Smaller Rival May Buy Morrison Knudsen

SEATTLE â€”  Troubled engineering giant Morrison Knudsen Corp. said Monday that it is in negotiations to be purchased by a much smaller rival in a deal that would be part of a prepackaged bankruptcy filing.

A source familiar with the negotiations said a tentative agreement with Washington Construction Group Inc., valued at nearly $350 million, could be announced as early as today.

Washington Construction, based in the San Bernardino County city of Highland, is controlled by Montana entrepreneur Dennis Washington. The company has about $228 million in annual revenue and 1,000 employees, compared with $1.7 billion in revenue for Boise, Idaho-based Morrison Knudsen, which has 7,800 employees.

Morrison Knudsen’s proud past includes such huge projects as the Hoover Dam, but the company has been struggling to remain solvent since February 1995, when the disclosure of massive losses led to the dismissal of Chairman and Chief Executive William Agee.

Under the merger, contingent on the bankruptcy filing expected next month, Morrison Knudsen would retain its name and its operational headquarters in Idaho.

Creditors, who are considering a deal to exchange their $350 million in debt for equity in the new Morrison Knudsen, would get cash, stock in Washington Construction and other considerations, including the engineering giant’s stake in its MK Rail subsidiary, currently valued at about $58 million.

Bankers following the deal said it is worth 90% or more of the $350 million in outstanding debt.

Under the proposed reorganization, first detailed last month, stockholders would get warrants that would be nearly worthless.

Nevertheless, the stock doubled in value in one hectic day of trading last week after news surfaced of Washington’s interest in Morrison Knudsen.

Morrison Knudsen did not open for trading on the New York Stock Exchange on Monday. Washington Construction Group, which is 69%-owned by Dennis Washington, rose 37.5 cents to $8.375 on the NYSE.

In addition to the California-based construction group, which makes the bulk of its revenue from building roads and other major civil construction projects, Dennis Washington owns Anaconda Copper Mine, the Montana Rail Link railroad and other properties.

Neither he nor any executives with his Missoula, Mont.-based holding company could be reached for comment.