AECOM to acquire URS Corporation

Los Angeles and San Francisco — AECOM Technology Corporation and URS Corporation announced July 13 the execution of a definitive agreement under which AECOM will acquire all outstanding shares of URS for a combination of cash and stock valued at approximately $4 billion or $56.31 per URS share, based on the AECOM closing share price as of July 11, 2014. Including the assumption of URS debt, the total enterprise value of the transaction is approximately $6 billion.

The combined company will be a leading, fully integrated infrastructure and federal services provider with more than 95,000 employees in 150 countries. It would have calendar year 2013 pro forma revenues of more than $19 billion and EBITDA of approximately $1.3 billion.

“This combination creates an industry leader with the ability to deliver more capabilities from a broad global platform to reach more clients in more industry end markets,” said Michael S. Burke, AECOM president and chief executive officer. “Clients, employees and stockholders of both companies will benefit from the opportunities created by these expanded capabilities, broad global reach in key growth markets and economies of scale. In one step, we will dramatically accelerate our strategy of creating an integrated delivery platform with superior capabilities to design, build, finance and operate infrastructure assets around the world.”

Martin M. Koffel, chairman and chief executive officer of URS, stated, “This is a compelling strategic combination that we believe will benefit our clients, stockholders and employees. URS stockholders will receive significant, immediate value from the transaction and will be able to participate in the future prospects of the combined company, which we expect will be better positioned to compete for major, complex projects across a diverse range of end markets and geographic regions.”

Koffel continued, “Our two businesses are complementary, and our cultures are highly compatible. We anticipate that employees from the combined company will benefit as the organization integrates its leadership talent and capitalizes on its greater scale to invest in its people, improve their career opportunities and advance their capacity to compete globally.”

Terms of the transaction
AECOM will pay $56.31 per URS share, based on AECOM’s closing price on July 11, 2014, representing a premium of 19 percent over the trailing 30-day average closing price of URS shares ending July 11, 2014. URS stockholders will receive per share consideration equal to $33.00 in cash and 0.734 shares of AECOM common stock for each URS share. URS stockholders may elect to receive all cash or all stock consideration, subject to proration in the event of oversubscription. The election will be subject to a customary proration mechanism to achieve an aggregate consideration mix of approximately 59 percent cash and 41 percent AECOM common shares. The stock portion of the consideration is expected to be tax-free to URS stockholders.

AECOM stockholders will retain their shares following the consummation of the transaction. Upon completion of the transaction, URS stockholders will own shares that account for approximately 35 percent of the combined company, which will allow URS stockholders to participate in the prospects of a business that is well positioned to create long-term stockholder value.

AECOM expects the combination to be accretive to its GAAP earnings per share and more than 25 percent accretive to its cash earnings per share in fiscal year 2015, excluding transaction-related costs. AECOM also expects annual cost synergies of $250 million, nearly all of which it expects to achieve by the end of fiscal year 2016. These synergy expectations are based on the due diligence and planning that have already been conducted. Including the realization of expected synergies, the approximately $6 billion enterprise value of the transaction is less than 7x pro forma 2015 URS EBITDA.

AECOM has received a firm commitment from Bank of America to provide debt financing in connection with the transaction, subject to customary conditions, the proceeds of which will be used to refinance a portion of existing AECOM and URS debt and to finance the cash consideration to be paid in the transaction. Closing of the transaction is not conditioned on financing. The financing commitment comprises senior secured credit facilities. At closing, AECOM is expected to have approximately $5.2 billion in total debt outstanding.

“We will continue to maintain our balance sheet flexibility,” said Stephen M. Kadenacy, chief financial officer. “We plan to use our strong free cash flow to reduce our debt level, with a goal of returning to our long-term target leverage ratio of approximately 2 times debt-to-EBITDA by the end of 2017.”

The terms of the definitive agreement have been unanimously approved by the Boards of Directors of both companies. The transaction is subject to customary closing conditions, including regulatory approvals, approval by URS stockholders of the merger agreement, and the approval by AECOM stockholders of the issuance of shares in the transaction. The transaction is expected to close in October 2014.

Seamless integration anticipated
AECOM will become one of the largest companies by revenue in the engineering and construction industry. The combined firm will be headquartered in Los Angeles and will be the largest publicly traded company in that city. AECOM also expects to maintain a key operational presence in San Francisco, where URS is headquartered.

Michael S. Burke will be the combined company’s chief executive officer, and the companies have designed a new operating management structure that will include proven senior leaders from both URS and AECOM. John M. Dionisio, AECOM executive chairman, will be chairman of the board and, at closing, AECOM will elect two URS board members to the AECOM Board of Directors.

“Building on AECOM’s experience of adding new skill sets and delivering them across our established global platform, we anticipate a smooth and seamless integration,” said Burke. “We are developing integration plans that will enable us to bring together the best of both organizations. The process will be led by executives of both companies.”

Additional capabilities across a global platform
The combined company will be a premier, fully integrated infrastructure firm, serving clients across a broad range of markets, including transportation, facilities, environmental, energy, water and government. The two companies are world leaders in the infrastructure industry.

URS adds to AECOM’s construction capabilities, deepening a core competency that AECOM expects to leverage across its global platform. URS also brings strong sector expertise in important end markets, including oil & gas, power and government services.

Burke added, “The combination of AECOM and URS creates an industry leader with unsurpassed capacity to deliver integrated solutions across AECOM’s existing markets. We will have the ability to design and deliver major civil infrastructure projects in sectors such as transportation and water. In addition, we expect to seize opportunities to more broadly leverage our direct investment vehicle, AECOM Capital.”

AECOM outlook
AECOM also announced that it continues to target diluted earnings per share (EPS) in the lower end of its range of $2.50 to $2.60 for fiscal year 2014, excluding transaction-related costs. It also still anticipates that its third-quarter EPS will be approximately 25 percent of its full-year results. The company’s backlog continues to grow sequentially and year over year, and remains at record levels. AECOM will release its results and host its third-quarter earnings call on August 5, 2014.