Parent Company McDermott International, Inc. to Separate Its Subsidiaries Through Spin-Off of B&W
- By Linton Levy -
The Babcock & Wilcox Company (“B&W”) has announced that its parent company, McDermott International, Inc. (“McDermott”), plans to separate its operating subsidiaries, B&W and J. Ray McDermott, S.A. (“J. Ray”), into two independent, publicly traded companies. The separation is anticipated to be effected through a spin-off of B&W, a transaction that is intended to be tax-free to McDermott shareholders. Following completion of the separation, McDermott intends to be renamed J. Ray McDermott, S.A., and McDermott shareholders will own 100 percent of two separate companies: B&W and J. Ray. The transaction is expected to be completed in nine to twelve months.
B&W is a leading technology innovator in power generation systems and a specialty manufacturer of nuclear components with a rich legacy of service spanning over 140 years. B&W will remain incorporated in the United States and expects to list its shares on the New York Stock Exchange.
Brandon C. Bethards will continue to serve as B&W’s President and Chief Executive Officer and will join B&W’s Board of Directors upon completion of the transaction. Mr. Bethards joined B&W in 1974, and has held positions of increasing responsibility within the power industry, leading to his current appointment in November 2008. In addition, John A. Fees, McDermott’s Chief Executive Officer, will join Mr. Bethards on the Board of Directors of B&W and will play an integral role in establishing B&W as a publicly traded company.
Selected benefits resulting from the transaction include:
- Better positioning to accelerate growth based on B&W’s distinct corporate strategy, market opportunities, free cash flow and customer relationships;
- More efficient allocation of capital, which would allow B&W to develop an independent investment program without the constraints of a holding company structure;
- Distinct publicly traded stock that could be used as currency for future acquisitions;
- Elimination of the risk posed by recent modifications in the rules under the Federal Acquisition Regulations (“FAR”) that limit the U.S. Government’s ability to contract with “inverted” companies and their subsidiaries; and
- Sharpened management focus and strategic vision, and closer alignment of incentives with shareholder value creation.
Given McDermott’s current solid financial position, McDermott believes that, following the separation, B&W will have substantial liquidity, ample access to capital and a strong balance sheet.
“We are excited about the opportunity to be a standalone public company and believe this transaction will position B&W to better capitalize on the significant opportunities in our end-markets,” said Mr. Bethards. “As an independent entity, we expect B&W to benefit from enhanced management focus and more efficient capital allocation, plus greater operational and strategic flexibility. We believe this should be viewed as a seamless transition for our customers and employees since B&W has historically operated as an independent business under McDermott.”
B&W plans to establish new corporate headquarters in Charlotte, North Carolina, in the near future, and no significant impact is expected in its operational locations as a result of the separation. The company will remain incorporated in Delaware.
B&W is a leading technology innovator in power generation and a specialty manufacturer of nuclear components with a rich legacy spanning over 140 years. B&W designs, engineers, manufactures, and constructs power generation systems, primarily for large utility and industrial customers, as well as related aftermarket parts, services and environmental control systems. For its largest customer, the U.S. Government, B&W supplies nuclear components for defense programs and manages and operates nuclear facilities and environmental management sites. Between 2006 and 2008, B&W generated an average of over $3 billion in annual revenues, with approximately $350 million in average annual operating income. B&W, including its joint venture companies, employs over 15,000 people worldwide.