SHAW 5 - Demanding Fair Value & a Proper Sale Process - 2012 10 17 (2)

The Shaw GroupDemanding Fair Value & a Proper Sale Process

October 17, 2012

Disclaimer

The analyses and conclusions of Denali Investors, LLC ("Denali Investors") regarding The Shaw Group, Inc. and its affiliates (collectively, SHAW or the Company) are based on publicly available information. Denali Investors recognizes that there may be confidential or otherwise non-public information in the possession of the Company that could lead the Company to disagree with Denali Investors conclusions.

The analyses provided include certain estimates and projections prepared with respect to, among other things, the historical and anticipated operating performance of the Company. Such statements, estimates, and projections reflect various assumptions by Denali Investors concerning anticipated results that are inherently subject to significant economic, competitive, and other uncertainties and contingencies and have been included solely for illustrative purposes. No representations, express or implied, are made as to the accuracy or completeness of such statements, estimates or projections or with respect to any other materials herein. Actual results may vary materially from the estimates and projected results contained herein.

Denali Investors advises funds that are in the business of trading - buying and selling - public securities. Denali Investors owns SHAW equity and SHAW option derivatives. It is possible that there will be developments in the future that cause such funds to change their positions regarding the Company and possibly increase, reduce, dispose of, or change the form of their investment in the Company.

Executive Summary

Why We Like SHAW

A Brief History

Conflicts of Interest

Valuation: Grossly Undervalued

Shareholders

Demanding Fair Value

Agenda

We believe the current deal with CBI at $46 per share is a sweetheart transaction for CBI allowing them to steal SHAW on the cheap without a proper auction process or an appropriate control premium.

The premature timing, depressed valuation, limited sale process, and total lack of communication of the deal is explained by our learning that a major conflict of interest exists with the Chairman's likely Louisiana senatorial (2014) or gubernatorial (2015) campaign.

The Management and Board: 1) did not negotiate a go-shop period to solicit competitive offers, 2) did not form a special committee for the sale, 3) did not hold a customary conference call, 4) did not release presentation materials about the transaction, 5) did not file customary proxy materials, and 6) has refused to communicate with investors, analysts, and journalists.

There is ample evidence that the deal price is not the fair price that shareholders deserve given the: 1) strength of SHAW's underlying business, 2) massively impactful unwind of the substantial Westinghouse investment, and 3) recent sale of the problematic and volatile E&C segment.

Executive Summary

Due to SHAW's high 75% supermajority voting threshold that excludes 5% and greater holders, we estimate that ONLY 13% to 17% of shareholders voting against the unfair terms will block the current deal.

We believe SHAW should be valued at $50 to $70 per share as a going concern and $60 to $85 per share including a control premium.

We will continue to take all actions to protect our investment which includes 1) proxy solicitors/advisors, 2) legal counsel, 3) appraisal rights counsel, and 4) independent inspector of elections.

Executive Summary Continued

We strongly encourage fellow shareholders to also vote against the deal, share your concerns with SHAW, and demand to have SHAW form an independent special committee and hire independent advisors to run a proper auction to maximize shareholder value.

Why We Like SHAW

"Right now we feel like we are trading at one-time EBITDA plus cash, so we haven't found anything quite that economical out there so thats where we look at it."

- Jim Bernhard Chairman and CEO CS Conference

Seems We're Not the Only Ones...

Stated July 7, 2012:

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SHAW's Own Internal Projections

Shaw's own projections factor in a massive increase in fundamental performance...

Source: CBI S-4 filing, 09/18/2012

Blue Skies Ahead

"Our balance sheet is strong, exceptionally strong. If you look at the balance sheet we pretty much exclude the debt repayment to ToshibaWithout that we are pretty much debt-free. Our forecast is $1.3 billion worth of cash at the end of our fiscal year, which is in August [2012]."

- Jim Bernhard, July 2012 Earnings Call

"You're looking at today with $1.2 billion in cash, no debt, clean balance sheet, good backlog, a lot of recurring revenue We're real excited about the future of Shaw. Things are beginning to look positive, and our balance sheet is real clean."

- Jim Bernhard, Call to Discuss Westinghouse Investment, September 2011

Fortress balance sheet, strong fundamentals, strong backlog, recurring revenue...

Blue Skies Ahead

"I would think, you know, across the board, certainly, Power will accelerate. There's no reason to conclude that Plant Services should not do better in '13 versus '12. E&I should continue to perform well...You know, F&M continues to perform well. Its core markets are doing extremely well and improving -- we see improvement there in the core businesses. And then, also, you have the ramp-up on the nuclear side.So across the board, we would think that in 2013, there's opportunity for all of them to improve... So we think the opportunity for growth is pretty broad across the -- across all the segments."

- Brian Ferraioli, CFO, July 2012 Earnings Call

An extremely positive view on 2013

Business is Good and Getting Better

"The nuclear power projects continue to ramp up. So you're going to continue to see increased earnings and increased margins as the volume picks up in both power and in F&M. And you're also going to have E&I again doing a good volume quarter. And as the volume picks up on the revenue side, keep in mind that the overheads are relatively flat."

- Brian Ferraioli, July 2012

"You know, while the backlog appears to be down in actuality working backlog... really has increased quarter over quarter."

- Jim Bernhard, July 2012

In addition to a strong backlog, earnings and margins are at an inflection point

Business is Good and Getting Better

"Theres certainly a lot of opportunity out there. Theres a lot of opportunity in the gas market and construction and fabrication activity, particularly in Louisiana and Texas. So, its going to be busy."

- Jim Bernhard, Earnings Call, July 2012

"It looks like there is a significant amount of [work] to be developed in our F&M market. The power market is starting to have more certainty going forward and the E&I market has an opportunity to secure some major projects, particularly in the Department of Energy."

- Jim Bernhard, Earnings Call, March 2012

Management sees growth with near term conviction across all business segments

"That said, and as before, we continue to note that smoother sailing should be ahead as some of the past several years' noise abates."

- Research Analyst, July 11, 2012

"Shaw's earnings appear past the bottom, and we expect the company to start delivering accelerated growth into 2012 and 2013. Shaw is arguably the only E&C name in our coverage with leverage to the global nuclear construction cycle holding alliance on two leading boiler technologies. We view risk/reward at this valuation as attractive.


Research Analysts See the Turn

Legacy issues weighing on the stock but future looks brighter...

Yet on July 30, 2012, Shaw Announces Sale to CBI at only $46 per share

An Abrupt Flip-Flop

A 72% "Premium?" Don't be misled. The pre-deal price equates to 0x to 1x EBITDA (i.e. SHAW was selling for free)

"The deal offers an attractive 72% premium. We firmly believe the transaction with (Chicago Bridge) is in best interests of and creates significant value for Shaw's shareholders..."

- Statement by SHAW Investor Relations

A takeunder value below fair value and without a control premium is not in the best interests of SHAW shareholders.

Situation Breakdown

SHAW is Grossly Undervalued...

Material discount to comps

No premium for control

Clean and de-risked operations

Fundamental inflection point

Situation Breakdown

Why is SHAW Misvalued?

Westinghouse phantom "debt"

FX charges (purely non cash)

E&C segment charges / losses

Appearance of volatility due to GAAP

So Why Do We Like SHAW?

Tremendous value can be unlocked.

The following misperceptions that have weighed on the stock will be/have been corrected:

Westinghouse "debt" Gone FX charges Gone Book Value issue Gone IS charges/losses Gone E&C Segment Gone

The removal of misperceptions adds clarity for the future: FCF positive Clean and de-risked company Significant cash balance optionality The valuation gap can be closed

We believe SHAW is worth $50 to $70 per share stand alone

A Brief History

Provides asset management and maintenance services to power and industrial facilities

Fabrication & Maintenance

Power Offers design, EPC, and related services to nuclear, coal,

and gas-fired power plants

Plant Services

Environmental &Infrastructure

What is SHAW?

Handles program and construction management, site remediation, coastal engineering services, logistics and maintenance for the U.S. government and other clients

Fabricates piping systems for industrial and power plants (and for distribution), and builds modules for new nuclear power plants

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Good Stewardship...

"We have a goal of progress, firmly entrenched in the philosophy to remain good stewards of the investment our shareholders have made in our success to date."

- Jim Bernhard2010 Annual Letter

"We bought Stone and Webster and returned a lot of value to shareholders there that you can't duplicate that deal. That was too good to be true. We bought IT Group and the IT Group for $125 million, made $90 million dollars the first year. You can't duplicate that, that was too good to be true"

- Jim Bernhard, June 2012

A Sense of Creating Value

A Sense of Weighing Options

"Hell, with $1.3 billion, if you couldnt with 6 million shares outstanding, if you couldn't take that $1 and make it $1 share accretive [through an acquisition], but guess what? Thats not the best thing because I think the best thing right now if I had to look up all the things I know is to buy [SHAW] stock at one-time EBITDA. Looks good to me."

- Jim Bernhard, June 2012

"Our fourth quarter, we will announce another loss of $85 million associated with the increase in the value of the yen versus the dollar. It has had an overhang on our stock. It is difficult for investors, for many investors, to get their heads around when they're looking at Shaw for the first time. So there have been a number of reasons. It's [unwinding Westinghouse] something we've been contemplating for quite some time."

"We firmly believe that the sale of our investment in Westinghouse is the best interest of our shareholders and our future business opportunities... Once the sale is final, Shaw will be essentially debt-free, with a extremely strong balance sheet and the ability to explore additional opportunities in the future."

- Jim Bernhard, Sep 2011

Removing the Overhang

"If it's correct in our assumption it [Westinghouse] has had an overhang on the stock, clearly stock is one of the currencies that we consider when we're looking at potential transactions. So as Jim said before, net-net, we think this is going to be extremely positive for our shareholders as we move forward, and gives increased flexibility from a financial perspective and strategic perspective."

- Brian Ferraioli, September 2011

Removing the Overhang

Analysts Also See Past Overhang

"We do believe the Shaw asset is much more attractive now that Shaw has sold its E&C segment to Technip for $300M."


"[I]ts important to remind investors that we think most of the noise thats been an overhang on SHAWs stock could be cleared up in the next several months."

- Research Analyst, August 2, 2012

"We also highlight that the company's Westinghouse investment continues to distort investor perception of SHAW's underlying leverage, with the $1.6 billion in Westinghouse bonds (essentially all of SHAW's debt) collateralized by the company's decision last year to put its investment back to majority owner Toshiba (to be completed in F1Q13), making SHAW comparatively much more attractive on an EBITDA basis."


We also remind investors SHAWs intention to exercise put options to sell its Westinghouse investment back to Toshiba (with the bonds settled in March 2013), which should allay some of the confusion that we think tends to develop regarding exactly how healthy SHAWs balance sheet is.


Analysts Also See Past Overhang

Analysts agree on the importance of the unwinding of Westinghouse on investor perception

Due to the timing of the unwind, SHAW did not realize a deserved valuation from analysts

Hiding in Plain Sight

Consequently, SHAW had the worst research ratings profile among E&C peers

SHAW is trading at tighter spreads as the market better understands the story

SHAW Stock Performance

0x - 1x EBITDA

3x - 4x EBITDA

CBI stock has quickly traded back to pre-deal levels after an initial misreaction by the market, which now better understands the significant benefits that will accrue to CBI

CBI Stock Performance

Market misreaction

Market learning benefits / accretion

Undervaluation is IncreasingShaw's story and true value has been obscured by the now legacy Westinghouse and E&C segment overhangs, resulting in a rock bottom valuation that is finally poised to receive proper market valuation

Conflicts of Interest

Since when is a Bid higher than an Ask?

Upside-Down Sale Process

As we will show in our Valuation section, the valuation by SHAW appears deliberately massaged to meet lower targeted ranges in order to facilitate a rushed and conflicted transaction

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With a positive track record of building value through acquisitions, why is the recent selling record so poor?

FY Q2 2012 Earnings Call, Mar 2012 -

Research Analyst - "Okay. And then just on the E&C sale, is it possible just given that the trends in that business continue to be strong maybe are getting stronger? Is it possible to read into the delay that that segment might actually not be sold or do you still have full confidence that is the likely conclusion here?"

Bernhard - "Anything is possible, but the likely conclusion is that we will continue to execute our plan with the divestiture of E&C. Part of the delay -- this is the first time we have ever had a divestiture of part of our business. We even misestimated how long it would take and quite frankly, because of the ethylene market coming up in the United States, there has been -- they had quite a few latecomers into the process who had interesting offers. So let me leave it at that and we are moving forward on our plan.We should have an announcement in the third quarter and completion before our fiscal year-end.

Good Buyers, Suddenly Bad Sellers?

"SHAW announced it has entered into an agreement with Technip to sell substantially all of its Energy & Chemicals (E&C) business for $300M in cash. This is towards the lower end of expectations which ranged from $200M to $500M at the high end."

- Research Analyst, May 21, 2012

We would also remind investors that historically SHAW has a very good track record of creating shareholder value through acquisitions.


"SHAW's balance sheet today offers opportunity, with a $500 million buyback authorization and near-term deployment decisions (buybacks or M&A) providing a potential catalyst before the end of the (fiscal) year."


Analysts Question the DisconnectWhy is SHAW selling now on the heels of its first divestiture and with a massive cash balance to seek acquisitions or buy-backs?

Conflicts - Political Analysis

In order to run a proper political campaign, a sale of SHAW must occur while leaving a sufficient window of time. We believe the sale was rushed and lacking proper process to fit this artificial constraint.

It is an open secret in Louisiana political circles that the Chairman is a likely senatorial or gubernatorial candidate, which is corroborated by his having served as Chairman of the Louisiana Democratic Party

Conflicts - Political Analysis

Bernhard can self-finance a campaign thereby materially impacting the outcome

The incumbent senator has been increasingly unpopular and reelected by a decreasing margin, with the previous election only 52% in favor.

The incumbent governor is precluded from election given a consecutive two-term limit, hence creating an opening for the seat

The upcoming election window is the perfect time to maximize chances of political success

Board Member Analysis

Given such conflicts, how could Independent Directors approve such an inadequate deal?

Unless they had not been properly informed...

Are Independent Directors truly "independent" in their actions and understanding?

Independent Director Analysis

In 2007, CalPERS voiced dissatisfaction with SHAW regarding out-of-line compensation practices

Previous Run-in with CalPERS

Shareholder Dissatisfaction

It's no surprise that prior voting indicates shareholders dissatisfaction with SHAW directors

"As fiduciaries, each member of the Board of Directors is responsible for the diligent application of business judgement in the best interests of the Company and its shareholders."

- The Shaw Group Corporate Governance Principles

Best Interests of Shareholders

It is the duty of each director to represent the best interests of shareholders

The S-4 filing (by CBI) shows unusually little effort or proper sale process by SHAW

Special Committee NO

Adequate Discovery NO

Adequate Diligence NO

Adequate Shopping NO

Effort for Control Premium NO

Yet Void of a Fair Deal Process

Why have investors and analysts not had a chance to ask basic questions on an open call?

Customary Conference Call NO

Customary Presentation NO

Customary SEC Filings? NO

Yet a Total Lack of Communication

Why has SHAW not filed any specific materials regarding the transaction?

Board is responsible to bring fair terms to shareholders. They have failed.

Ultimate responsibility of a defeated deal is with the board.

Such opposition would not exist if appropriate terms were presented.

Failed Deal is Board's Responsibility

Valuation

SHAW Remains Grossly Undervalued

CBI is not paying a control premium much less fair value. How do we know? Because they tell us...

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An Upside-Down Transaction

Since when is a "Bid" (the buyer) HIGHER than an "Ask" (the seller)?

"[The advisor] applied the current NTM multiple of 2.8x"!

No control premium being paid for SHAW shares

Shoot First, Paint Target Second?

"Welcome to Moviefone... Why don't you just tell me the name of the movie [value of the company] you've selected.

- SHAW's Financial Advisor

SHAW's Projection Ramp Tells Story

Moreover, SHAW's internal EBITDA projections are more than double even CBI's!

Typically, a buyer and seller can meet in the middle on price. If the buyer is aggressive, they pay up to the seller's Ask. If the seller is pressed, they move down to the buyer's Bid.

In this case, with SHAW appearing to be pressed for time due to conflicts of interest despite dramatically better projections, the entire process was turned upside down with the seller's (SHAW) Ask ending up BELOW the buyer's (CBI) Bid.

We believe SHAW's unjustifiably low valuation was forced as to facilitate a transaction of convenience for the Chairman without proper regard to shareholder interests.

Reading Between the LinesGiven the recent extended delays for just the sale of the E&C segment alone, the sale process for SHAW itself appears tainted and rushed

CBI Gets SHAW for a StealCBI has overstated the deal price for SHAW, and understated the massive accretion. Little wonder they refuse to provide a range for accretion guidance!

Current Valuation

At the current price, SHAW is undervalued at only 4.6x 2013E EBITDA and 2.7x 2014E EBITDA before synergies

The Westinghouse investment was automatically put back to Toshiba on Oct. 6, 2012.

The associated $1.7b in phantom 'debt' including FX losses of $130m to $200m per year flowed through for the duration of the investment since 2006. However, the associated 'asset' remained unadjusted. In addition, no value was allowed to be given to the 'put' option which has now been exercised. Hence, these purely fictional accounting 'losses' flowed through the financial statements with no offsetting item, resulting in persistent investor confusion.

In addition, the E&C business had huge write downs and negative EBITDA. The E&C segment sale to Technip closed August 2012.

Rear View: Ugly, Front View: Pretty

Westinghouse and E&C segment were massive drags on SHAW fundamentals...

...but are now no longer issues, leaving a SHAW that is clean and de-risked

The now de-risked SHAW is worth $50 to $70 stand alone and $60 to $85 with a control premium

Valuation Summary

Shareholders

Current Advisors Proxy advisory services Proxy solicitation services Legal counsel Appraisal rights legal counsel Independent inspector of elections

Preparing for Further Actions

As shareholders, we are acting to protect our investment

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Institutional Shareholders

of SHAW

Shareholder Geographic Analysis

As a "fly-over" state, institutional shareholders are unaware of Louisiana's open political secrets...

No Overlap

People that live in

Louisiana

SHAW is a Louisiana domiciled corporation

Approval is above a simple majority vote of 50%+ and requires a 75% supermajority threshold

However, 5%+ shareholders are excluded from this calculation in an attempt to counter conflicts of interest

Importantly, rather than requiring over 50% of the vote to block a deal, SHAW only requires a fraction of that amount, roughly only 15%, to prevent a conflicted takeunder deal

Deal-Specific Items

SHAW has an unusual structure that provides concerned shareholders with tremendous leverage

Against Vote Analysis

We estimate that only 13% to 17% of Against votes will block the current unfair deal

Current terms are unacceptable

Vote Against!

Do not allow CBI to steal value that is rightfully yours

Do not allow conflicted board members to short change your ownership of SHAW

Shareholder Action - Vote NO

In light of the conflicts and issues surrounding this deal, we urge shareholders to vote against the deal

Although 5%+ holders are excluded from the 75% supermajority threshold, 5%+ holders are INCLUDED in the vote needed to advance Appraisal Rights.

The threshold to advance Appraisal Rights is only 20%+ of shares outstanding.

Therefore, if a shareholder is unsatisfied with the current deal consideration, appraisal rights may provide a great deal of upside, with a floor being the current terms.

Appraisal is NOT class action and allows shareholders to capture value that rightfully belongs to them.

Timing requires you to submit before the regular vote.

Ultimately, we believe all shareholders have the same incentives: Get a fair price.

Recourse for Shareholders

Concerned shareholders may pursue Appraisal Rights as a way to extract fair value

Assert your basic rights as an owner of SHAW

Contact the members of the board to voice your concerns

Demand immediate inquiry of the sale process

Demand immediate inquiry of conflicts of interest

Demand an Investigation

Concerned shareholders should demand independent directors investigate the broken sale process

Call: (225) 932-2500 (Main) Contact: John Donofrio, General Counsel

[email protected](225) 932-2502

Gentry Brann, VP of Investor [email protected](225) 987-7372

Brian K. Ferraioli, Chief Financial [email protected]

Email: Board of [email protected]

Write: Board of DirectorsThe Shaw Group

4171 Essen Lane Baton Rouge, LA 70809

Voice Your Concerns

Do not allow board member conflicts and inaction to short change the fair value of SHAW

We plan to retain an independent inspector of elections

We plan to commission forensics and DTC monitoring

An institutional shareholder likely has multiple custodian banks, resulting in votes being entered through various channels and names. For example, four institutional shareholders may have eight to twelve custodian banks through which votes will be entered.

Our goal is to prevent abuse and under-representation of shareholder interests and to ensure proper attribution

Independent Inspector of Elections

Given SHAW's pattern of behavior, we have concerns about a proper voting process

Shareholders Deserve Better

Shareholders deserve better than a board that has

completely refused to engage all constituents at any level and

whose strategy since deal announcement has been

RADIO SILENCE

Demanding Fair Value

Question:

How can all SHAW constituents reach a win-

win?

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The Answer:Independent Directors need to

fulfill their duties (before shareholders are forced to do it for them)

Form a Special Committee

Retain independent financial and legal advisors

Run a full sale process

Get a fair price

What Must be Done Now

How Independent Directors Win

Your tarnished reputations will be repaired

You will fulfill your fiduciary duties

You will have run a proper sale process

You will have received proper independent financial and legal advice

You will obtain a fair price for all shareholders

You will be viewed as truly independent

We obtain a fair price in a properly managed sale process

We have restored confidence in the independent directors as true shareholder representatives

Alternatively, we remain as a clean and de-risked ongoing concern if current deal is rightfully voted down

How Shareholders Win

The Board must get a fair price

The Board must run a full sale process

Independent Directors must form a special committee with separate financial and legal advisors

Shareholders will applaud your actions

We will continue to take all actions to protect our investment

Timetable

Concerned shareholders should be aware of the following upcoming events

www.ShawFairValue.com is a collection of resources for concerned shareholders of SHAW

Visit the website for further information

Visit www.ShawFairValue.com

SHAW Contact Information

Call: (225) 932-2500 (Main) Contact: John Donofrio, General Counsel

[email protected](225) 932-2502

Gentry Brann, VP of Investor [email protected](225) 987-7372

Brian K. Ferraioli, Chief Financial [email protected]

Email: Board of [email protected]

Write: Board of DirectorsThe Shaw Group

4171 Essen Lane Baton Rouge, LA 70809

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Documents

SHAW 5 - Demanding Fair Value & a Proper Sale Process - 2012 10 17 (2)