Fluor Joins Forces With Mexican Firm : Construction: Irvine engineers and ICA Industrial seek to benefit from an expected boom south of the border.
Seeking to capitalize on an expected construction boom in Mexico and increased business stemming from a possible North American free trade accord, Fluor Corp. announced Tuesday that its core engineering unit has formed a subsidiary with Mexico’s largest engineering and construction company.
Under the agreement, Fluor Daniel acquired a 49% stake in ICA Industrial, a subsidiary of Empresas ICA Sociedad Controladora. The new venture, ICA Fluor Daniel, will be based in Mexico City.
Though terms of the deal were not disclosed, analysts speculated that Fluor invested no more than $20 million in the venture. Kirsten Frosh, a spokeswoman for Fluor Corp. at its Irvine headquarters, said Fluor Daniel and ICA will split the new company’s operations and profit.
“We felt that the Mexican market had a lot of potential, and the best way to penetrate that market was to form an association like the one we have with ICA,” said Alex Batard, vice president of the Latin American division of Fluor Daniel.
“What’s intriguing is that Fluor has seemed gun-shy about getting into the Mexican market and has done so belatedly,” said Byron Callan, an analyst with Prudential Securities in New York. “But Fluor has more than made up for lost ground with its announcement regarding ICA.”
Mexico’s economy is now emerging from years of depression, analysts say, opening opportunities for U.S. engineering firms to help rebuild the country’s crumbling infrastructure. After decades of neglect, Mexico is primed for the construction of power plants and refineries--Fluor’s specialties.
Herbert Hart, an analyst with S.G. Warburg in San Rafael, Calif., said the deal will give Fluor a solid presence in Mexico that will become particularly crucial if the North American Free Trade Agreement is adopted. “There will be a number of U.S. manufacturing companies that will want to establish plants in Mexico,” he said.
Regardless of the fate of NAFTA, Hart said, the joint venture will mutually benefit Fluor and ICA. “It’s much better from Fluor’s standpoint to work with a local company,” he said. “And Fluor will bring a lot of clients into Mexico.”
Fluor’s marriage with ICA follows a trend among U.S. engineering and construction companies to forge alliances with their Mexican counterparts.
In 1989, M.W. Kellogg Co. in Houston purchased a 25% interest in Grapo Bufete Industrial, one of Mexico’s largest engineering firms. And in 1991, Bechtel Corp. formed a joint venture with Instituto Mexicano del Petroleo, a government-owned engineering company that provides research for Pemex, Mexico’s state-owned oil company.
A preliminary agreement was announced by Fluor and ICA in November. ICA Industrial had 1992 revenue of more than $200 million. Fluor’s annual revenue is more than $6.6 billion.
While it will focus on Mexico, ICA Fluor Daniel will also provide its engineering, construction and maintenance services in Central and South America, Batard said.
In Tuesday’s trading on the New York Stock Exchange, Fluor’s stock closed at $38.875 a share, down 12.5 cents.
