09/03/2014 04:56 EDT | Updated 11/03/2014 05:59 EST

WSP Global to expand with US$1.35-billion deal to buy Parsons Brinckerhoff

MONTREAL - WSP Global Inc. (TSX:WSP) has agreed to buy Parsons Brinckerhoff in a US$1.35-billion cash deal that will nearly double the size of the Montreal-based engineering consulting company.

WSP announced Wednesday that it plans to become a global professional services firm with about 31,000 employees after adding about 13,500 employees from Parsons Brinckerhoff, once the deal closes.

Parsons Brinckerhoff's expertise in transportation engineering, particularly in the United States, will complement WSP's focus on buildings. It will also expand WSP's presence in a number of areas of the world, the company said.

"We are pleased to be joining forces with a firm of Parsons Brinckerhoff's long-standing reputation and know-how as we expect this transaction to create an industry leader with the ability to deliver more expertise and services to our client base across the world," said Pierre Shoiry, WSP's president and chief executive officer.

Two of Canada's largest pension funds, the Canada Pension Plan Investment Board and Quebec-based Caisse de depot, will provide some of the financial backing required to pay for the acquisition.

WSP has arranged to sell at least $502 million of equity through a public offering. In addition, it will also sell at least $400 million of equity in a private offering to the CPPIB and Caisse, which are already shareholders. Both the public and private offerings could be increased under certain conditions.

WSP has also arranged for US$800 million of credit.

The seller in the transaction is Balfour Beatty PLC, a U.K.-based group that will focus on construction, asset management and investments. The proposed transaction requires approval by Balfour Beatty shareholders and competition authorities.

There had been news reports last month, when Balfour Beatty turned down a merger proposal from Carillion PLC, that WSP was in talks to buy Parsons Brinckerhoff.

Steve Marshall, executive chairman of Balfour Beatty, said in a statement that the sale price is a significant return on the original investment and increases the group's value to its shareholders.

"In the U.S., our core construction business is well positioned in a recovering market. In the U.K. we see the potential for margins to progressively recover to peer group levels. Our services business, meanwhile, is well placed to benefit from the growing investment in infrastructure," Marshall said.

Parsons Brinckerhoff is the latest major acquisition for the company previously called Genivar, which bought U.K.-based WSP Group in a $442-million friendly takeover in 2012. Genivar was later one of the companies caught up in Quebec's inquiry into corruption in the construction industry and adopted the WSP name in January 2014.

WSP said Wednesday that its management expects Parsons Brinckerhoff to provide a stronger presence in industrialized regions of the world and increase its exposure in higher growth regions among emerging economies.

It's aiming for about US$25 million of synergies over a two-year period, about half in the first 12 months after the deal closes. It says estimated integration costs, excluding transaction and restructuring costs, won't exceed US$25 million in total.

George Pierson, president and CEO of Parsons Brinckerhoff, said the combination will expand opportunities for employees and services to clients. He will join WSP's board of directors when the deal closes and be involved with integration efforts.

"The compatibility of our respective cultures, each focusing on technical excellence and client service, is strengthened by the complementary technical skills we each offer," Pierson said in a statement.

"I have full confidence that by teaming with WSP, our ability to enrich our communities through projects large and small is greatly enhanced, all to the benefit of our employees, clients, and stakeholders."

CIBC, Raymond James, BMO Capital Markets and National Bank Financial have agreed, as underwriters of the public offering to buy ab least 14 million subscription receipts at $35.85 each for a total of $502 million, and have the right to buy up to $75 million more through an overallotment option.

CPPIB and the Caisse will each pay at least $200 million to buy subscription receipts at the same price as the underwriters, with a provision to to increase the amount by up to $60 million. They'll each own about 17 per cent of WSP's common shares after the transaction.

WSP shares last traded in Toronto at $36.95 prior to a trading halt issued Wednesday afternoon, shortly before the announcement. Based on that price, it had a total market value of C$2.29 billion prior to the announcement.