Jacobs Engineering Group Inc. (NYSE: JEC) announced that it has entered into a definitive agreement to sell its Energy, Chemicals and Resources (ECR) segment to WorleyParsons Limited (ASX: WOR) for $3.3 billion, consisting of $2.6 billion in cash and $700 million in WorleyParsons ordinary shares. The transaction value represents a multiple of more than 11.5 times trailing twelve-month (TTM) adjusted EBITDA for the ECR business1.
Following the completion of the transaction, Jacobs will be focused solely on its two higher growth, higher margin lines of business – Aerospace, Technology, Environmental & Nuclear (ATEN) and Buildings, Infrastructure & Advanced Facilities (BIAF).
“For Jacobs, this transaction marks an inflection point in our portfolio transformation focused on more consistent, higher-margin growth as a leader solving the world’s critical challenges,” said Jacobs Chairman and CEO Steve Demetriou. “The increased financial flexibility we gain from this sale better positions us to invest in our ATEN and BIAF businesses, focusing our premier talent and expertise on technology, innovation and sustainable solutions that are priorities for our infrastructure and government services clients. These capabilities, along with our strong backlog and efficient global platform, will further strengthen our global leadership in these segments to drive meaningful value creation.”
The company will report results for fiscal 2018 on Nov. 20.
“While we are in the process of finalizing our fiscal 2018 results, our current view is materially consistent with previously announced guidance for the year,” said Jacobs CFO Kevin Berryman. “In addition, we continue to believe that the adjusted EPS guidance provided for fiscal 2019 remains appropriate, keeping in mind that such guidance did not reflect any impact from the pending transaction announced today.”
“Upon closing of this transaction, we plan to initially apply proceeds to pay down floating-rate debt,” Berryman added. “Beyond that, our strong financial flexibility and free cash flow will support incremental profitable growth investments and capital returns to shareholders, consistent with our record of disciplined allocation yielding attractive growth and value creation. And of course, Jacobs will continue to benefit from our ECR business’ earnings and cash flow through the closing of the transaction.”
Use of Proceeds
Upon closing, Jacobs expects to receive approximately $2.6 billion in net proceeds from the transaction, which initially will be used to pay down floating-rate debt, while also maintaining a disciplined approach to deploy capital for increased shareholder value, including mergers and acquisitions. The company will provide further details about its capital allocation strategy, as well as its updated pro forma financial outlook, at the company’s investor day on February 19, 2019.
Together, ECR and WorleyParsons will be a global leader with the talent, industry sector, customer and geographic diversity needed to compete and win. The structure of the transaction enables Jacobs to benefit from the near-term upside created by the combination and the oil and gas market recovery.
At the close of the transaction, Jacobs will receive approximately 58.2 million shares of WorleyParsons stock, which will equate to approximately 11 percent of WorleyParsons ordinary shares based on WorleyParsons’ outstanding shares post-close. The shares will be subject to a six-month holding requirement (but not earlier than Aug. 31) following the transaction’s closing.
Approvals and Time to Close
The Jacobs Board of Directors and the WorleyParsons Board of Directors each have approved the transaction. The transaction is expected to close in the first half of calendar 2019, subject to customary closing conditions and regulatory approvals.
Perella Weinberg Partners LP is serving as financial advisor to Jacobs, and Fried, Frank, Harris, Shriver & Jacobson LLP is serving as legal counsel.
Wachtell, Lipton, Rosen & Katz also served as legal advisor to Jacobs. Centerview Partners provided financial advice to the company.
Jacobs will host a conference call tomorrow, Monday, Oct. 22, at 8:00 AM ET to discuss this announcement with the financial community. The conference call can be accessed by dialing (866) 324-3683 (U.S./Canada) or (509) 844-0959 (international), and by entering the passcode 9868327. A replay will be available by dialing (855) 859-2056, or (404) 537-3406. Use the code 9868327 to access the replay.
Interested parties can listen to the conference call and view accompanying slides on the investor page at www.jacobs.com.