Deal Would Involve Swapping Unsecured Bonds for Stock : Founder Seeks to Buy Out Jacobs

Joseph J. Jacobs, founder and chairman of Jacobs Engineering Group, proposed Monday to take the construction company private in a deal that would swap unsecured bonds with a face value of $21.6 million for the 2.4 million shares of stock held outside the Jacobs family.

Jacobs, whose family owns 42.6% of the Pasadena company’s 4.3 million outstanding shares, says he is prepared to offer a bond with a face value of $9 and a coupon rate of 12% for each non-family share.

Mired in Slump

Jacobs said that, until the sale is completed, he cannot legally discuss his reasons for wanting to buy back the company that he created, but sources close to the company say he believes it has been undervalued.

Trading in the stock was halted Monday pending Jacobs’ announcement. It closed Friday at $5.875 a share.

Jacobs Engineering, in common with other construction engineering companies, has been mired in the worst slump that the industry has faced since the Depression. The slump has been caused by belt-tightening by all industries.

Because the heavy engineering and construction business often deals with projects valued at $100 million or more, as much as a year can pass between the time a contract is signed and work begins. As the industry hit its peak in the early 1980s, orders for new work fell dramatically. Companies like Jacobs Engineering were caught with huge payrolls and small work backlogs, which produced an industry recession that has only recently begun showing signs of easing.

The Jacobs Engineering board has formed a special committee of outside directors to study the fairness of the proposed leveraged buy-out and make a recommendation.

In a leveraged buy-out, a company is bought largely with borrowed money.

The company said that, if the board accepts the proposal, a proxy statement will be mailed to stockholders in March. If the shareholders approve it, the buy-out should be completed in April.

The face amount and interest rate of the bonds, which would be due in 1996, could be revised upward or downward depending on the market conditions and interest rates at the time an agreement is reached, the company said.

Jacobs said he would seek to have the bonds listed on the American Stock Exchange.

Founded in 1947

Jacobs founded Jacobs Engineering in 1947 as a one-man consulting firm. The company went public in 1971 and has been traded on the American Stock Exchange since 1972.

In fiscal 1985, which ended Sept. 30, Jacobs Engineering earned $2 million on sales of $220 million. In 1984, it lost $8.9 million on sales of $177.8 million.

Sources at the company, which employs about 1,500, said the proposed leveraged buy-out calls for no major reorganizations or lay-offs.