Fluor Will Split Its Operations, Focus on Independent Growth
In a bold move, Fluor Corp. said it will separate its worldwide engineering and construction business from its Virginia coal-mining operations, a decision that boosted the company’s lackluster stock price 10% Thursday.
The Aliso Viejo company said the change would allow each operation to succeed by focusing better on independent growth strategies and allowing shareholders a clear choice of investing in both firms or in one industry.
The company said it will create a new Fluor Corp. to operate as a top builder worldwide of large oil field projects, dams and airports. The new company also is expanding into telecommunications, business services and other areas.
Its A.T. Massey Coal Co. in Richmond, Va., will be turned into a stand-alone, publicly traded company that can take advantage of its profit-generating ability to acquire other mining companies. It will be called Massey Energy Co.
Wall Street, which never cared for the disparate operations under one corporate roof, responded to the news by pushing the company’s stock up $3.19 a share to close at $35.44 in New York Stock Exchange trading.
The price is still well below a high of $48.50 in January, and less than half the share price before over-expansion, shrinking profit margins and economic troubles in Asia clobbered the company three years ago.
“I think the market never thought the management would take this kind of bold action,” said Bear, Stearns analyst Michael S. Dudas. “For years, people said ‘why doesn’t Fluor sell the coal business?’ And they always just said, ‘Well, we’re looking at it.’ ”
Letting Massey stand alone had long been an option for Fluor, though few analysts believed Fluor would cut its ties to the coal operation.
Massey, after all, has been highly profitable during nearly 20 years of Fluor ownership, shoring up the engineering and construction operation during its slumps, and remains fundamentally strong despite a recent downturn in coal prices.
But Philip J. Carroll, who became chief executive in July 1998, said his first priority was cutting overhead and reorganizing Fluor’s core businesses, a process that included wiping out 5,100 jobs, about 400 in Orange County.
That accomplished, his attention turned to Massey, which Carroll decided has better prospects as a separate business. The slump in coal prices has put many competitors in dire straits, creating a chance for the still-strong Massey to grow through acquisitions, Carroll said.
“You couldn’t do that at Fluor,” he said. “The strategy was not to create a bigger and bigger coal company.”
With revenue of $12.4 billion and net income of $104.2 million in its last fiscal year, Fluor is one of Southern California’s biggest companies, employing 47,000 people worldwide, including 2,500 locally.
Fluor expects the split to occur in six months, pending approval by shareholders and regulators.
For each share of Fluor stock, investors will wind up with a share in each company. The deal is expected to have no effect on Southern California jobs, said Fluor spokesman Keith Karpe, because “all the Massey people are back in Virginia.”
The coal business once was part of the St. Joe Mineral Corp., a mining concern that Fluor purchased in 1981 in an ill-fated diversification strategy. When commodity prices fell later that decade, Fluor sold St. Joe’s gold and lead operations, but it hung onto the profitable coal business, a major source of cash for the cyclical construction business.
Massey will remain based in Richmond with its current head, Don Blankenship, becoming chairman and chief executive. It had an operating profit of $147 million last year on $1.1 billion in revenue--or 37% of Fluor’s total operating profit on about 9% of the total revenue.
For investors, a stand-alone Fluor will likely be a positive thing, analysts said.
“People who want to buy a pure engineering and construction company don’t want to buy an unrelated coal business,” said Richard A. Henderson, an analyst at Donaldson, Lufkin & Jenrette’s New York-based Pershing division.
