Jim Bernhard’s Big Payday

Louisiana had three Fortune 500 companies last week.

Now it will have two.

Baton Rouge-based The Shaw Group just sold out to Chicago Bridge & Iron for $3 billion…

Chicago Bridge & Iron Co. (CBI) (CBI) agreed to buyShaw Group Inc. (SHAW) (SHAW) for about $3 billion, expanding its nuclear building services in a portfolio of energy-related engineering and construction projects.

CB&I will pay $46 a share in cash and stock, according to statements today by the companies. That’s 72 percent more than Shaw’s closing price July 27. CB&I, based in The Hague, fell the most in almost a year in New York trading even as the company predicted at least a 10 percent boost to 2013 earnings.

“I don’t think anybody expected this,” Chase Jacobson, a William Blair & Co. analyst in New York, said in a telephone interview. CB&I had described its approach toacquisitions (CBI) as being focused on smaller targets, “not more than doubling or almost tripling the company’s backlog and diversifying the entire company. This is a big change in strategy,” he said.

Buying Shaw will widen CB&I’s role in the building of the first new nuclear reactors approved in the U.S. since 1978. Long plagued by cost overruns, regulatory hurdles and environmental concerns, the industry was dealt a fresh setback when reactors at Japan’s Fukushima plant melted down after a 2011 earthquake.

CBI fell 15 percent to $34.73 at 10:57 a.m. in New York, the biggest intraday decline since Aug. 8. Baton Rouge, Louisiana-based Shaw jumped 57 percent to $41.91.

The BusinessWeek article says CB&I is based in The Hague, but the unit that will control Shaw is based in The Woodlands, Texas.

Chicago Bridge & Iron isn’t based in Chicago, which is worth noting.

Shaw, which ranked #412 on Fortune’s 2012 Top 500 company list, lost $16 million in its fiscal third quarter due to winding down some energy and chemical assets it’s about to sell to a French company for $300 million.

The CB&I deal is supposed to officially close in the first part of next year. And Shaw CEO Jim Bernhard, who will be getting out of the business after it closes, has already made some $20 million in stock gains on paper as a result of today’s trading.

Bernhard was already a very rich guy before today. Now he’s even richer, which he deserves and he’s to be congratulated for.

Baton Rouge’s economy might not celebrate this merger, though, because a good many Shaw jobs might be moving to Texas. That’s yet to be determined, though this won’t exactly be a good effect

“Baton Rouge will not be their central nervous system any longer.” LSU economist Jim Richardson says it’s too early to tell how the $3.04 billion acquisition will affect the local economy and The Shaw Group’s local presence. “But given that CB&I’s U.S. operations are based in Houston and “they obviously have a large staff and headquarters there already,” it’s likely a substantial part of Shaw’s corporate operations will move out of state. “A lot of it will depend on the economies of scale, how much overlap there is in what both companies do, how much connection there is between the two of them,” Richardson says. “Some of that still has to be determined.” Still, Richardson believes the deal will be approved by shareholders and the SEC later this year, since it has already gone this far…”Does this kill your economy? No, not by itself,” Richardson says. “But as a growing city you like to have big companies coming here, not leaving.”

What else is yet to be determined is Bernhard’s future exploits; the former chairman of the Louisiana Democrat Party has been bandied about as a potential candidate for office for years, and now it appears he’s going to have some time on his hands.

With Shaw’s buyout, the state’s two Fortune 500 companies are Monroe-based CenturyLink (#171) and New Orleans-based Entergy (#239).



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