Financially beleaguered Morrison Knudsen Corp. has confirmed that it is in merger discussions with a company controlled by Montana business magnate Dennis Washington.
The talks with Washington Construction Group Inc. are "subject to strict confidentiality," but Morrison Knudsen spokesman Brent Brandon said they have "progressed considerably."Brandon said that whether or not there is a merger, Morrison Knudsen still will recapitalize under a debt-for-equity swap that will virtually wipe out any value of its common stock.
Because of the uncertainty to shareholders, Brandon said trading in the stock of the one-time international construction and engineering giant was suspended on Monday.
Last month, 84-year-old Morrison Knudsen announced it was pushing ahead with a plan to swap all its equity for the estimated $350 million in debt owed to scores of creditors. Shareholders would be given warrants to buy new stock in the company in the future at a set price that would be higher than the market rate for at least some time.
That still would be the plan if a merger was struck with Washington Construction. The creditors, as new owners of Morrison Knudsen, would deal with Washington Construction after the debt-for-equity swap was completed.
Corporate officials have said the company is on the verge of a return to profitability after shedding the non-core businesses that former chairman William Agee got it into. It was the hundreds of millions of dollars of red ink run up by those operations that resulted in Agee being summarily fired 15 months ago.
The Wall Street Journal reported that Washington, who owns 68 percent of Washington Construction, wanted to name the merged company Morrison Knudsen to take advantage of its worldwide recognition.
The deal would make his Missoula, Mont., company - with $228 million in annual revenues - into a $2.2 billion enterprise that could compete with the other giants in the construction field.
Washington Construction, with 239 employees, builds and repairs roadways, bridges, airport runways and water control and distribution facilities. It also provides contract mining and makes environmental remediation products.
Forbes magazine estimated Washington's wealth at $800 million last fall.
Morrison Knudsen had sales of $1.7 billion last year and has 7,800 employees with sites throughout the world. But the debt-for-equity swap would leave the company strapped for cash, which is where Washington Construction would come in.
It is a company with bonding capacity - necessary to bid on contracts - of $1 billion and little debt. Morrison Knudsen, on the other hand, has seen its bonding capacity shrivel because of its financial problems.