Heard Off the Street: Michael Baker investor may take hold

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Michael Baker Corp., which in March dropped a shareholder rights plan that provided protection from an unwanted takeover, remains mum about how it will respond to an overture from an Alexandria, Va., government contractor.

DC Capital Partners disclosed Wednesday it has amassed a 5.2 percent position in the Moon engineering concern. DC Capital purchased 498,000 Baker shares since May 17, paying between $22.40 and $25.50 per share. That's about 134,000 more shares than 19 Baker officers and directors own, according to the company's latest proxy statement.

"We think there's a number of strategic alternatives that can be discussed," said Thomas J. Campbell, DC Capital's founder and president.

In disclosing its position in Baker, DC Capital said those alternatives include purchasing more shares through a tender offer for some or all of Baker's stock, seeking seats on the company's board or a merger. Mr. Campbell said that as of Friday morning, Baker President CEO and President Bradley L. Mallory has not returned any of his calls.

Baker is not saying much about the intruder.

"As always, we welcome any new investor in the company. We have no further comment at this time," spokesman David Higie said in an emailed statement Wednesday. Mr. Higie reiterated the company's no comment Friday.

Other investors have taken a run at Baker over the years, most recently Starboard Value LP. The self-described value investor acquired a 6 percent stake last year with the hopes of convincing the company to replace its acquisition-based strategy with more draconian cost-cutting measures. Starboard was gone by the end of the first quarter.

But Analysts believe Mr. Campbell's DC Capital is cut from a different cloth than Starboard.

Mr. Campbell worked at Wasserstein & Perella, a merchant banker that played a prominent role in the merger-manic 1980s. From there, he went to Veritas Capital, an investment banker that made a stab at reopening Bethlehem Steel's former bar mill in Johnstown in the mid-1990s. Veritas went on to more successful ventures, including DynCorp International, a Falls Church, Va., military contractor.

But Mr. Campbell had a falling out with Veritas co-founder Robert McKeon, prompting him to launch DC Capital in 2007. The investment company acquires controlling stakes in mid-sized federal contractors. It rolled three of them together to form KS International of McLean, Va.

One of those companies was Bridgeville-based Sallyport Global, founded in 2003 to capitalize on post-war reconstruction in Iraq, a business Baker participated in as part of a joint venture that received a federal contract in 2004 worth up to $1.2 billion.

Sallyport's work included shuttling Iraqi police trainees between Iraq and Jordan, and building secure compounds for the U.S. Agency for International Development. DC Capital acquired Sallyport last year.

KS operates on five continents with more than 1,200 employees. It has annual revenue of more than $175 million, generated by contracts with the U.S. Department of State, the Pentagon and the U.S. Department of Homeland Security. KS services include engineering, construction, operations and maintenance, security and training.

By contrast, Baker reported 2011 net income of $17.3 million, or $1.85 per share, on revenue of $538.4 million. It earned $1.7 million, or 18 cents per share, on revenue of $151.7 million in the first quarter.

"We are in the businesses ... of buying and building businesses," Mr. Campbell said.

One of the things Mr. Campbell would like to discuss with Mr. Mallory is combining KS and Baker, which he said have complementary strengths.

"They're really strong domestically. We're strong internationally. It would put us in different markets. It would put them in different markets," Mr. Campbell said.

He is stumped by Mr. Mallory's refusal to return his calls. Usually when a company drops its takeover defense that means they are open to discussing the kinds of strategic alternatives Mr. Campbell has in mind.

"They've sent a confusing signal," Mr. Campbell said.

Longtime Baker investor George Walsh of Gilford Securities in New York said DC Capital's interest confirms his view that Baker is a value play in the infrastructure market. He credited Baker with making some effective moves in recent years, including selling its energy business, making several productive acquisitions and maintaining a strong balance sheet.

DC Capital "seems like an informed buyer of the stock," Mr. Walsh said. "Where it goes, we'll just have to see."

Baker has been successful in warding off activist investors in the past, said analyst John Rogers of D.A. Davidson & Co. But he said Mr. Campbell has a more accomplished pedigree than those investors.

"It sounds to me he's trying to encourage some change here. What I don't know here is what that is," Mr. Rogers said.

Baker shares advanced 5 percent Wednesday after DC Capital disclosed its position. Shares of the Moon engineering firm finished Friday at $25.61, up 28 cents for the week and up 31 percent this year.

bizopinion - heardoffthestreet

Len Boselovic: lboselovic@post-gazette.com or 412-263-1941.


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