Morrison Knudsen Agrees to $400-Million Merger With Rival

Troubled engineering giant Morrison Knudsen Corp., whose proud past includes such huge projects as the Hoover Dam, agreed Thursday to be purchased by a much smaller rival in a deal worth nearly $400 million.

Morrison, which has struggled to remain solvent since shocking Wall Street last year with the disclosure of massive losses, will be combined with Washington Construction Group Inc., a Southern California company controlled by Montana entrepreneur Dennis Washington.

The deal with the much smaller construction outfit, based in the San Bernardino County city of Highland, would create a $2.2-billion enterprise with a much stronger position in the industry. The merged company would operate under the Morrison Knudsen name and have its headquarters in Boise, Idaho.

Under the deal, Washington Construction, formerly Kasler Holding Co., would pay Morrison Knudsen creditors $13.3 million in cash and give them a 45% stake in the new company. Washington Construction would also assume as much as $50 million in Morrison Knudsen debt. The deal allows MK shareholders to buy 2,765,000 shares of common stock of the new company at $12 a share over five years. They would also get stock warrants in the new company that analysts valued at 15 to 25 cents a share.

MK shares were at $1.50 before trading was halted on the NYSE for announcement of the deal. Washington Construction was off 12.5 cents at $8.375, also on the NYSE.