Halliburton IPO Spinoff of Oilfield Services Unit (HAL, KBR)

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Includes: HAL, KBR
by: Jon Ogg

On Friday we got to see a formal filing from Halliburton (NYSE:HAL) showings its plans to sell a stake in its KBR unit ("Kellogg Brown & Root") in an IPO.

It would be great to tell you that HAL was initiating an unknown backdoor play, but in truth this has been one of the most telegraphed deals on the Street and has been in the works for longer than memory can serve. The significance of the filing is simply that HAL is going to completely divest this to become a pure-play on oilfield services and operations.

The KBR unit is a Houston-based global engineering, construction and services company supporting the energy, petrochemicals, government services and civil infrastructure sectors; it has been very controversial on no-bid contracts in the US, Iraq, and elsewhere.

KBR will trade under the NYSE ticker "KBR" when it starts trading. HAL is selling just under 20% and in the filing indicated that it would sell up to $550M in stock in this IPO. We still do not have any exact share indications and the expected price range has not been indicated, but these should start to surface in the coming weeks as we get more information from the company and the underwriters.

The company stock already rose about 5% when it had previously announced it was going to pursue this IPO, so once again you should know that this has been in the works for a long time and that this is merely the formal filing. HAL had also previously looked for buyers of the controversial unit, but it looks like the IPO-route was going to be the highest value solution for the unit.

Here is how the two businesses compare on a bottom-line basis: KBR earned $240 million on sales of $10.14 billion last year, compared to Halliburton's total profit of $2.36 billion on $21.01 billion in sales. KBR has a large portion of its revenues tied to military support services in Iraq, and the street has been concerned about the ultimate profitability on this in the past as operations such as these tend to be less than predictable and less than stable on a longer-term basis.

Shares of HAL are up another 1.5% after the open this morning on this news.