adios
10-06-2004, 11:38 AM
The subsidiary of Halliburton; Kellog, Brown and Root (KBR) that is the prime contractor for the Iraqi contracts let by the government (there are many sub contractors) is being offered for sale by Halliburton. I own Halliburton stock and as a stockholder I'm glad as the Iraqi contracts have been nothing more than a pain in the ass. Which is one of the reasons why Halliburton is cutting them loose (if they can find a buyer). I see no evidence where Halliburton has profited greatly from these contracts in Iraq. Revenue and profits are two different things. Also I challenge anyone to find a prime contractor as capable of providing the services that KBR provided. The truth is that since Cheney at one time was CEO of Halliburton, the administration of the Iraqi contracts has been scrutinezed intensively by the government and my take is that the government has bent over backwards to be tough on KBR which isn't necessarily a bad thing btw. The sole source justification can be debated but a contract bidding process for government contracts does take time to complete. What it amounts to is a smear of the Bush-Cheney campaign with no basis in fact. Here's a telling excerpt from the article:
An outright sale of the unit faces hurdles, since some buyers are likely to view KBR as a distressed asset, and Halliburton isn't likely to be willing to settle for distressed-asset pricing. KBR hasn't turned a full-year profit since 2001. Its contracts also have made KBR a political hot potato in the current presidential election over claims of favoritism because Vice President Dick Cheney served as Halliburton's chief executive from 1995 until 2000. The government has issued critical audits of KBR's work in Iraq. Furthermore, it could withhold some fees if Halliburton doesn't justify its costs in a timely manner.
Note that KBR hasn't made a profit since 2001.
Here's article discussing the sale of KBR by Halliburton:
Is Halliburton's KBR a Hot Deal?
Parent Says Plenty of Companies
Want to Acquire Distressed Unit;
A Partial Spinoff Is One Option
By RUSSELL GOLD
Staff Reporter of THE WALL STREET JOURNAL
September 30, 2004; Page C1
Halliburton Co. has finally acknowledged that ejecting its Kellogg Brown & Root unit could be its best chance for boosting the company's value.
But who would want a business saddled with low profits, a raft of government investigations and other legal problems, topped by persistent political notoriety over its rebuilding contracts in Iraq?
Plenty of companies, say analysts and Halliburton officials, including defense contractors and engineering companies. There also is industry speculation that Halliburton could hold on to part of the business, while selling the rest.
Wall Street has been pushing Halliburton to dump KBR for some time as investors have worried that the business will continue to be a drag on Halliburton's more profitable oil-field-services enterprise.
"If you look at most of the issues that have plagued Halliburton, almost all of them stem from KBR. It's not as good a business as their energy-services business. It's very distracting and there's not much synergy anymore," says UBS AG analyst James Stone, who estimates that KBR could be valued at between $2.4 billion to $2.8 billion as an independent company. UBS owns, directly and indirectly, more than 1% of Halliburton stock and Halliburton is an investment-banking client.
Last week, Halliburton executives for the first time said they were considering a parting of the ways. The company told analysts that it would reorganize KBR into two distinct businesses: one to handle government and infrastructure contracts, including its controversial work for the military in Iraq; the other to focus on building large energy facilities in often inhospitable corners of the globe.
The move was viewed as a signal that Halliburton was putting a for-sale sign on both pieces. By dividing the company, Halliburton has essentially doubled its options for disposing of the unit, while also leaving open the possibility that it might hold on to one part of the business even if it divests the other.
Separating Halliburton from KBR would give investors a pure play energy-services company -- a hot investment right now with oil prices at the $50-a-barrel mark -- and would be a means of boosting Halliburton's stock price.
Investors are clearly optimistic, lifting the company's share price 3.4% since the reorganization announcement. But Halliburton still trades on the New York Stock Exchange at a discount to its oil-field-service peers. Consider its stock price-to-earnings ratio. Halliburton is trading at a 20.7 P/E ratio for 2005, well below competitor Baker Hughes Inc.'s 24.5 ratio or Schlumberger Ltd.'s 26.7.
Halliburton Chairman and Chief Executive Dave Lesar isn't ready to commit to a sale yet. First, KBR's construction business must emerge from bankruptcy protection, where it has been sorting out Halliburton's mounting asbestos-litigation woes. Halliburton has agreed to fund a $4.8 billion trust to pay all current and future claims, cleansing it of any future asbestos liability. The company hopes to have the settlement wrapped up and KBR back out of bankruptcy court by the end of the year.
Mr. Lesar says he still hopes the market will regain confidence in KBR and bring Halliburton's stock value back on par with peers. If not, says Chief Financial Officer C. Christopher Gaut, "then we will move to separate KBR and Halliburton."
Analysts already have moved on to the question of how Halliburton will break up its rocky marriage to KBR. Halliburton said it might sell the unit, spin it off into a separate company or hold an initial public offering to sell stock in a newly formed company.
Another option: Halliburton could keep half of the newly reorganized KBR. "They seem like they may be hinting that they may spin off government services and keep energy infrastructure," says Jason Putman, a buy-side energy analyst with Victory Capital Management, the money-management arm of Cleveland-based KeyCorp that owns 2.3 million shares.
An outright sale of the unit faces hurdles, since some buyers are likely to view KBR as a distressed asset, and Halliburton isn't likely to be willing to settle for distressed-asset pricing. KBR hasn't turned a full-year profit since 2001. Its contracts also have made KBR a political hot potato in the current presidential election over claims of favoritism because Vice President Dick Cheney served as Halliburton's chief executive from 1995 until 2000. The government has issued critical audits of KBR's work in Iraq. Furthermore, it could withhold some fees if Halliburton doesn't justify its costs in a timely manner.
On top of that, investors worry that another Barracuda-Caratinga -- an over-budget construction project off the coast of Brazil -- could lurk in KBR's lineup of projects. The Barracuda is running 18 months past deadline and has required Halliburton to take $750 million in charges.
But Mr. Lesar argues that far from being distressed, KBR is coming up on a "sweet spot." Mr. Lesar remains confident that KBR will receive billions of dollars in award fees for its Army-related work in Iraq once the issues are sorted out. He says defense contractors and other companies already have approached him about buying the government-contracting business, which, in addition to the Iraq work, also includes contracts such as managing Los Alamos National Laboratory.
The construction side of KBR, meanwhile, stands to become a huge beneficiary in the rush to build new plants for liquefied natural gas -- a super-cooled version of natural gas that can be more easily transported overseas by tanker. KBR is the market leader in building LNG facilities.
Both a spinoff and an IPO would allow Halliburton to benefit from KBR's future growth as long as Halliburton retains a significant stake. In a spinoff, Halliburton shareholders would get stock in the new company. In an IPO, Halliburton would generate cash which it could distribute to shareholders or use to pay down debt.
An outright sale of the unit faces hurdles, since some buyers are likely to view KBR as a distressed asset, and Halliburton isn't likely to be willing to settle for distressed-asset pricing. KBR hasn't turned a full-year profit since 2001. Its contracts also have made KBR a political hot potato in the current presidential election over claims of favoritism because Vice President Dick Cheney served as Halliburton's chief executive from 1995 until 2000. The government has issued critical audits of KBR's work in Iraq. Furthermore, it could withhold some fees if Halliburton doesn't justify its costs in a timely manner.
Note that KBR hasn't made a profit since 2001.
Here's article discussing the sale of KBR by Halliburton:
Is Halliburton's KBR a Hot Deal?
Parent Says Plenty of Companies
Want to Acquire Distressed Unit;
A Partial Spinoff Is One Option
By RUSSELL GOLD
Staff Reporter of THE WALL STREET JOURNAL
September 30, 2004; Page C1
Halliburton Co. has finally acknowledged that ejecting its Kellogg Brown & Root unit could be its best chance for boosting the company's value.
But who would want a business saddled with low profits, a raft of government investigations and other legal problems, topped by persistent political notoriety over its rebuilding contracts in Iraq?
Plenty of companies, say analysts and Halliburton officials, including defense contractors and engineering companies. There also is industry speculation that Halliburton could hold on to part of the business, while selling the rest.
Wall Street has been pushing Halliburton to dump KBR for some time as investors have worried that the business will continue to be a drag on Halliburton's more profitable oil-field-services enterprise.
"If you look at most of the issues that have plagued Halliburton, almost all of them stem from KBR. It's not as good a business as their energy-services business. It's very distracting and there's not much synergy anymore," says UBS AG analyst James Stone, who estimates that KBR could be valued at between $2.4 billion to $2.8 billion as an independent company. UBS owns, directly and indirectly, more than 1% of Halliburton stock and Halliburton is an investment-banking client.
Last week, Halliburton executives for the first time said they were considering a parting of the ways. The company told analysts that it would reorganize KBR into two distinct businesses: one to handle government and infrastructure contracts, including its controversial work for the military in Iraq; the other to focus on building large energy facilities in often inhospitable corners of the globe.
The move was viewed as a signal that Halliburton was putting a for-sale sign on both pieces. By dividing the company, Halliburton has essentially doubled its options for disposing of the unit, while also leaving open the possibility that it might hold on to one part of the business even if it divests the other.
Separating Halliburton from KBR would give investors a pure play energy-services company -- a hot investment right now with oil prices at the $50-a-barrel mark -- and would be a means of boosting Halliburton's stock price.
Investors are clearly optimistic, lifting the company's share price 3.4% since the reorganization announcement. But Halliburton still trades on the New York Stock Exchange at a discount to its oil-field-service peers. Consider its stock price-to-earnings ratio. Halliburton is trading at a 20.7 P/E ratio for 2005, well below competitor Baker Hughes Inc.'s 24.5 ratio or Schlumberger Ltd.'s 26.7.
Halliburton Chairman and Chief Executive Dave Lesar isn't ready to commit to a sale yet. First, KBR's construction business must emerge from bankruptcy protection, where it has been sorting out Halliburton's mounting asbestos-litigation woes. Halliburton has agreed to fund a $4.8 billion trust to pay all current and future claims, cleansing it of any future asbestos liability. The company hopes to have the settlement wrapped up and KBR back out of bankruptcy court by the end of the year.
Mr. Lesar says he still hopes the market will regain confidence in KBR and bring Halliburton's stock value back on par with peers. If not, says Chief Financial Officer C. Christopher Gaut, "then we will move to separate KBR and Halliburton."
Analysts already have moved on to the question of how Halliburton will break up its rocky marriage to KBR. Halliburton said it might sell the unit, spin it off into a separate company or hold an initial public offering to sell stock in a newly formed company.
Another option: Halliburton could keep half of the newly reorganized KBR. "They seem like they may be hinting that they may spin off government services and keep energy infrastructure," says Jason Putman, a buy-side energy analyst with Victory Capital Management, the money-management arm of Cleveland-based KeyCorp that owns 2.3 million shares.
An outright sale of the unit faces hurdles, since some buyers are likely to view KBR as a distressed asset, and Halliburton isn't likely to be willing to settle for distressed-asset pricing. KBR hasn't turned a full-year profit since 2001. Its contracts also have made KBR a political hot potato in the current presidential election over claims of favoritism because Vice President Dick Cheney served as Halliburton's chief executive from 1995 until 2000. The government has issued critical audits of KBR's work in Iraq. Furthermore, it could withhold some fees if Halliburton doesn't justify its costs in a timely manner.
On top of that, investors worry that another Barracuda-Caratinga -- an over-budget construction project off the coast of Brazil -- could lurk in KBR's lineup of projects. The Barracuda is running 18 months past deadline and has required Halliburton to take $750 million in charges.
But Mr. Lesar argues that far from being distressed, KBR is coming up on a "sweet spot." Mr. Lesar remains confident that KBR will receive billions of dollars in award fees for its Army-related work in Iraq once the issues are sorted out. He says defense contractors and other companies already have approached him about buying the government-contracting business, which, in addition to the Iraq work, also includes contracts such as managing Los Alamos National Laboratory.
The construction side of KBR, meanwhile, stands to become a huge beneficiary in the rush to build new plants for liquefied natural gas -- a super-cooled version of natural gas that can be more easily transported overseas by tanker. KBR is the market leader in building LNG facilities.
Both a spinoff and an IPO would allow Halliburton to benefit from KBR's future growth as long as Halliburton retains a significant stake. In a spinoff, Halliburton shareholders would get stock in the new company. In an IPO, Halliburton would generate cash which it could distribute to shareholders or use to pay down debt.