Fluor Corp. Dividing Into Two, Spinning Off Mining Operations
Fluor Corp., amid signs of a financial recovery, said its board approved a plan to split the Aliso Viejo firm into two publicly traded companies: one that would assume its struggling coal-mining business and the other, its giant engineering and construction operations.
The proposed division, set to be announced today, will result in the creation of two separate companies that are major players in their respective industries.
Fluor’s construction business generated revenue of $11.3 billion last year, while the coal business had revenue of $1.1 billion. Those operations “blended together haven’t had the kind of clear focus that they can have by separating,” said Philip J. Carroll Jr., Fluor chairman and chief executive officer.
The new companies will be able to operate without the “distraction” of an unrelated sister business vying for capital and management attention and will be “very credit-worthy and financially strong,” he added.
Fluor expects the transaction to be completed within six months, subject to shareholder approval, debt refinancing and a favorable ruling from the Internal Revenue Service.
The transaction is structured as a “reverse spinoff,” with Fluor spinning its construction operations into a new public company. The old Fluor will retain the coal operations and be renamed Massey Energy Corp.
For each share owned of the old Fluor, holders will be issued one share each in Massey and the new Fluor through a tax-free distribution. Fluor and its advisor, Citigroup’s Salomon Smith Barney, considered a sale of the coal business, among other options, and decided that the split was the best for Fluor and its shareholders, said Ralph F. Hake, chief financial officer.
The move comes nearly 20 years after Fluor purchased St. Joe Minerals Corp. at a time when commodity prices were soaring and Fluor wanted to stabilize its finances by diversifying away from the cyclical construction business. That strategy backfired after prices dropped, spurring Fluor to sell St. Joe’s gold and lead assets in the mid-1980s.
Fluor held onto the A.T. Massey Coal Co. unit, which had been highly profitable until recently. Massey and other coal companies have been hurt of late by softened demand and deteriorating prices.
Massey is one of the largest coal companies in North America, with major operations in the Eastern U.S. The spinoff will leave Massey with about $500 million in debt, for a debt ratio of between 40% to 45%, consistent with an investment-grade rating, Hake said.
Massey will have enough financial flexibility so that Don L. Blankenship, who heads Massey and will become the company’s chairman and chief executive, will be able to expand it through acquisitions, Hake said. The new Fluor will assume about $150 million in debt and expects to keep its single-A credit rating.
The proposed split is the most dramatic move so far by Carroll, a former Shell Oil chief executive. When he arrived at Fluor two years ago, it was suffering from bloated overhead, a failed expansion strategy and the effects of the Asian economic downturn. He has reduced the work force, upgraded internal systems and bolstered sales operations. Now, the company is showing signs of emerging from a prolonged financial slump. Bookings in the second quarter ended April 30 rose above the levels of a year earlier.
Separately, Fluor announced Wednesday a quarterly dividend of 25 cents per share on Fluor common stock, payable July 12, to shareholders of record on June 21.
Fluor, which changed its dividend payout policy in 1999, now bases payouts on long-term operating performance expectations. Previously, the company based dividend levels on the prior year’s performance.
Fluor had revenue of $12.4 billion in 1999. Fluor shares closed Wednesday at $32.25, down 38 cents in New York Stock Exchange trading. Fluor stock has lost nearly 30% of its value since the beginning of the year.
Times staff contributed to this report.
