Tappan Seeking a Leaner Fluor : Selling Most Real Estate, Mining, Oil and Gas Assets
Fluor Corp., the giant Irvine-based engineering and construction company whose profits plummeted by 96% last year, has embarked on a new strategic plan that calls for the sale of virtually all its real estate, mining, oil and gas properties to raise cash and create a leaner, more competitive corporation, Chairman David S. Tappan Jr. revealed Wednesday.
In his first wide-ranging interview since taking over as chairman last September, Tappan explained why Fluor has been selling some of its assets in the last two years.
The plan, he said, is designed to make the company more profitable in a global economy marked by low inflation, slow growth and relatively cheap energy.
Flush with energy holdings and a backlog of billion-dollar construction projects, Fluor flourished during the worldwide building and energy boom of the 1970s. In recent years, though, the company has been struggling.
Tappan said the new plan does not include sale of the company’s St. Joe Minerals Corp. unit but would call for selling most of St. Joe’s holdings on the condition that St. Joe retains the management and operation of the mines.
“If we did all the things that we could do, we would wind up with no debt and maybe a half-billion dollars in the bank,” said Tappan, cautioning that the plan’s goals were long term. “I am not underestimating the challenge of making it happen.”
Fluor’s long-term debt amounts to $724 million. Tappan did not specify how much he hopes to raise through the sale of assets.
And although Tappan, who is 62, gave no timetable for executing the new strategy, he said the “meter is running.”
Tappan said he plans to retire at 65, in compliance with Fluor policy.
“I’m in a hurry. I don’t have a lot of time to horse around. The world out there is waiting to see what we can do,” said the snowy-haired chairman, sitting in his office in Fluor’s futuristic glass-and-steel headquarters.
Tappan said he, Vice Chairman Charles Cannon, 62, and President Buck Mickel, 59, are grooming a new crop of young executives to run the company when they retire.
Tappan, who was elected chairman two days after J. Robert Fluor died, said 1985 is a “critical year” but not the only critical one. In fiscal 1984, Fluor posted profits of $1 million, compared to $27.7 million in 1983. Fluor had record earnings of $159 million in 1981 .
In the wake of these depressed earnings, Fluor recently reduced executive compensation and cut some employee benefits.
On the bright side, however, the company booked $4.2 billion of new orders in 1984.
Fluor, which employs 32,000 worldwide, grew phenomenally through the 1970s by building $1-billion energy projects in the United States, the Middle East, South America and Asia. In recent years, facing a worldwide slump in heavy construction, Fluor has tried to redirect its energies into smaller projects. Of the approximately 700 new contracts booked in fiscal 1984, 90% were worth less than $100 million.
Few ‘Mega-Projects’
Fluor’s two largest current contracts are a $1-billion petrochemical plant in Saudi Arabia and a $600-million refinery in Rotterdam, The Netherlands.
Tappan said he plans to continue stressing smaller contracts as long as “mega-projects” remain few and far between. “Small can be beautiful,” he said.
Tappan, who has spent much of his 32-year career at Fluor circling the globe to sell the company’s services, said he will lead the effort to sell Fluor’s holdings and bring in new business. He plans to be on the road 85% of the time between now and March to meet with corporate and political leaders.
Tappan said that Fluor’s business in China will be a key to the company’s recovery. Fluor, which has completed or signed eight contracts in China since 1978, is negotiating to form a joint venture to modernize an aging silver, lead and zinc mine near Nanjing.
If the deal with the Chinese government goes through, Fluor would build and own a portion of a state-of-the-art “showcase” mine that promises to be a real “door opener” for Fluor, Tappan said.
“China is a new ball game,” said Tappan, who was born there to missionary parents. “It is not instant money, not overnight riches. It’s a long-term, solid, fantastic business opportunity if you are smart enough to get involved and make money.”
Fluor has an office in Peking and plans to establish a headquarters for its joint ventures elsewhere in the country. In recent months, China has unveiled plans to encourage outside investment, modernize its heavy industries and create a new brand of Chinese socialism with a capitalistic flavor.
Of the company’s plans to sell its mining holdings, Tappan said: “We want less than 100% ownership, but we want to have the operating contract. This reduces the investment in the thing, but I think we can still make the same amount of money, at least during tough times.” “It’s a simple way to get dollars out of fixed assets in the ground,” said Tappan.
He said Fluor owns a lot of real estate around the world, “a lot more than we remember acquiring. We went into it when we had more money than we knew what to do with.”
Tappan said Fluor has spent the last two years painfully adjusting to today’s economic realities--reduced inflation, a worldwide surplus of oil and a painfully slow recovery from an international slump in engineering and heavy construction.
In today’s economy, it does not make sense for an engineering company to own real estate, mines and oil and gas properties, he said.
For several years, the company has been steadily selling off its energy properties. Fluor has been shrinking steadily, writing off unprofitable oil and gas operations, selling its distribution group and oil and gas investments abroad.
In fiscal 1983, it sold $490 million of fixed assets. In October, 1984, Fluor said it was selling its Irvine headquarters for $340 million. In December, it announced the sale of its Daniel Construction subsidiary complex in South Carolina for about $50 million. Two years ago, the company sold its Northern California headquarters for about $45 million.
In each case, Fluor has a long-term lease to occupy the buildings.
