Baker may be forced to move on low offer
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Shares of Michael Baker Corp. jumped more than 7 percent Thursday after a private equity firm made an unsolicited cash offer for the Moon engineering concern valued at about $233 million.
One investor questioned whether the $24.25-per-share offer from DC Capital Partners reflects Baker's full value, given that the company had no debt and $67.1 million in cash at the end of the third quarter. He also speculated the proposal could force a decision on Baker, which is a small player in a consolidating industry.
"I think it's worth more. They're a good company," said George Walsh, of Gilford Securities in New York, a longtime Baker shareholder.
"But the reality is size is very important, very critical in this industry."
Baker had been trying to address that under former president and CEO Bradley L. Mallory, who embarked on a series of acquisitions in an effort to vault the engineering firm's revenue over the $1 billion mark. The company reported 2011 revenue of $538.4 million.
Mr. Mallory targeted companies in the transportation, construction and other markets, investing in three acquisitions that expanded its presence to the southeastern and western United States.
But Mr. Mallory resigned abruptly last week at the request of the board, a month after the company said it would concentrate on improving its existing operations.
DC Capital disclosed in July it had acquired a 5.2 percent stake in Baker. It was among the investors that had questioned the acquisition strategy, particularly the price Baker paid for several of the deals. In a letter sent Wednesday to Baker Chairman Richard L. Shaw, DC Capital President Thomas J. Campbell said Baker has invested more than $100 million since 2010 in acquisitions that have "not provided any significant value creation to shareholders."
Mr. Walsh said the acquisitions made strategic sense and that it takes time for companies to capitalize on synergies from them.
Analyst John B. Rogers of D.A. Davidson & Co. said Baker is trading a below many of its competitors because "they haven't had the returns that others have had, nor the growth." He noted that DC Capital's proposal is contingent on the private equity firm arranging funding for the transaction.
In his letter, Mr. Campbell indicated he expects to line up financing in the near future. He also said the Alexandria, Va., private equity firm had been meeting with Baker officials, including Mr. Mallory before his departure, to discuss ways to boost the company's performance. A DC Capital spokesman on Thursday declined to provide details about those meetings.
Baker said it will review DC Capital's proposal "and respond in due course."
Spokesman David Higie said Mr. Mallory's severance package has not been finalized and that no decisions have been made about increasing the salaries of two executives who will replace him until a permanent successor is named. They are Chief Financial Officer Michael J. Zugay and Chief Legal Officer H. James McKnight.
Baker shares traded as high as $23.81 Thursday before finishing at $23.53, up $1.68.
First Published December 21, 2012 12:00 am