Shaw Group eyes weak 2013, lawsuits over CB&I takeover

Fri Oct 19, 2012 7:13pm EDT

(Reuters) - Shaw Group Inc SHAW.N forecast 2013 results far below market estimates due to a fall in orders, even as the U.S. engineering company faces growing push-back from investors over a contentious takeover by Chicago Bridge & Iron Co (CBI.N).

After Shaw's results and outlook were released on Friday morning, CB&I's shares dropped 2.9 percent to $38.29, while Shaw fell 1.5 percent to close at $43.69 - more than $2 shy of the takeover price that the two companies agreed to in late July.

Doubts about the $3 billion deal have been voiced since it was announced, with some investors concerned about its provisions and the motivation of Shaw founder, chairman and chief executive James Bernhard.

One fund, Denali Investors, accuses Bernhard of conflicts of interest.

Denali also criticizes Shaw for its lack of engagement with shareholders about the deal. Shaw did not hold a conference call to discuss its results on Friday, as it normally would.

Shaw did say the deal was progressing on schedule and was still set to close in the first quarter of 2013. Later, Shaw acknowledged that several "purported shareholders" have sued the company and its directors, alleging breaches of fiduciary duties in connection with the deal's approval.

"We believe that these lawsuits are without merit and intend to contest them vigorously," Shaw said in its annual report.

One lawsuit was filed in U.S. District Court for the Middle District of Louisiana by Peter Osten, a long-standing shareholder. He alleges that Shaw followed a "flawed" process and failed to maximize shareholder value, and also that it has not disclosed material information.

A Shaw official repeated the statement from the annual report but declined to comment further.

HIGH HURDLE

Since the owners of 75 percent of Shaw's shares must support the sale, excluding the shares owned by any person holding more than 5 percent, Denali believes it could be blocked by just 13 percent to 17 percent of the shareholders.

Shaw has said in the past that the CB&I offer represents a 72 percent premium to Shaw's share price before July 30. It has called Denali "one small investor who claims to be a Shaw shareholder. We have been unable to substantiate that this investor owns any shares."

H. Kevin Byun, who has signed the letters from Denali to Shaw investors, has said his fund holds 1.1 percent of Shaw through a number of different brokers.

"Shareholders deserve better than a board that has completely refused to engage all constituents at any level and whose strategy since (the) deal announcement has been radio silence," Denali said in a slide presentation sent via email this week.

CB&I, on the other hand, will host a conference call on October 23 after it reports quarterly earnings.

Earlier on Friday, Shaw posted net income of $113.2 million, or $1.68 per share, in the fiscal fourth quarter ended August 31, driven by its power business. It made a loss of $90.3 million, or $1.25 per share, a year earlier.

Shaw expects a fiscal 2013 adjusted profit of $1.70 to $1.90 per share on revenue of $5 billion to $5.5 billion. Analysts on average had expected a full-year profit of $2.56 per share on revenue of $6.04 billion, according to Thomson Reuters I/B/E/S.

The company sold its stake in nuclear plant company Westinghouse to Toshiba Corp (6502.T) for $1.6 billion earlier this month. Excluding Westinghouse, Shaw earned $1.86 per share, and analysts had expected $1.36 per share. Revenue was flat at $1.5 billion, but above the average estimate of $1.44 billion.

Sales in Shaw's power business rose 5 percent. That segment, which provides services to the fossil fuel and nuclear power industries, accounts for more than one-third of its total revenue. Shaw's overall backlog fell to $17.1 billion as of August 31, compared with $18.2 billion at the end of May.

(Reporting by Divya Lad in Bangalore and Braden Reddall in San Francisco. Additional reporting by Dan Levine in San Francisco"; Editing by Sriraj Kalluvila, Maju Samuel and Andre Grenon)