A New Page In Morrison Knudsen's Storied Life -- Company Symbolized Restless Spirit Of Progress Of The American West

Morrison Knudsen Corp. would have bid to build the pyramids.

Such was the legendary reputation of the Boise-based heavy-construction company, which announced Thursday it will merge with Washington Construction Group Inc. after 84 years of building some of the world's most ambitious projects, from Hoover Dam to the Trans-Alaska Pipeline.

Although the new company will retain the Morrison Knudsen name, the merger signals the end of an era in the storied life of one of the Pacific Northwest's most influential companies.

Started in 1912 with $600 and a few wheelbarrows and draft horses, Morrison Knudsen became the world's largest heavy-construction empire, with projects scattered over 70 countries by the 1950s.

For many, including those who spent their lives working for MK and its co-founders, Harry Morrison and Morris Knudsen, the company symbolized the West's restless spirit of progress as it built dams, canals, factories and highways both in the U.S. and around the world.

"It was a creature of great wonder," recalled Bob Smith, who retired as MK's vice president for public relations in 1984. "It was a fraternity, not just a damned corporation," he said.

"It is with great pain that I see what happened."

"What happened" is MK's precipitous fall at the hands of William Agee, its one-time chairman and chief executive officer, who was fired last year. The melodramatic tale drew national publicity, including a cover story in Fortune magazine.

With last week's merger announcement, another colorful Western businessman steps into the tale. Montana billionaire Dennis Washington, 61, owns 70 percent of California-based Washington Construction Group.

He is known to Seattle residents as the man who purchased Burlington Northern Railroad's rights of way along parts of the popular Burke-Gilman Trail in 1988.

The perceived threat to the foot-and-bicycle path caused an uproar. Washington eventually ceded his land rights to the city after it rebuffed his offer to swap the rights for Lake Union moorage.

From Morrison to Agee to Washington, the story of Morrison Knudsen is a saga worthy of the American West.

The company's first job was to build a pumping station on the Snake River.

The company's big break came in 1931, when it organized the consortium that built Hoover Dam. During World War II, MK built U.S. airfields throughout the Pacific and in North Africa.

After the war, MK extended its reach both here and abroad. It sank missile silos in Missouri, planted Air Force bases in Alaska and Vietnam, built highways of all kinds, in all places.

But MK's greatest fame came from those projects that were larger than life, such as the Kennedy Space Center's cavernous Saturn V rocket-assembly building - a shell so large that clouds form inside it. Other projects were on a similarly grand scale: locks on the St. Lawrence Seaway, parts of the San Francisco Bay Bridge and the Trans-Alaska Pipeline. At MK's height, its projects totaled $2 billion to $2.5 billion a year.

In Washington state, the company helped build Grand Coulee Dam, the Hood Canal Bridge, Alaskan Way Viaduct and Interstate 90.

"There's nothing too big, too distant or too challenging to try," touted an old MK promotional film, Smith said.

Morrison died in 1971. By the mid-1980s, MK's forays into shipbuilding and land development, such as building a marina in Texas' Galveston Bay, had turned disastrous. The company posted a $59.5 million loss in 1987.

At that time, Agee, a board member, became CEO. Agee, a Boise-area native, had retained the aura of a Wall Street wonder, despite some troubling signs.

In the early 1970s, he left his CEO post at Boise Cascade right before the company wrote off more than $200 million in losses - at the time, one of the largest corporate write-offs ever.

In 1982, while head of auto-parts maker Bendix Corp., Agee attempted a takeover of Martin Marietta. In a "Pac-Man defense," the latter turned the tables and launched an unfriendly takeover bid for Bendix. Bendix turned to Allied Corp. (now AlliedSignal) for protection. Allied finally acquired Bendix, but Agee was out the door soon after.

In 1982, he married Mary Cunningham, a young executive he had recruited to Bendix. Each had their previous marriage annulled, which riled residents of Boise, where Agee's first wife, Diane, was well-liked.

Once at the helm of MK, Agee jettisoned the ailing land-development and shipyard lines of business. But he also made some devastating errors. Convinced that a railway renaissance was under way, Agee pushed MK deep into locomotive and passenger-car construction, where it had little experience.

Agee "tried to make a construction company into a manufacturing company," explained Jim McClary, who retired in 1978 as MK's chairman.

At the same time, Agee clouded the company's balance sheet by mingling profits from stock investments with the company's operating earnings.

He also replaced most of the existing board with members such as Peter Ueberroth, former baseball commissioner; Zbigniew Brzezinski, President Jimmy Carter's former national security adviser; and Peter Lynch, Fidelity Investments' famed stock picker. Although they were luminaries, the board members provided little oversight to Agee's actions.

Personality conflicts compounded these sizable problems. In Boise, a city still known for its small-town friendliness, many found the Agees cold and haughty, their lifestyle lavish.

"They lived a style that doesn't fit Morrison Knudsen, that doesn't fit Boise," McClary said.

After Agee received an ominous black rose in the mail, the family left Boise for Pebble Beach, Calif. From then on, Agee conducted business from his house there, including flying executives to and from meetings on the company jet.

MK lost $349.6 million in 1994 - more than half caused by its rail-car fiasco - and eliminated its annual dividend. An internal investigation of the losses and complaints about Agee resulted in his firing the following February.

When employees at the headquarters heard the news, they gathered in the parking lot and cheered.

Thursday's $250 million deal between MK and Washington Construction, which still must be approved by MK's creditors, is a debt-for-equity swap that will erase MK's $386.3 million debt by giving creditors shares of the new company. A prepackaged bankruptcy plan will also make MK's current stock virtually worthless, although shareholders will be able to buy stock in the new company at a fixed price. MK shares did not trade Friday, but the company announced last week that it had made its first profit in two years.