McDermott to spin-off B&W subsidiary
08 December 2009
US engineering and construction company McDermott International plans to separate its operating subsidiaries - including its nuclear equipment business Babcock & Wilcox (B&W) - into two independent, publicly-traded companies.
The separation is expected to be effected through a spin-off of B&W. The remaining McDermott business, which is focused on the offshore upstream oil and gas market, will then be renamed J Ray McDermott. McDermott shareholders will then hold 100% of the two separate companies.
The company expects to close the transaction, which is subject to a number of conditions, within 9-12 months. Brandon Bethards will continue to serve as B&W's president and CEO. B&W, which will establish a new corporate headquarters in Charlotte, North Carolina, expects to list its shares on the New York Stock Exchange.
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. These include nuclear steam generators and components. In June, B&W announced plans to develop and deploy a scalable, modular nuclear power reactor. It describes the 125 MWe mPower reactor design as "a passively safe Advanced Light Water Reactor (ALWR) with a below-ground containment structure," and is air-cooled.
For its largest customer, the US government, B&W supplies nuclear components for defence programs and provides various services, including uranium processing, environmental site restoration services and management and operating services for various government-owned facilities, primarily within the nuclear weapons complex of the Department of Energy.
McDermott said that part of the reason for the separation is to reduce the risks posed by recent modifications to Federal Acquisitions Regulations (FAR) that limit the US government's ability to contract with 'inverted' companies and their subsidiaries. The company is incorporated in Panama as a result of its inversion in the 1980s. The new regulations, McDermott said, "may impact our ability to pursue new contract awards with the US government."
However, the company said that once B&W has been spun-off as a separate company, incorporated in the USA, it would "be able to compete for government contracts without restriction from the interim rules of the FAR." It noted that existing contracts should not be impacted by FAR.
John Fees, CEO of McDermott, commented: "The separation of B&W and J Ray will be a transformational event for McDermott, which we expect to deliver important benefits to our shareholders, as well as the employees of each business." He added, "We believe that as separate, independent, publicly-traded entities, B&W and J Ray will benefit from enhanced management focus, more efficient capital allocation and greater operational and strategic flexibility."
Between 2006 and 2008, B&W generated an average of over $3 billion in annual revenues, with some $350 million in average annual operating income, according to McDermott.