tion team to Den­ver mayor in 2003. Hin­man is one of the only women to run a ma­jor U.S. en­gi­neer­ing firm and be­longs to the 6.4 per­cent of women who head a Fortune 500 com­pany.

Ja­cobs, founded in 1947, moved to Dal­las from Cal­i­for­nia last year. Some of the com­pany’s bet­ter-known Colorado projects are FasTracks, Den­ver In­ter­na­tional Air­port and mul­ti­ple projects with the Colorado Depart­ment of Trans­porta­tion.

Ja­cobs’ stock price has surged since its 52-week low of $49.15 in Oc­to­ber. Last fall, it ben­e­fited from Pres­i­dent Don­ald Trump’s plan to spend $1 tril­lion on in­fras­truc­ture projects, which has boosted en­gi­neer­ing and con­struc­tion stocks.

Ad­justed for a Fe­bru­ary split, its stock traded about 8 per­cent higher than the 52-week low to close Wed­nes­day up a half per­cent at $53.35. It has a mar­ket value of about $6.42 bil­lion.

While CH2M has a share price, it isn’t pub­licly traded. The com­pany’s board de­ter­mines its stock price each quar­ter based on the per­for­mance of the business. A CH2M share cur­rently has a price of $50.69, but the Ja­cobs offer val­ued the com­pany at $88.08 a share, which Hin­man called a “solid premium.” Share­hold­ers would re­ceive 60 per­cent cash and 40 per­cent Ja­cobs’ stock for each share.

The pur­chase price was higher than an­a­lysts and re­ports sug­gested — some ex­pected it to be about $1.5 bil­lion due to CH2M project li­a­bil­i­ties and con­tro­versy over­seas. CH2M lost a con­tract to over­see the sec­ond phase of the High Speed Two rail project, a ma­jor con­struc­tion project in Bri­tain. The firm also faced ques­tions over pen­sion li­a­bil­i­ties stem­ming from its 2011 en­try into the Bri­tish mar­ket when it bought Hal­crow.

CH2M made $15 mil­lion in net in­come on $5.2 bil­lion in rev­enue in 2016, down from the prior year’s $80.4 mil­lion in net in­come on $5.4 bil­lion in rev­enues.

In fis­cal 2016, Ja­cobs re­ported net in­come of $396.2 mil­lion on $10.9 bil­lion in rev­enue, ac­cord­ing to Bloomberg. That’s down from $432.9 mil­lion in net in­come on $12.1 bil­lion in rev­enue the prior year.

Ja­cobs ex­pects the ac­qui­si­tion to pro­vide $150 mil­lion in an­nual cost sav­ings.

Pend­ing C2HM stock­holder ap­proval, it will be one of the largest deals ever in the en­gi­neer­ing in­dus­try, ac­cord­ing to The Wall Street Jour­nal, af­ter Ae­com’s roughly $4 bil­lion deal to buy URS Corp. in 2014.

“To­day I can say with con­fi­dence that in choos­ing this path with Ja­cobs, we’ve made the right choice and the best choice for our em­ploy­ees, clients and stock­hold­ers, just as our founders would ex­pect,” Hin­man said. “It’s a choice that hon­ors them.”

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