Troubled Morrison Knudsen Agrees To Sale -- Deal With Washington Construction To Appease Creditors

BOISE - Morrison Knudsen Corp. has agreed to be acquired by Washington Construction Group Inc. for about $247 million in cash, debt and Washington Construction common stock.

Morrison Knudsen plans to go ahead with a debt-for-equity swap and a prepackaged bankruptcy filing, which will leave current shareholders with stock that's almost worthless.

The deal would appease Morrison Knudsen's creditors while freeing the struggling engineering and construction firm from about $360 million in debt, much of it from former Chief Executive William Agee's failed effort to turn the company into a builder of rail and mass-transit cars.

"This makes us a significant player in the construction business again," Morrison Knudsen Chief Executive Robert Tinstman said yesterday.

If the purchase goes through, Washington Construction, formerly Kasler Holding Co., would get 84-year-old Morrison Knudsen's venerable engineering talent, allowing it to take on larger, more complicated projects.

Montana billionaire Dennis Washington's 70-percent ownership of Highland, Calif.-based Washington Construction would shrink to 37 percent in the new company. Washington, 61, isn't expected to play a large role in running the combined firm.

Existing Washington Construction shareholders would own 18 percent of the company, and Morrison Knudsen creditors would own 45 percent. The acquisition is subject to approval by the two companies and creditors.

The combined companies would keep Morrison Knudsen's name and remain based in Boise. Morrison Knudsen Chairman Robert Miller and Tinstman are expected to run the new company.

All of the cash and stock paid by Washington Construction in the proposed acquisition would go to Morrison Knudsen's creditors, in return for forgiving about $360 million in debt. Morrison Knudsen has been near collapse for more than a year, and analysts said it was unlikely the company ever would be able to pay its creditors back in full.

Morrison Knudsen last month reached an agreement with creditors to swap its debt for new stock. Under the plan, current shareholders would receive only warrants to buy a new stock. Morrison Knudsen said the warrants now would entitle shareholders to buy stock in the new company at $12 a share, about a 33 percent premium over Washington Construction's share price. Shareholders would get one warrant for every 12 shares of Morrison Knudsen, giving them rights to about 5 percent of the new shares.

In addition to announcing the purchase yesterday, Morrison Knudsen reported quarterly earnings for the first time in two years. The company posted first-quarter net income of $296,000, or 1 cent a share, compared with a loss from continuing operations of $19.6 million, or 60 cents, in the year-earlier quarter.

The debt-for-equity swap practically assures a bankruptcy filing. Morrison Knudsen needs approval for the swap from 50.1 percent of its existing shareholders, which appears unlikely because the plan leaves them with so little.