Special Situation Investing

Saturday, February 17, 2007

Halliburton (HAL) - Spinoff of KBR Unit

While not exactly recent news, I thought it was worth mentioning that Halliburton (HAL) is planning to spinoff it's engineering and goverment services division, KBR, this April. KBR stock was initially floated in November with the bulk of the shares to be distributed via the April spinoff. The KBR unit has been plagued by negative publicity and investigations into the allocations of government contracts. The division's reliance on the distribution of government contracts, which can produce very lumpy results, also limits the earnings multiple. No doubt, HAL is hoping that a spinoff will allow it's oil services section to receive a higher valuation level with little impact on the value of KBR.

At first glance this appears to be a compelling spinoff situation. Halliburton plays a prominent role in a booming albeit highly cyclical industry. One of the limiting factors in oil exploration and development, in fact, is the rising cost of the enabling technologies provided by Halliburton amongst others.

I plan to do more analysis on the specifics over the next few days with a more detailed post to follow. In the meanwhile, if anybody has any comments on the spinoff I would appreciate hearing them.


Post a Comment

<< Home