Unwelcome offer: As firm moves HQ to Phila

(Updated:) Hill International, the New York Stock Exchange-traded construction-project and risk management company that plans to move its headquarters to Philadelphia (at $29/sf) from Marlton N.J. ($26/sf), says its board unanimously rejected a $5.50/share takeover offer from DC Capital Partners LLC, Alexandria, Va. DC hoped to combine Hill with Michael Baker International, a Pittsburgh firm DC bought in 2013, and reduce Hill's reliance on big but sometimes volatile projects in the Middle East.

Hill shares rose toward $5. The deal is premium priced by recent standards: Shares have traded below $4 on disappointing sales and profits, as new deals with clients including NYC Transit, NJ Turnpike, GSA and Abu Dhabi National Oil Co. failed to fully replace lost growth from stalled Hill contracts in war-torn Iraq and Libya. (Hill says most of its Mideast business is in more stable countries like Saudi Arabia and Abu Dhabi.)

But the offer "substantially undervalues HIll's common stock" and its prospects for growth, Hill chief executive David Richter, son of founder Irvin Richter, told Campbell in a return letter today. In a separate statement to investors, Richter called DC's offer "grossly inadequate." Hill shares were above $7 last Spring, and $19.30 at the stock's 2009 high. The company is fighting the prospect of a hostile takeover by flooding its capital base with new non-trading shares, which Richter told investors will counter DC's "coercive short-term tactics."

Will outside shareholders back DC or the Richters? "Three of the last four years, the company has not made money," analyst Walter Schenker of MAZ Capital Advisors pointed out in the Hill's March 13 conference call. "This past year you were only profitable one quarter," though Hill is still paying executive bonuses, Schenker added. Other investors urged the Richters to consider cutting administrative staff and expenses. 

But Hill will be tough to change or sell if the Richters don't agree: Together they control more than 22% of Hill stock, even without an anti-takeover campaign. "We think that we can get better profitability by growing the business, not by shrinking it," Hill said in the conference call. With growth, he expects to "wring more profitability out of this business."

Hill's move follows a May 4 letter from DC President Thomas J. Campbell after he and partner Douglas T. Lake Jr. met with Richter and suggested ways to "enhance the shareholder value of Hill International." Highlights from Campbell's letter to Richter:

"We have been impressed with the Company's recovery" from the loss of Libya construction business after Muammar Gaddafi's 2011 overthrow, but "we remain concerned with the Company's disproportionate exposure to the Middle East region.

"Equally concerning is our belief that the Compcnay lacks sufficient fiscal discipline to maximize shareholder value." Campbell said Hill would best add value if it were reorganized as a private company, and suggested Hill sell to DC Capital and its affiliate Michael Baker International, an engineering-consulting-technical services firm that DC took private in 2013. 

"We are interested in a consensual transaction" with a "short exclusivity period," Campbell added. The letter did not threaten a fight in case Richter or his board wouldn't deal. I've sent Campbell a note asking, What's next?

Hill International statement May 5 resisting a proposed $5.50/share sale to DC Capital's Michael Baker International:

"After thoroughly considering DCCP's proposal, the Board determined that the proposal substantially undervalues Hill's common stock given the company's current strategic plans and prospects for continued growth and stockholder value creation, among other considerations, and therefore that acceptance of the proposal is not in the best interests of the company or its stockholders.

"Separately, the Board unanimously approved the adoption of a stockholder rights plan that is intended to ensure that all stockholders have the opportunity to realize the long-term value of their investment in the company and are protected from coercive and opportunistic takeover attempts.

"The plan is also intended to ensure that decisions on corporate strategy and control are made by the Board focused on the best interests of the company and its stockholders over the long-term without undue pressure from coercive short-term tactics. The decision to adopt the rights plan aims to provide the Board with adequate time to fully assess its options, execute on the company's strategic plan and promote stockholder value.

"Under the rights plan, stockholders of record as of May 18, 2015 will receive one preferred share purchase right for each share of Hill common stock held.

"Initially these rights will not be exercisable and will trade with the shares of the company's common stock. With certain exceptions, the rights become exercisable if any person or group acquires beneficial ownership of 15% or more of Hill's common stock. In that situation, each holder of a right (other than such person or members of such group, whose rights will become void and will not be exercisable) will be entitled to purchase a number of shares of Hill's common stock that have a market value of twice the exercise price of the right.

"Stockholders will not be required to take any action to receive the rights distribution. Until the rights become exercisable, they will trade with the shares of the company's common stock. The rights plan will not have any impact on the reported earnings per share of the company and will not change the manner in which the company's common stock is currently traded. Additional details about the rights plan will be included in a Form 8-K to be filed with the U.S. Securities and Exchange Commission."

David Richter added, as part of the statement: "Hill's management team has a strategic plan in place that we believe will significantly increase stockholder value. We believe that DCCP's extremely inadequate offer attempts to hijack this value creation away from our existing public stockholders and put it into their private pockets, and our Board found this offer to be completely unacceptable."