Shearson to Study Fluor’s Coal Unit, Fueling Talk of Sale
Fluor Corp. said Friday that it has retained Shearson Lehman Hutton Inc. to “explore strategic options” for its A.T. Massey Coal Co., raising speculation that the company may be considering a sale of that highly profitable unit.
Deborah Land, a spokeswoman for Irvine-based Fluor, would not rule out the possibility that the coal manufacturer based in Richmond, Va., might be sold.
“I never say never,” she said, but stressed that there are many other options that the investment banking firm would study, including a possible expansion of the unit’s operations or simply maintaining “the status quo.”
“We routinely ask consultants to help us,” Land said.
Herb Hart, an analyst with S.G. Warburg & Co., said Fluor would be reluctant to sell Massey unless it got an exceptionally good offer. “I think they feel coal is an energy product, and Fluor understands energy,” said Hart, referring to Fluor’s longstanding history in the hydrocarbon field. “I think they feel all forms of energy have appreciation potential.”
There is speculation that legislation to fight acid rain could make low-sulfur coal reserves of the kind Massey mines much more valuable.
Hart said as an alternative to an immediate sale of Massey, his “guess would be that they (Fluor) would be much more likely to sell stock in Massey to the public, as they did with the (St. Joe) gold operation, to establish a value for it.”
In 1986 Fluor spun off 10% of St. Joe Gold, its former gold mining subsidiary, in a public stock sale. After testing the market for the gold company, Fluor the next year sold the rest of St. Joe Gold and other gold properties for $500 million in cash.
In recent years, however, Fluor has been steadily selling off operations that do not relate to its core business of engineering and construction. Recently the company offered its lead production business for sale.
Massey, one of the largest U.S. coal marketers, produced an operating profit of $51 million in Fluor’s last fiscal year, which ended Oct. 31, on revenue of $815.5 million. That represented about 13% of the giant corporation’s total revenue of $6.3 billion.
While Fluor this week reported that first-quarter profits from its combined coal and lead investments were lower than a year ago, it placed the blame squarely on the lead operation, while noting that the coal operation alone had shown “significantly improved results.”
In early 1987, when Fluor was struggling to reverse huge losses, David Tappan Jr., then the company’s chairman and chief executive, fondly described Massey Coal Co., in which Fluor then had a 50% interest, as Fluor’s “No. 1 cash machine.”
In fiscal 1986, when Fluor posted a $60.4-million loss, Massey generated $49 million in operating profit.
Later in 1987, Fluor restructured Massey by severing its joint venture with Shell Oil Co. and acquiring 100% ownership of the company.
