McDermott Spin-Off Approved

| About: McDermott International, (MDR)

The board of directors of the energy-focused engineering and construction company McDermott International Inc. (NYSE:MDR) approved the tax-free spin-off of its subsidiary, The Babcock & Wilcox Company ("B&W"). The B&W controls the power generation systems and government operations segments of the company.

The spin-off will take place by distributing B&W shares to McDermott shareholders. Each shareholder of McDermott will get one share of B&W for every two shares of McDermott stock that they possess at the end of July 9.

The fractional shares of B&W common stock will not be allocated. But, in case the fractional share of the common stock is issued to a McDermott stockholder, it will be sold for a cash payment in the open market on the behalf of the stockholder.

The split is expected to come into effect by the end of July.

Following the finalization of the process, B&W will operate as a separate, publicly traded company with its shares listed on the New York Stock Exchange under the symbol "BWC.” McDermott will not retain any ownership interest in B&W. Management points out that as an independent entity, B&W will be at a greater advantage to win contracts from the U.S. Government.

The spin-off was part of McDermott’s plan to separate the two operating subsidiaries, The Babcock & Wilcox Company and J. Ray McDermott, S.A. ("J. Ray") into two independent, publicly traded companies as announced in December 2009.

We remain positive on the outlook for the new McDermott post-split, as the stock shows promise to unlock significant value. Creation of two pure-play companies will offer greater scope in both their markets with a more concentrated managerial attention, organized capital allocation and superior operational and strategic flexibility.

Texas-based McDermott has a diversified product portfolio, specialty manufacturing and service capabilities and proprietary technological expertise. Together with a robust balance sheet and healthy backlog, the company is poised for long-term earnings and cash flow visibility.

However, we retain our Neutral recommendation, along with the Zacks #3 Rank (Hold) rating on the stock, given the near-term adverse macro-backdrop and the uncertain commodity price outlook.

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