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Arnold M. Knightly

Investors to vote on construction company merger

5 September 2008

LAS VEGAS, Nevada -- The man widely credited with helping restructure Perini Corp. stands to be rewarded in a big way.

Shareholders of the construction giant will be asked today to approve an all-stock buyout of Tutor-Saliba Corp., Perini Chairman and Chief Executive Officer Ron Tutor's privately held construction company.

Tutor, who led an investment group in 1997 that invested $40 million to recapitalize a financially troubled Perini, will acquire nearly 43 percent of Perini's stock when the deal closes later this month.

The deal's final dollar value will be based on Perini's stock price on the day the deal closes. Tutor-Saliba investors will receive 22.9 million shares of Perini stock, valued at $562.4 million based on Thursday's closing price of $24.56 per share. The stock was valued at $862 million when it was announced in April.

"(Tutor has) been a force that basically saved that company," said David Shields, director of the construction management program in the college of engineering at the University of Nevada, Las Vegas. "He's a good businessman, a tough buisnessman."

Shields said the two companies are a good fit given Perini's focus on commercial building construction and Tutor-Saliba's focus on civil and transportation projects.

Locally, Perini is the general contractor of the Cosmopolitan and MGM Mirage's CityCenter project, a contract worth approximately $6 billion.

The company was also awarded a $1.2 billion contract in July for the new terminal at McCarran International Airport.

Perini, which is based in Framingham, Mass., and has local offices behind New York-New York, is discussing moving its corporate operations to Las Vegas. Nearly 66.6 percent of the company's revenues are generated from hospitality and gaming projects.

Sylmar, Calif.-based Tutor-Saliba is mostly involved in contractor and civil works projects in California. However, the company also has a footprint on the Strip. The company now has $1.3 billion in contracts at Encore at Wynn Las Vegas and $490 million in contracts for Planet Hollywood Towers by Westgate.

The buyout will give Tutor stock worth hundreds of millions of dollars, but analysts view the transaction as favorable to Perini's shareholders in the long term.

Tutor-Saliba is projected to add $400 million to Perini's revenues this year and $2 billion in 2009, construction industry analysts say.

It is also expected to add a backlog of projects worth $1.5 billion to Perini's portfolio.

Perini's revenues last year were $4.6 billion with a backlog of $7.6 billion.

"We continue to expect this combination to enhance the company's long-term growth prospects and the stability of earnings," D.A. Davidson & Co. analyst John Rogers said in an August note to investors.

Perini's stock will continue to trade on the New York Stock Exchange with Tutor-Saliba becoming a subsidiary of the company. Perini shares trade on the New York Stock Exchange under the symbol PCR.

Perini officials declined to discuss the deal further before today's vote. However, not all industry analysts have been bullish on the deal.

Avram Fisher of BMO Capital Markets wrote in June that the deal is overvalued when based solely on Tutor-Saliba's performance as a company.

"This deal was largely assembled by (Perini's) board and the valuation implies strong efforts to woo Ron Tutor," Fisher wrote. "Given (Perini's) bigger balance sheet and larger backlog, we believe (Perini) shareholders should have been wooed and not made to woo."

In several filings with the Securities and Exchange Commission over the past few months, however, Perini said a main reason for the buyout was to ensure that Tutor won't leave to refocus on Tutor-Saliba.

Four independent members of Perini's board of directors recommended the absorption of Tutor-Saliba, of which Tutor is a 96 percent shareholder and CEO.

Tutor did not participate in the negotiations, according to federal filings.

As part of the agreement, Tutor can't vote more than 20 percent of his stock in shareholder votes. Also, none of the stock may be sold for six months after the merger and 70 percent of the stock cannot be sold for five years.

Morgan Joseph analyst Richard Paget said the deal enhances Perini's future growth and profitability.

"The combined business should further cement Perini's position as the premier hospitality and gaming contractor," Paget wrote in April when the deal was announced. "(The merger should) further augment the company's capabilities in the transportation sector."

Tutor joined Perini in January 1997 as a director as part of a management agreement between the two construction companies. He was named Perini's chairman in July 1999 and eight months later he was named CEO while continuing to run Tutor-Saliba.

Under Tutor's guidance, Perini's revenues increased from $1.1 billion in 2000 to $4.6 billion last year.

The company's backlog has also swelled to $7.6 billion at the end of 2007 from $1.8 billion in 2000. Net income increased from $24.4 million in 2000 to $97.1 million last year.

Local labor unions recently criticized Perini for safety issues after eight workers died on its combined work sites in 19 months.

The Nevada Building and Construction Trades Council led 17 affiliated unions on a 24-hour strike of the CityCenter and nearby Cosmopolitan projects in June after negotiations on safety issues broke down between the unions, MGM Mirage and Perini.

The dispute was resolved the next day when Perini agreed to several of the unions' demands, including conducting a safety assessment of the job site and allowing union and safety officials full access to the sites.


Ron Tutor's new 5-year employment agreement

Base salary of $1.5 million

Annual bonus up to $2.6 million.

150 hours of personal flying time in company plane, a Business Boeing Jet 737-700, with unused time carried into next calendar year.

Automobile and driver in Las Vegas

Apartment in Las Vegas

Thirty days vacation with unused days carried into next calendar year.

Investors to vote on construction company merger is republished from