Chicago Bridge & Iron Co (CBI.N) said on Monday that it would buy Shaw Group Inc (SHAW.N) for about $3 billion in cash and stock to create a big engineering and construction company focused on the energy industry.
Netherlands-based CB&I offered $46 per share - $41 in cash and $5 in stock - a premium of 72 percent to Shaw's closing price on Friday, the companies said.
Shaw stock jumped 59.6 percent to $42.58 in early trading, while CB&I fell 12.8 percent to $35.54.
Shares of other engineering stocks also rose. Fluor Corp (FLR.N) gained 1.4 percent, Foster Wheeler AG (FWLT.O) was up 2.5 percent, URS Corp (URS.N) rose 2.7 percent, and KBR Inc (KBR.N) gained 2.0 percent.
Shaw will continue as a business segment branded as CB&I Shaw. Shaw Chief Executive Officer J.M. Bernhard Jr. will retire after the deal closes in early 2013, and CB&I CEO Philip Asherman will lead the combined company.
"We'll be diversified across the entire energy sector, enabling us to capitalize on all the growing global demand for energy," Asherman said on a conference call with analysts.
Asked which markets were most attractive to CB&I, Asherman named growth prospects in power generation.
"The whole area around power certainly is very, very interesting," he said. "We'll look now at how you can take CB&I's global footprint and expand those opportunities to some of the overseas markets."
He singled out expected nuclear installations in China as a promising market.
Baton Rouge, Louisiana-based Shaw provides engineering, construction and maintenance services to oil companies, manufacturers, and utilities. It recorded 2011 sales of $5.9 billion and employs about 27,000 people.
Shaw has been streamlining its business. It said in May that it would sell its energy and chemical division to French oilfield services group Technip (TECF.PA) for $300 million. In 2011, it set the sale of a 20 percent stake in nuclear power plant company Westinghouse Electric Co to Japan's Toshiba Corp (6502.T) to eliminate nearly $1.7 billion of debt.
Shaw said in September it was itself hunting for acquisitions.
CB&I, whose clients include energy companies like Chevron Corp (CVX.N) and Exxon Mobil Corp (XOM.N), said it would use cash on the balance sheets of both companies, along with about $1.9 billion in debt, to finance the acquisition.
The deal will add to earnings in the first year, CB&I said. The company, with administrative headquarters in Houston suburb The Woodlands, said it did not expect its overseas incorporation to pose a problem in winning U.S. government contracts.
Bank of America Merrill Lynch (BAC.N) is the financial advisor to CB&I. Morgan Stanley & Co LLC (MS.N) is Shaw`s exclusive financial advisor.
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