Home / Businesswire / Granite Construction to Acquire Layne Christensen in $565 Million Stock Merger Transaction

Granite Construction to Acquire Layne Christensen in $565 Million Stock Merger Transaction

Positions Granite as a National Leader Across Both Transportation and
Water Infrastructure Markets

Transaction Equity Value of $376 Million

Expected to Generate Annual Cost Synergies of Approximately $20
Million

Enterprise Value Multiple of 8.2x 2018 Expected EBITDA1,
Including Full Run-Rate of Cost Synergies

Expected to be Accretive to Granite's Adjusted EPS and High
Single-Digit Accretive to Granite's Adjusted Cash EPS in First Year
After Close2

Granite to Host Conference Call and Webcast at 5:30 a.m. PT / 8:30
a.m. ET Today

WATSONVILLE, Calif. & THE WOODLANDS, Texas–(BUSINESS WIRE)–Granite Construction Incorporated (NYSE: GVA) and Layne Christensen
Company (NASDAQ: LAYN) announced today that they have entered into a
definitive agreement whereby Granite will acquire all of the outstanding
shares of Layne in a stock-for-stock transaction valued at $565 million,
including the assumption of net debt. The transaction, which was
unanimously approved by the Boards of Directors of both companies, is
expected to close in the second quarter of 2018.

Under the terms of the agreement, Layne shareholders will receive a
fixed exchange ratio of 0.270 Granite shares for each share of Layne
common stock they own. This represents $17.00 per Layne share, or a
premium of 33%, based on the volume-weighted average prices for Granite
and Layne shares over the past 90 trading days. Following the close of
the transaction, Layne shareholders will own approximately 12% of
Granite shares on a fully diluted basis, and Granite's Board will be
expanded to include one additional director from Layne. The transaction
represents an enterprise value multiple of 8.2x 2018 expected EBITDA1.

As a leading water management, construction, and drilling company with
the #1 position in well drilling and a #2 position in cured-in-place
pipe (CIPP) rehabilitation, Layne significantly enhances Granite's
presence in the large and growing water infrastructure market. The
combined company, including Granite's existing water business, will have
water-related revenues of approximately $600 million3,
positioning Granite as a national leader across both the transportation
and water infrastructure markets. Together, Granite and Layne will have
nearly 7,000 employees and serve a diverse and growing customer base.

"This strategic transaction brings together two complementary
organizations to create a platform for growth, delivering significant
benefits for shareholders, employees, and customers," said James H.
Roberts, President and Chief Executive Officer of Granite. "With Layne's
expertise and leading water positions, Granite will advance its goal of
becoming a full suite provider of construction and rehabilitation
services for the water and wastewater market. With enhanced scale and
capabilities, Granite will be better positioned to address the growing
water and wastewater needs throughout the infrastructure lifecycle. We
expect this transaction will create value for shareholders in both the
near- and long-term, including earnings accretion on an adjusted basis
and synergy realization. As a stronger player in the attractive water
and wastewater sector, we will have significant opportunities to capture
a larger share of the market and accelerate our growth prospects."

"We are pleased to reach this agreement with Granite, which creates
significant value for all Layne stakeholders," said Michael J. Caliel,
President and Chief Executive Officer of Layne. "Our organization
believes that Granite is the right partner. This is a terrific
opportunity as our shareholders will receive a significant premium and
share in the upside potential in a diversified and growing company with
greater scale and resources. Our customers will benefit from our shared
commitment to operational excellence, quality, and customer service, and
our employees will benefit from the upside and strong growth prospects
of being part of a larger infrastructure company. Our leadership
position in water resources combined with our increasing presence in the
growing water midstream business should be greatly enhanced by our
combination with Granite. The Layne team looks forward to working
together with Granite to implement a seamless transition."

Mr. Roberts concluded, "Together, Granite and Layne will provide
expanded career opportunities as a larger, stronger, and more
diversified company. Granite will also benefit from gaining the
expertise and specialized skills of Layne employees as we expand our
presence in water infrastructure. Importantly, we believe this
combination unites two similar cultures that emphasize core values
focused on ethics, safety, sustainability, and a commitment to the
communities in which we work and live. We look forward to welcoming
Layne's talented employees to Granite. Together, we can capitalize on
attractive and growing market opportunities, given the expected increase
in demand for large water infrastructure programs."

Creates a Platform for Growth

  • Establishes Granite's Leadership Position in the Water
    Infrastructure Market. Layne is a leading water management,
    infrastructure services, and drilling company with a broad portfolio
    and a diverse and growing customer base across municipal,
    industrial, agriculture, and energy end markets, with water-related
    services accounting for over 80% of revenues4. Together
    with Layne, Granite will be a leader in water infrastructure and
    wastewater rehabilitation, well positioned to take advantage of the
    attractive macro dynamics of the water services industry. The U.S.
    municipal utility sector is forecasted to spend $532 billion in
    capital expenditures through 2025, with over 50% of the spending
    expected to be related to water and wastewater distribution networks.5
    A
    combination with Layne represents the next logical step in the
    evolution of Granite's strategy to diversify its service offerings by
    expanding in the water and wastewater market. Since acquiring Kenny
    Construction Company in December 2012, which gave Granite an entrance
    into the water markets, Granite has made a number of investments in
    the water sector to strengthen its capabilities, expand its footprint,
    and grow its presence. Now, with the addition of Layne's leading
    portfolio of services, Granite will be better positioned in water
    infrastructure and wastewater rehabilitation.
  • Provides a Broad Portfolio of Services to the Water Sector.
    Together with Layne, Granite will enhance its capabilities and service
    offerings to provide a full lifecycle portfolio to better meet the
    needs of its public and private water sector customers.
  • Creates a National Footprint with Capabilities Across Water and
    Transportation Markets. Granite is a leader in the transportation
    market with a significant presence across the U.S. and backlog of over
    $3.7 billion. Together with Layne, Granite will offer a broader suite
    of services in more markets across the country, with greater reach,
    particularly in the Midwest.
  • Adds Significant Base of Stable, Recurring Revenue. With a
    greater presence in the growing water and wastewater end markets,
    Granite will benefit from more stable and diverse funding sources.
    Specifically, Granite will benefit from Layne's consistent, recurring
    revenue stream in maintenance, repair, and Inliner product sales. On a
    pro forma basis, Layne's revenue would represent 14%6 of
    the combined company, which is anticipated to increase as Granite
    capitalizes on additional meaningful revenue opportunities.

Delivers Substantial Financial Benefits

  • Drives Significant Cost Savings. Granite expects to achieve
    approximately $20 million of annual run-rate cost savings by the third
    year following the close of the transaction, with approximately
    one-third realized in 2018. Granite expects to incur approximately $11
    million in one-time costs to achieve these savings.
  • Accretive to Granite's Earnings. The transaction is expected to
    be accretive to Granite's adjusted earnings per share, and high
    single-digit accretive to Granite's adjusted cash earnings per share
    in the first year after closing7.
  • Maintains Granite's Financial Strength and Flexibility. The
    combined company will have a strong balance sheet and liquidity
    profile. Following the close of the transaction, Granite will maintain
    an investment grade credit profile with debt-to-EBITDA of less than
    1.5×8. The expected strong cash flow generation of the
    combined business will enable Granite to return to current leverage
    levels by the end of 2018.

Financing, Approvals, and Close

Granite expects to assume outstanding Layne convertible debt with
principal value of $170 million and honor the terms and existing
maturity date provisions of the indentures. The transaction is not
expected to trigger any change of control provisions under Layne's
indentures. Granite also expects to fund the cash financing requirements
of the transaction of approximately $70 million through a combination of
existing cash on hand and availability under Granite's revolving credit
facility. Following close, Granite will maintain an investment grade
credit profile and significant financial flexibility.

The transaction, which is expected to close in the second quarter of
2018, is subject to the satisfaction of customary closing conditions,
including applicable regulatory approvals and the approval of the
shareholders of Layne. Wynnefield Capital, which has an approximate 9%
voting interest in Layne, has agreed to vote in favor of the
transaction. In connection with the transaction, Granite will issue
approximately 5.4 million shares9 of Granite common stock to
Layne common stockholders.

Advisors

Perella Weinberg Partners LP is serving as financial advisor to Granite,
and Jones Day is serving as legal counsel. Greentech Capital Advisors,
LLC is serving as financial advisor to Layne, and Latham & Watkins LLP
and Stinson Leonard Street LLP are serving as legal counsel.

Conference Call and Webcast

Granite will conduct a conference call today, Wednesday, February 14,
2018, at 5:30 a.m. Pacific Time/8:30 a.m. Eastern Time to discuss this
announcement. Access to a live audio webcast and slide presentation will
be available on its Investor Relations website,
investor.graniteconstruction.com. An archive of the webcast will be
available on the website approximately one hour after the call. The live
call also is available by calling 1-877-328-5503; international callers
may dial 1-412-317-5472. A replay will be available after the live call
through February 21, 2018, by calling 1-877-344-7529, replay access code
10117211; international callers may dial 1-412-317-0088.

About Granite

Through its offices and subsidiaries nationwide, Granite (NYSE:GVA) is
one of the nation's largest infrastructure contractors and construction
materials producers. Granite specializes in complex infrastructure
projects, including transportation, industrial and federal contracting,
and is a proven leader in alternative procurement project delivery.
Granite is an award-winning firm in safety, quality and environmental
stewardship, and has been honored as one of the World's Most Ethical
Companies by Ethisphere Institute for nine consecutive years. Granite is
listed on the New York Stock Exchange and is part of the S&P MidCap 400
Index, the MSCI KLD 400 Social Index and the Russell 2000 Index. For
more information, visit graniteconstruction.com.

About Layne

Layne is a global water management, infrastructure services and drilling
company, providing responsible solutions to the world of essential
natural resources โ€” water, minerals and energy. We offer innovative,
sustainable products and services with an enduring commitment to safety,
excellence, and integrity.

Forward Looking Statements

All statements included or incorporated by reference in this
communication, other than statements or characterizations of historical
fact, are forward-looking statements within the meaning of the federal
securities laws, including Section 27A of the Securities Act of 1933, as
amended, and Section 21E of the Securities Exchange Act of 1934, as
amended. These forward-looking statements are based on Granite's current
expectations, estimates and projections about its business and industry,
management's beliefs, and certain assumptions made by Granite and Layne,
all of which are subject to change. Forward-looking statements can often
be identified by words such as "anticipates," "expects," "intends,"
"plans," "predicts," "believes," "seeks," "estimates," "may," "will,"
"should," "would," "could," "potential," "continue," "ongoing," similar
expressions, and variations or negatives of these words. Examples of
such forward-looking statements include, but are not limited to: (1)
references to the anticipated benefits of the proposed transaction; (2)
the expected future capabilities and served markets of the individual
and/or combined companies; (3) projections of financial results, whether
by specific market segment, or as a whole, and whether for each
individual company or the combined company; (4) market expansion
opportunities and segments that may benefit from sales growth as a
result of changes in market share or existing markets; (5) the financing
components of the proposed transaction; (6) potential credit scenarios,
together with sources and uses of cash; and (7) the expected date of
closing of the transaction.

These forward-looking statements are not guarantees of future results
and are subject to risks, uncertainties and assumptions that could cause
actual results to differ materially and adversely from those expressed
in any forward-looking statement. Important risk factors that may cause
such a difference in connection with the proposed transaction include,
but are not limited to, the following factors: (1) the risk that the
conditions to the closing of the transaction are not satisfied,
including the risk that required approvals for the transaction from
governmental authorities or the stockholders of Layne are not obtained;
(2) litigation relating to the transaction; (3) uncertainties as to the
timing of the consummation of the transaction and the ability of each
party to consummate the transaction; (4) risks that the proposed
transaction disrupts the current plans and operations of Granite or
Layne; (5) the ability of Granite or Layne to retain and hire key
personnel; (6) competitive responses to the proposed transaction and the
impact of competitive products; (7) unexpected costs, charges or
expenses resulting from the transaction; (8) potential adverse reactions
or changes to business relationships resulting from the announcement or
completion of the transaction; (9) the combined companies' ability to
achieve the growth prospects and synergies expected from the
transaction, as well as delays, challenges and expenses associated with
integrating the combined companies' existing businesses; (10) the terms
and availability of the indebtedness planned to be incurred in
connection with the transaction; and (11) legislative, regulatory and
economic developments, including changing business conditions in the
construction industry and overall economy as well as the financial
performance and expectations of Granite and Layne's existing and
prospective customers. These risks, as well as other risks associated
with the proposed transaction, will be more fully discussed in the proxy
statement/prospectus that will be included in the Registration Statement
on Form S-4 that Granite will file with the Securities and Exchange
Commission ("SEC") in connection with the proposed transaction.
Investors and potential investors are urged not to place undue reliance
on forward-looking statements in this document, which speak only as of
this date. Neither Granite nor Layne undertakes any obligation to revise
or update publicly any forward-looking statement to reflect future
events or circumstances. Nothing contained herein constitutes or will be
deemed to constitute a forecast, projection or estimate of the future
financial performance of Granite, Layne, or the combined company,
following the implementation of the proposed transaction or otherwise.

In addition, actual results are subject to other risks and uncertainties
that relate more broadly to Granite's overall business, including those
more fully described in Granite's filings with the SEC including its
annual report on Form 10-K for the fiscal year ended December 31, 2016,
and Layne's overall business and financial condition, including those
more fully described in Layne's filings with the SEC including its
annual report on Form 10-K for the fiscal year ended January 31, 2017.

No Offer or Solicitation

This document does not constitute an offer to sell or the solicitation
of an offer to buy any securities or a solicitation of any vote or
approval nor shall there be any sale of securities in any jurisdiction
in which such offer, solicitation or sale would be unlawful prior to
registration or qualification under the securities laws of any such
jurisdiction.

Additional Information and Where to Find It

In connection with the proposed transaction, Granite will file a
registration statement on Form S-4, which will include a preliminary
prospectus of Granite and a preliminary proxy statement of Layne (the
"proxy statement/prospectus"), and each party will file other documents
regarding the proposed transaction with the SEC. The registration
statement has not yet become effective and the proxy
statement/prospectus included therein is in preliminary form. INVESTORS
AND SECURITY HOLDERS ARE URGED TO READ THE PROXY STATEMENT/PROSPECTUS
AND OTHER RELEVANT DOCUMENTS FILED WITH THE SEC WHEN THEY BECOME
AVAILABLE, BECAUSE THEY WILL CONTAIN IMPORTANT INFORMATION. A
definitive proxy statement/prospectus will be sent to Layne's
stockholders.

You may obtain copies of all documents filed with the SEC regarding this
transaction, free of charge, at the SEC's website (www.sec.gov).
In addition, investors and stockholders will be able to obtain free
copies of the proxy statement/prospectus and other documents filed with
the SEC by Granite on Granite's Investor Relations website (investor.Granite.com)
or by writing to Granite, Investor Relations, 585 West Beach Street,
Watsonville, CA 95076 (for documents filed with the SEC by Granite), or
by Layne on Layne's Investor Relations website (investor.laynechristensen.com)
or by writing to Layne Company, Investor Relations, 1800 Hughes Landing
Boulevard, Suite 800, The Woodlands, TX 77380 (for documents filed with
the SEC by Layne).

Participants in the Solicitation

Granite, Layne, and certain of their respective directors, executive
officers, other members of management and employees and agents retained,
may, under SEC rules, be deemed to be participants in the solicitation
of proxies from Layne stockholders in connection with the proposed
transaction. Information regarding the persons who may, under SEC rules,
be deemed participants in the solicitation of Layne stockholders in
connection with the proposed transaction will be set forth in the proxy
statement/prospectus when it is filed with the SEC. You can find more
detailed information about Granite's executive officers and directors in
its definitive proxy statement filed with the SEC on April 25, 2017. You
can find more detailed information about Layne's executive officers and
directors in its definitive proxy statement filed with the SEC on April
28, 2017. Additional information about Granite's executive officers and
directors and Layne's executive officers and directors will be provided
in the above-referenced Registration Statement on Form S-4 when it
becomes available.

1 Based on Granite's expectations for Layne financial
performance during calendar year 2018, and including full run-rate cost
synergies and expected present value tax benefit of Layne net operating
losses.

2 Adjusted EPS excludes non-recurring transaction and
integration costs and Adjusted Cash EPS further excludes amortization of
intangible assets.

3 Based upon Layne's approximate LTM water revenue as of
Layne's fiscal Q3 2018 (October 31, 2017) and Granite's three-year
water-related average revenue.

4 LTM figures as of Layne's fiscal Q3 2018 (October 31, 2017)
and pro forma for the divestiture of the Heavy Civil business segment;
Layne's fiscal year end is January 31.

5 U.S. Municipal Water Infrastructure: Utility Strategies &
CAPEX Forecasts, 2016 โ€“ 2025, Bluefield Research.

6 LTM figures as of Layne's fiscal Q3 2018 (October 31, 2017)
and pro forma for the divestiture of the Heavy Civil business segment;
Layne's fiscal year end is January 31. LTM figures as of Granite's
fiscal Q3 2017 (September 30, 2017); Granite's fiscal year end is
December 31.

7 Adjusted EPS excludes non-recurring transaction and
integration costs and Adjusted Cash EPS further excludes amortization of
intangible assets.

8 Assumes conversion of Layne 8.00% notes post-closing.

9 Outstanding Layne Equity awards to be cash settled at
closing.

Contacts

Granite:
Media
Jacque Fourchy, 831-761-4741
or
Investors
Ron
Botoff, 831-728-7532
or
Layne:
Investors
J.
Michael Anderson, 281-475-2694
Chief Financial Officer
[email protected]
or
Media
Dennard
Lascar Associates
Jack Lascar, 713-529-6600
[email protected]