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Michael Baker names panel to review takeover offer, alternatives

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By Thomas Olson
Monday, Jan. 7, 2013, 10:20 a.m.
 

Michael Baker Corp. named a committee of independent board members to review “strategic alternatives,” including a $24.25-a-share cash takeover offer from a private equity firm.

The Moon-based engineering and construction company said in a statement on Monday it has “not placed any limitations” on that review, and there's “no assurance (it) will pursue any particular course of action.”

Some shareholders and analysts criticized Baker for not performing or growing as much as its industry peers. Several CEOs have come and gone in recent years.

Shares have traded as low as about $18 in the past 12 months, averaging about $23.35. The stock closed on Monday at $24.90, up 45 cents.

“The offer is a premium to where the stock has been trading, but whether it's adequate, I don't know,” said John Rogers, an analyst at D.A. Davidson & Co. in Lake Oswego, Ore. It is “a healthy process” to have Baker's independent directors review the company's options, he said.

Baker employs 3,000 in 100 offices nationwide, including 725 in Western Pennsylvania.

In November, Baker's quarterly profit dropped to $700,000 versus $7.1 million a year earlier. Revenue rose to $145 million from $131 million, but $23 million of the increase was from the acquisition of a California engineering and planning company.

Tahira Afzal, an analyst at KeyBanc Capital Markets Inc., New York, believes Baker is worth at least $27 a share, or about $3 more than the mid-December offer.

“It can be a standalone company, or it could merge with another company, as long as the board has a convincing plan,” Afzal said.

The takeover offer was made by DC Capital Partners of Alexandria, Va., which owns 5.2 percent of Baker. DC Capital proposes to merge Baker into KS International LL of McLean, Va., an engineering company that DC Capital controls.

Shareholder Crescendo Partners in New York sent the board a letter on Dec. 26 urging a sale. It and DC Capital Partners argue the company has underperformed and should seek alternatives.

Crescendo senior managing director Arnaud Ajdler believes Baker is trading “very, very low” relative to peers and is worth about $30 a share, he said in a recent interview.

Michael Baker CEO Bradley Mallory resigned Dec. 12 at the board's request. Two executives will lead Baker on an interim basis.

Mallory stepped in four years ago to replace Baker's interim CEO and longtime chairman, Richard Shaw, who assumed the CEO title for the fourth time upon the abrupt 2006 resignation of Dan Fusilli.

Baker's board needs to name a “strong replacement” soon, Afzal said. “The longer they wait, the more uncertainty it creates within the company and among clients.”

The board set no timetable to complete its strategic review, Baker spokesman David Higie said.

Thomas Olson is a staff writer for Trib Total Media. He can be reached a 412-320-7854 or at tolson@tribweb.com.

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