Talks With Morrison-Knudsen : Nassco Group Is Negotiating to Buy Yard From Parent Firm
A management-led group at San Diego-based National Steel & Shipbuilding Co. is negotiating to buy the financially troubled company from Boise, Idaho-based Morrison-Knudsen, Nassco Vice President Fred C. Hallett said Wednesday.
Negotiations between NASSCO and its parent company are “in a very preliminary stage,” Hallett said. Nassco executives have hired a Los Angles-based law firm to study possible financing options.
“At this point we haven’t ruled out any financing possibilities,” Hallett said. “We would like, however, to see as broad a base of (employee) ownership as possible.”
Nassco is studying a number of options, including a leveraged buyout, an employee stock ownership, a merger, an acquisition or some combination, according to Hallett.
“What we want to end up with is a strong and viable shipyard,” Hallett said. “How we will get to that point we don’t yet know.”
Nassco, a wholly owned subsidiary of Morrison-Knudsen since 1979, has reported $29.6 million in operating losses during the past two years. In August, Morrison-Knudsen Chairman William Agee said the “low level of work in the shipyard is likely to produce operating losses” until it wins new contracts.
Employment at the 120-acre shipyard on San Diego Bay just south of the Coronado Bridge has fallen to 1,800 from an all-time high of 7,600 in 1980. Nassco’s management blamed high labor costs for the company’s inability to win new contracts to build Navy ships.
Since 1980, the yard has instead depended largely upon contracts to repair such ships.
Nassco recently negotiated stiff wage cutbacks that reduced wages by as much as 50% for some of the 1,000 shipyard employees who are represented by seven labor unions. Those concessions followed a bitter three-week strike in August. Those contracts would remain in effect if a buyout deal were struck, Hallett said.
New Contracts Won
Nassco last year won a $200-million contract to build a fast combat supply ship for the Navy. Earlier this month, lobbying efforts by union and company representatives paid off when the Navy awarded Nassco a $242-million contract to build another fast supply ship. Nassco also is in the running for two more contracts that will be awarded in 1989 and 1990, Hallett said.
It was Morrison-Knudsen Chairman Agee who two weeks ago directed Nassco to create a negotiating team to explore the possible acquisition of Nassco, Hallett said.
“What we’re trying to do now is balance the needs of the parent company and Nassco,” Hallett said.
Agee on Wednesday made those negotiations public when he told industry analysts in New York that he had asked Nassco executives to engage in negotiations that could lead to a possible sale of the shipbuilding business.
Construction and engineering businesses generated the bulk of Morrison-Knudsen’s $1.8 billion in 1987 revenue. Shipbuilding operations in San Diego contributed just $115 million of that total.
Caution and Optimism
Leaders of Nassco’s unions responded to news of a possible sale with a blend of caution and optimism.
“I’m a little skeptical right now,” said Manuel Ruiz, an ironworkers union business representative. “But I just heard about the plan a half-hour ago.”
“The feeling in the yard is that we’ve all got to pull together,” said Peter Zschiesche,a business representative with the International Assn. of Machinists and Aerospace Workers. “(Management and unions) both went to the edge of the cliff in the recent contract negotiations, and with the (recent) negotiations we both decided to step back and stop slugging each other.”
Earlier this month, Nassco informed employees that it had asked federal regulators for permission to take about $16 million out of the company’s over-funded pension plan. However, Hallett said the possible deal is not contingent upon that $16 million.
In recent years, Nassco’s shipyard has been wracked by labor strife and allegations of unsafe working conditions.
Six workers were killed and six others were injured in a July, 1987, accident involving a crane. Nassco has corrected all of the 451 alleged safety violations uncovered during a subsequent “wall-to-wall” safety inspection conducted by the federal Occupational Safety and Health Administration, Hallett said.
Any deal involving Nassco would be subject to the “resolution of contract issues between Morrison-Knudsen and the Navy department,” according to a Morrison-Knudsen spokesman in Boise.
