Jonathan Fahey, 05.20.10, 07:20 PM EDT
Forbes Magazine dated June 07, 2010
Foster Wheeler is an old dog that is good at old tricks. It needs some new ones.
New Chief Bob Flexon and company savior Ray Milchovich.
Robert Flexon, 51, wakes up at 4:30 every morning to exercise with Russian kettlebells, the better, it seems, to deal with the heavy lifting that awaits him. On June 1 he takes over as chief executive of Foster Wheeler, the engineering company that recently moved its headquarters to Geneva from New Jersey. For one thing, Flexon succeeds a lionized chief executive, Raymond Milchovich, 60, who saved the company from bankruptcy in 2001. If that’s not daunting enough, Flexon is taking over at a time when Foster Wheeler is trying to figure out its next act.
The company, which earned $350 million on $5 billion in sales in 2009 (87% overseas), breathes carbon. It designs and builds oil refineries, petrochemical plants, liquefied natural gas terminals and boilers for coal-fired power plants. These megaprojects aren’t going away, especially in the developing world. But politicians’ infatuation with alternative energy and their distaste for carbon are likely to slow demand for the stuff that Foster Wheeler ( FWLT – news – people ) knows best. The company’s shares trade in lockstep with the price of oil and at a discount to more well-rounded (but less profitable) competitors Jacobs Engineering and Fluor ( FLR – news – people ).
Says longtime board member and former Goldman Sachs ( GS – news – people ) chairman Eugene Atkinson: “We are highly dependent on a narrow segment of the energy market, and we need to broaden our offerings. And it’s not so obvious what’s out there.”
Foster Wheeler went through a bigger crisis at the turn of the century, when a series of costly power plant contracts led to the company’s near collapse. Milchovich, brought in from Kaiser Aluminum ( KALU – news – people ) in late 2001, narrowly avoided bankruptcy by convincing ExxonMobil ( XOM – news – people ), a big customer, not to defect. He then cleared out the executive ranks, fixed the company’s balance sheet and turned the company into one of the most profitable big engineering and construction firms in the world.
Milchovich tried to retire a year ago, but the board couldn’t find a suitable replacement and asked him to stay. Flexon was among those passed over, but he agreed to leave his job as finance chief at NRG to run Foster Wheeler’s U.S. division, where he was to learn the ropes and compete for the top job.
The attributes that made him good at turning the company around, Milchovich protests, make him bad for coming up with a new plan. “When you’re a turnaround person, you tend to be conservative,” he says. “Bob needs to broaden our thinking [and] figure out what we need to be next.”
What Schools Can Learn From Money Managers
Fiscal Fix: How the States Lead. Will Obama Follow?
After the Spill: Big Oil Plots Its Comeback
Snake Oil in Your Snacks
Free Trial Issue of Forbes
Rate This Story
Post a Comment
Flexon has some thoughts. He wants to continue a plan started under Milchovich to expand Foster Wheeler’s limited expertise in building equipment for oil and gas exploration projects. As oil gets harder to find, more money will be spent trying to find it. Foster Wheeler has made two small oil- exploration acquisitions recently and says it has another target in mind. (Flexon doesn’t believe the Gulf of Mexico disaster will slow spending on exploration internationally, where Foster Wheeler is strongest.)
Also, Foster Wheeler builds power plant boilers that can be used to burn biomass as well as coal. It recently won a contract to build the world’s biggest biomass-only power plant, a 190-megawatt station in Poland. It is also developing boiler designs that will allow for easier carbon capture. Nitrogen is separated from oxygen before combustion, thereby reducing the volume of exhaust gas and making the exhaust easier to treat by preventing the formation of polluting nitrogen oxides. Flexon also thinks there could be a future in building plants that turn natural gas or coal into diesel or gasoline.
Flexon has other ideas he declines to share, but he says he’s interviewing and hiring new talent already. “I want to get up and running immediately,” he says.
Foster Wheeler could hedge its exposure to fossil fuels by buying its way into the business of building nuclear power or desalination plants. Milchovich was unwilling to spend the capital. Flexon may have to. “When Bob comes in, everything will be on the table,” says Andrew Kaplowitz, an analyst at Barclays ( BCS – news – people ) Capital. “It has to be.”