Chicago Bridge & Iron (CBI) Seen Defending its Position in $2B Dispute with Westinghouse - Deutsche Bank

Chicago Bridge & Iron (NYSE: CBI) has good basis to defend its position in a suit involving Westinghouse, said analyst Chad Dillard of Deutsche Bank, although the lawsuit could act as an "overhang" on the stock. The dispute involves claims CB&I owes Westinghouse $2 billion for a true-up of working capital related to the sale of two nuclear projects.

"Based on our reading of the complaint and the Purchase Agreement, we see good scope for CBI to defend its position. That said, this type of case tends to take time to resolve and could act as an overhang on the stock," said Dillard.

Discussing background on the case, Dillard said, "In 2008, Stone & Webster (a nuclear business that was acquired by CBI through the Shaw acquisition in 2013) entered into a consortium with Westinghouse to build 2 nuclear projects in Georgia and South Carolina. In 2012, the Consortium entered litigation to reclaim $1.5B of unpaid change orders from the nuclear project sponsors, which continued until CBI sold the nuclear business to Westinghouse (in July 2015 CBI began negotiations to sell to Westinghouse and the deal closed in December 2015). Unbeknownst to CBI, Westinghouse settled the change order claims for $550M with the project sponsors shortly after the agreement to sell the nuclear business."

The analyst continued, "According to CBI, the terms of the purchase agreement for the nuclear business fully released CBI from all liabilities related to the project (past, present, and future). Westinghouse is claiming that CBI significantly underestimated the forecasted cost of the 2 nuclear projects and overestimated the amount that could be recovered from cost overruns, leading Westinghouse to claim that CBI owes it $2B."

Dillard provided further color on background of the dispute, saying "According to CBI, this amount is several multiples above the fair value of the deal and 300% of the change in working capital for these projects during the interim period). Westinghouse is seeking this amount through a stipulation in the purchase agreement that allows for a “true-up” of any changes in working capital that occurred for these projects between the time of the deal agreement and the close of the deal. Per CBI, Westinghouse had full access to project cost estimates that would enable proper due diligence prior to the agreement. Westinghouse plans to put these claims in front of an auditor. CBI believes this action is a breach of contract and has sued to block this dispute from going to an auditor and instead claims that it is owed $428M in working capital 'true-up'. CBI is requesting a hearing on this matter in court in Delaware on September 22nd."

For an analyst ratings summary and ratings history on Chicago Bridge & Iron click here. For more ratings news on Chicago Bridge & Iron click here.

Shares of Chicago Bridge & Iron closed at $38.75 yesterday.

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