US: Boosted, not battered, in the hurricane's wake

Publisher Name: 
The Financial Times

Jim Bernhard's athletic frame is slightly hunched as he tries to ignore a backache that has cropped up at the worst possible time. "This company was created for this moment. To restore the state I love," he says.

It is barely a week after Hurricane Katrina struck the Louisiana and Mississippi coasts and Mr Bernhard sits indistinguishable from the rest of his employees at a small table in the cafeteria of the Shaw Group, the Louisiana engineering and construction company he founded 18 years ago.

His Federal Emergency Management Agency (Fema) identification tag hangs at his chest and swings against the type of bright orange golf shirt nearly every one of Shaw's employees is now wearing. It's for safety, Mr Bernhard says. But marketing is a close second motive for the piercingly bright shirts that are impossible for television cameras to miss among the rubble and water of New Orleans.

It is a move typical of Mr Bernhard's entrepreneurial bent. As is the speed with which Shaw dispatched people to the US Gulf coast - well before many others knew that the 17th Street Canal levee had broken and New Orleans stood up to its roofs in water.

"We know things and people outsiders can't know. We know how to get to Fema in 15 minutes taking small roads, rather than the congested highway that takes 45 minutes," explains Mr Bernhard, adding: "We know how to barge equipment to places that are still inaccessible to others."

Shaw employees, several of whom did not know whether their families were safe, were some of the first on the scene.

Shaw's location - the company's headquarters in Baton Rouge lie about 80 miles from New Orleans - is one reason it was so quick. The second is Mr Bernhard's entrepreneurial philosophy, which he has kept alive even as Shaw has grown from three to nearly 20,000 employees while its market capitalisation has reached almost $2bn.

"Make sure you're right, but go ahead," he says, quoting Daniel Boone, the legendary American frontiersman who blazed a trail through the Cumberland Gap in the Appalachian Mountains in the 18th and 19th centuries.

In contrast to Mr Bernhard and Mr Boone, the government response after Katrina hit in the last days of August was slow and bogged down by bureaucracy. Emergency workers and engineers often worked around, rather than with Fema.

"Sometimes government procedures are not immediately flexible. Sometimes, because of bureaucracy, solutions do not get acted on quickly enough," Mr Bernhard says.

The experience has already netted Shaw $200m in federal contracts and pushed its share price up 50 per cent.

"It took me 10 years to save the $50,000 I needed to start my own company," he says, laughing at the thought of how much less time it took him to raise millions once Shaw got off the ground. Mr Bernhard graduated with a degree in construction management from Louisiana State University in 1976 and was a millionaire by the time he was 40.

He started Shaw together with two others from his first job at a Louisiana pipe fabrication company. He called the company National Fabricators but changed the name a year later after taking over BF Shaw, a company that already had some national recognition. Then, mainly through acquisitions, he deftly built Shaw into the second largest publicly traded company in Louisiana and the 15th fastest growing company to have made the Forbes 500 list. The other founding partners have since left and Shaw now owns the company from which the three had defected.

But Mr Bernhard's biggest coup - and one that helps explain his success thus far - was the 2000 acquisition of Stone and Webster, the Boston engineering group, which had been driven into bankruptcy.

Mr Bernhard, who always coaches one children's sport a year, recalls that the takeover forced him to miss Louisiana State University's championship baseball series against Stanford because he was doing due diligence. Shaw, he explains, was too small to take on an outside team. The frustration is still evident in his voice until he remembers who won: LSU.

While LSU took on Stanford, Mr Bernhard was the definite underdog in his own battle. Jacobs, the California engineering group, was five times bigger than Shaw at the time and had already secured a written purchase agreement for Stone and Webster.

But Mr Bernhard knew that Shaw's weaker financial firepower would not stop his company. He recalled thinking at the time: "If we are not smart and clever enough to beat Jacobs, then we don't deserve to own Stone and Webster."

But they were. Twenty-four hours before the bids were due, Shaw bought all Stone and Webster's accounts payable for 20c on the dollar. That gave them the leg-up they needed - Shaw was now the claimant and was able to promise that it would repay 100 per cent of the outstanding debts, out-manoeuvring Jacobs and taking away its deep pocket advantage.

"Those were some stunned Bostonians," says Richard Gill, chairman of Shaw's executive committee, who gives away his past as an LSU football player by a prune-sized championship ring encrusted with small diamonds.

The auction became the longest in Delaware history, taking 13 hours (from 11am to 3.30am the next morning). Shaw won and added 8,000 to its payroll of 2,000.

But the company's growth has not always been smooth. Enron's meltdown, the aftershocks of September 11 2001 and several large and unsuccessful projects, sent Shaw into dangerous territory. Its cash shrunk by more than 80 per cent and net debt ballooned to more than seven times its 2001 level in little more than two years.

Mr Bernhard, a staunch Democrat, considered running for US Senate. But the acquisition in 2002 of IT Group, which deals with reconstruction after disasters such as those caused by hurricanes, paid off just in time and Shaw pulled itself out of the hole.

"We are always heading north, though sometimes we may have to go north-west or north-east," says Mr Bernhard, evoking the tone of another of Mr Boone's more famous utterances: "I have never been lost, but I will admit to being confused for several weeks."

Despite frequent overtures from Texas, Mr Bernhard has insisted Shaw's headquarters remain in Baton Rouge. "We have always stayed here because we love Louisiana and now I know why," says the man who has lived in the state all his life. His close affiliation with Louisiana and his political connections - after the hurricane he resigned as the state's Democratic chairman - have led to criticism that the company may have benefited from political favours.

But despite its roots the company has become truly international, with projects as far away as the Middle East and as removed from pipe building as cleaning up the US Postal Service after the anthrax attacks of 2001.

The projects hardly make Shaw's CV read like that of a start-up. But in his latest move, Mr Bernhard has thrust his company into a pond so big that it is again playing David, this time among several Goliaths. Shaw is battling GE, and others to buy Westinghouse, the US nuclear company being sold by the UK government.

The week after Hurricane Katrina struck, while the rest of his company concentrated on New Orleans, Mr Bernhard snuck off to London on a trip that lasted fewer than 48 hours.

Grinning, he asks whether his competitors might think that Shaw is too preoccupied with Katrina to make a serious run for Westinghouse. Before anyone can answer that this would depend on whether they knew about his coup in the Stone and Webster deal five years ago, Mr Bernhard says: "We can do everything. We haven't discovered that we can't."

By Christmas, when the winner of the Westinghouse auction is revealed, Mr Bernhard should know if that statement remains true.

AMP Section Name:War & Disaster Profiteering
  • 21 Reconstruction