What happens in Vegas…
Back in April, Perini Corp. (PCR), a large general contracting company whose projects include the MGM CityCenter in Las Vegas and the Foxwoods Resort and Casino in Connecticut, announced that it was acquiring the privately-held Tutor-Saliba Corporation in an $862 million deal. One of the things that makes the deal interesting is that Perini’s Chairman, Ronald Tutor, was also the principal shareholder of the privately held company. As the release noted, Tutor, who willl be chairman and CEO of the combined companies, did not participate in the negotiations.
But some interesting details are coming out as the merger goes forward. For example, in the revised proxy filed on Monday, the company provided further explanation on the hefty goodwill chunk — $746 million — of the purchase price”
“The preliminary estimated amount of goodwill resulting from the merger of $746.4 million generally represents the value of Tutor-Saliba’s geographic market presence, accumulated experience as a general contractor, relationships with suppliers and subcontractors, management team and assembled workforce and the ability of these elements to contribute to the generation of significant future cash flows.
Also interesting are the perks that Tutor will receive as chairman and CEO of the combined company: a car and driver, use of an apartment in Vegas, and 150 hours of flying time a year on the company’s Boeing 737. Granted, all of this was disclosed in Tutor’s employment contract back in April. Still, the ability to carry the flight time forward is pretty interesting and relatively uncommon.
Now presumably, Tutor had access to these types of perks from the privately held company. But once the privately-held company disappears, there won’t be as many opportunities to shift these sorts of expenses out of the public eye.
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July 23rd, 2008 at 3:08 pm
You’re points are great and we’re well aware of it. Tutor himself has a shady past to some degree. But despite over paying for Tutor-Saliba, the deal still works out in the long run as value added for Perini, because of all the synergies. Also, Tutor is locking up the majority of his wealth in the company for 5 years, which is also in the footnotes and something to be considered by the potential investor. Yes, I would rather not see these perks or the over priced Tutor-Saliba deal, but I’ll take it because the pieces match together well and both Companies have good histories and have worked together for a long time. This is not a deal breaker. Thank you though for bringing this forth.
July 23rd, 2008 at 7:10 pm
I wonder why execs are always so anxious to pump up goodwill? It’s a useless artifact of past accounting with no future ramifications. Institutions don’t care about it. And if you have to write it down because of a 142/152? valuation, the less you have, the better. Why they try and assign value to things like “geographic location” is beyond me and sets themselves up for when the eventual write-down occurs. Why waste time trying to assign intangible asset value when you can write most of it off in the beginning and not have to worry about future EPS hits?