U.S. engineering company URS Corp URS.N will buy Canadian oilfield services company Flint Energy Services FES.TO for C$1.25 billion (US$1.25 billion) in cash, to expand its presence in the oil and gas sector.
Under the deal unanimously approved by the two companies' boards, Flint shareholders will get C$25 a share -- a 68 percent premium over the stock's Friday close.
URS would also assume C$225 million in Flint debt as part of the transaction, the companies said in a joint statement.
San Francisco-based URS designs bridges and roads and the deal expands the company's presence in designing equipment and systems needed for extracting natural gas and oil from unconventional sources such as sand. URS' revenues from the oil and gas sector will increase to about 22 percent of total revenues following the transaction, the company said.
"Through this combination, URS will be well positioned in segments of the oil and gas industry that we expect to have attractive margins and growth rates," URS Chief Executive Martin Koffel said in a statement.
The company, which competes with Jacobs Engineering Group Inc (JEC.N) and Fluor Corp (FLR.N), expects the deal to add 20-30 cents a share to its full-year earnings.
URS expects 2012 revenue of $9.9 billion-$10.1 billion and a profit of $3.95-$4.05 per share on a standalone basis.
Calgary, Alberta-based Flint, which has about 10,000 employees, gets about 80 percent of its revenue from Canada and the rest from the United States.
In November last year, Flint said it expects its drilling activity in Canada and the United States to rise 10 percent and 12 percent, respectively, in 2012.
URS, which has about 47,000 employees, expects pre-tax cost synergies of $10 million to $15 million in 2012 from the deal.
The deal will need to be implemented through a court-approved Plan of Arrangement under Canadian law and is subject to the approval of Flint security holders, relevant regulatory approvals and other customary closing conditions.
URS expects to fund the deal using existing credit facility and a financing commitment for a new bridge facility.
After closing the deal, Flint will become a new division of URS, led by Flint's Chief Executive William Lingard.
In the event of a better offer by another suitor, URS will have a five-business-day right to match the offer. If the deal is not completed as a result of the offer, Flint has agreed to pay URS a termination fee equal to C$42 million.
Morgan Stanley & Co LLC acted as financial adviser and Osler, Hoskin & Harcourt LLP served as Canadian legal counsel for URS. Credit Suisse Securities (Canada) Inc was the financial adviser to Flint and Bennett Jones LLP served as legal counsel.
URS shares closed at $42.91 on Friday on the New York Stock Exchange. Flint shares closed at C$14.90 on Friday on the Toronto Stock Exchange.
(Reporting by Himank Sharma and Supantha Mukherjee in Bangalore and Soyoung Kim in New York; Editing by Sriraj Kalluvila)