Fluor to Seek Buyer for St-Louis-Based Subsidiary : Sale: The Irvine company’s Doe Run lead operation has reported losses for two years and has been plagued by a 3-month-old strike.
Fluor Corp. said Monday that it will sell its Doe Run Co. subsidiary, the largest producer of new and recycled lead in North America which has reported steady losses for two years.
Fluor, based in Irvine, said it hopes to find a buyer and complete a sale within a year, which would allow it to concentrate on its $5-billion-a-year core business of engineering, construction, maintenance and technical services.
The company said it will account for the future sale by classifying Doe Run as a discontinued operation and will take a $95-million charge against 1992 earnings.
Doe Run, based in St. Louis, is plagued at the moment by a glut in the lead market and a 3-month-old strike. In April, it suspended ore production at two of its six mines in south-central Missouri and idled one of two furnaces at its Herculaneum Smelter in Jefferson County. The company laid off 260 miners and smelters then; it said Monday that about 300 people are on strike and another 600 are still working.
“I suspect it won’t be easy to sell,” Richard J. Sweetnam, an analyst with the New York office of the brokerage Kidder, Peabody, said of the lead business.
Analysts put Doe Run’s worth at between $175 million and $225 million. The unit’s recent troubled history means that its sale price would probably not reach the high end of that range, said Stephen J. Dobi, a vice president with the brokerage Smith Barney, Harris, Upham in New York.
In the past, Doe Run has been a profitable component of Fluor’s operations. It earned $29 million for 1988, $38 million for 1989 and $36 million for 1990, according to Fluor’s annual reports.
For 1991, however, the lead operation lost $3.7 million, Fluor said, and for fiscal 1992, which ended Oct. 31, it lost $17 million.
Selling now would be advantageous because the price might be low enough to attract potential buyers, said John Simon, an analyst with the brokerage Seidler Amdec in Los Angeles. Also, if Fluor had announced a sale while Doe Run was making money, he said, “the stock price would have collapsed.”
In Monday’s trading on the New York Stock Exchange, Fluor’s stock gained 25 cents a share to close at $46.50.
One reason the stock didn’t react much to the Doe Run news is that Monday’s announcement has been expected “for some time now,” said Russell L. Leavitt, managing director of the brokerage Salomon Brothers in New York. He noted that Fluor’s stock has been creeping up for the past few weeks.
An economic recovery would buoy the fortunes of Doe Run, which sells 75% of its lead for use in car batteries, Simon said.
He said a foreign company--he did not identify any potential candidates--might find Doe Run an attractive investment.
Fluor has retained Merrill Lynch as an investment adviser to help with the sale. If the subsidiary is not sold to another company, it could be spun off and sold to the public through a stock offering or could be divested to existing shareholders on a tax-free basis with the approval of the Internal Revenue Service.
The announcement about Doe Run came just days before Fluor is due to announce year-end results.
Writing off the costs of the sale against 1992 earnings should improve analysts’ projections, Dobi of Smith Barney said. He noted that analysts placing a value on the company’s stock for the long term will not have to consider the financial burden of the money-losing operation.
Fluor also said Monday that it will adopt new financial accounting standards, which will result in a onetime charge to 1992 earnings of about $35 million after taxes and a reduction in shareholders’ equity of about $120 million.
The standards, which were recently established by the federal Financial Accounting Standards Board, apply to all public companies and must be in place by fiscal 1994. Early adoption is permitted; Fluor said it will implement both standards for the year just ended--fiscal 1992.
The performance of Fluor’s continuing operations--Fluor Daniel in Irvine and A.T. Massey in Richmond, Va.--will offset the onetime charges, resulting in a modest profit for the year, the company said.
Doe Run is one of two remaining operations outside of Fluor’s construction and engineering business. In 1990, Fluor sold its iron-ore subsidiary, Pea Ridge Iron Ore Co. in Sullivan, Mo., for $12 million.
Les McCraw, Fluor’s chairman and chief executive officer, indicated Monday that Fluor’s coal operation, A.T. Massey, is not likely to follow Doe Run to the auction block.
“We are taking these actions now to increase management’s focus on Fluor Daniel, our engineering and construction business, and A.T. Massey, our low-sulfur coal investment, both of which have been delivering predictable, double-digit earnings growth,” McCraw said in a prepared statement.
A.T. Massey sells coal to electricity-generating companies that are also clients of Fluor Daniel, so “there is more synergy there,” said Deborah Land, a Fluor spokeswoman.
