September 17, 2008

Tulsa-Based Matrix Targets Niche Field With CB&I Deal

By Kirby Lee Davis

Matrix Service Co. of Tulsa will acquire potential U.S. market dominance in a small storage tank construction niche through a deal with Chicago Bridge and Iron Co.

This transaction, which should help The Woodlands, Texas-based CB&I escape a Federal Trade Commission legal battle, will transfer about 70 engineering and construction workers to Matrix, as well as tools and equipment, officials said Monday.

CB&I also will subcontract to Matrix a two-year backlog of cryogenic and tank construction contracts valued at $20 million.

Neither company undisclosed the transaction cost.

Matrix President Michael J. Bradley said this addition will help position his company as a leading supplier of steel plate structures in North America.

"That's a good point," said James Carnett, senior portfolio manager with Fredric E. Russell Investment Management Co. of Tulsa. "If you can find a small market and dominate it, that's always good for your company. Sometimes small markets become bigger markets."

The new engineering and construction resources gained from CB&I will allow Matrix to immediately bid for market leadership in designing and building single- and full-containment storage tanks for liquid natural gas, petroleum gas, or atmospheric gas, as well as thermal vacuum chambers.

The FTC warned that CB&I would become the only U.S. company providing those services when the Texas company moved to acquire Pitt-Des Moines Inc. in 2001. CB&I pushed to complete that $84 million takeover before the FTC could complete a report claiming the deal violated antitrust laws.

Four years later a FTC administrative opinion ordered CB&I to create two standalone divisions capable of competing against each other, divesting one within six months. CB&I challenged that in court, but faced a setback in January when the U.S. Fifth Circuit Court of Appeals upheld the FTC stand.

CB&I expects its Matrix deal, which requires FTC approval, to resolve those legal battles.

In terms of size, Carnett said Monday's transaction represents a minor change for Matrix, which saw its revenues jump 14.3 percent in the fiscal year ended May 31 to $731.3 million, its profits rising 11.6 percent to $21.4 million. It also will have little impact on CB&I, employer of 18,000 at 80 locations around the world.

"But I do feel like they probably picked this up for a pretty good time," Carnett said of Matrix. "It fits in with what they're doing."

Having a field of market leadership also provides a bragging chip that can generate growth in other fields.

In Monday's volatile session, Matrix shares plunged 12.49 percent on the Nasdaq Exchange to close $20.59. In after-hours trading it regained 71 cents of the $2.94 lost earlier that day. Regular- session volume totaled 179,104 shares, down 21.9 percent from the Matrix daily average.

"I think anybody in that business has got a bright future even though oil prices have come down a whole lot," said Carnett. "Long- term, energy is going to be there. I think Matrix is well positioned to take advantage of that."

Originally published by Kirby Lee Davis.

(c) 2008 Journal Record - Oklahoma City. Provided by ProQuest LLC. All rights Reserved.