McDermott International, Inc. (NYSE:MDR) (“McDermott” or “the
Company”) announced today that it plans to separate its operating
subsidiaries, The Babcock & Wilcox Company (“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 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.
The separation of B&W and J. Ray into two independent,
publicly traded companies is expected to provide numerous benefits
for McDermott shareholders, each company and its stakeholders.
Selected benefits resulting from the transaction include:
- Each company will be better
positioned to accelerate growth based on its distinct corporate
strategy, market opportunities, free cash flow and customer
relationships;
- More efficient allocation of
capital, which would allow each company 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.
“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,”
said John A. Fees, Chief Executive Officer of McDermott. “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. Given that McDermott has historically
operated each business independently under the B&W and J. Ray
franchises, including separate external credit facilities, we
believe this should be viewed as a seamless transition for our
customers and employees.”
Mr. Fees continued, “Both B&W and J. Ray have made great
strides in recent years. As the performance of each business
has improved, the attractiveness of their respective prospects and
the magnitude of their opportunities have become more evident. In
light of recent changes in the rules under the FAR, our Board of
Directors, together with its independent financial and legal
advisors, engaged in a fresh, comprehensive review of the
Company and its businesses, focusing on the best way for B&W to
continue serving the U.S. Government’s defense and nuclear
operations objectives, while enhancing long-term value for
McDermott’s shareholders. We believe B&W and J. Ray are
well-positioned to operate as well-capitalized, independent
public companies and that the separation is the best way to achieve
the objectives of our shareholders as well as the B&W and J.
Ray businesses.”
Creating Two Focused,
Pure-Play Companies
Upon completion of the transaction, McDermott shareholders will
hold shares of two standalone, highly focused, publicly traded
companies:
The Babcock & Wilcox Company
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.
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. B&W will remain incorporated in Delaware. 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 Fees 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. B&W expects to list its
shares on the New York Stock Exchange.
J. Ray McDermott, S.A.
J. Ray is a leading engineering, construction and installation
company focused on the offshore upstream oil and gas market. J. Ray
provides front-end design and detailed engineering, construction
and installation of offshore production facilities, pipelines and
subsea systems. J. Ray’s customers include national and major oil
and gas companies worldwide, and the company has a significant
presence in the Americas, Asia-Pacific, Caspian and Middle East
markets. Between 2006 and 2008, J. Ray generated an average of $2.4
billion in annual revenues with approximately $245 million in
average annual operating income. J. Ray employs approximately
16,000 people worldwide.
J. Ray’s principal executive offices will remain in Houston,
Texas. J. Ray will be led by Stephen M. Johnson as President and
Chief Executive Officer and he will assume this role at year-end in
connection with the previously announced retirement of Robert A.
Deason,
J. Ray’s current President and Chief Executive Officer. Mr.
Johnson currently serves as President and Chief Operating Officer
of McDermott and has over 35 years of experience in the engineering
and construction industry. He will join J. Ray’s Board of Directors
upon completion of the separation. J. Ray will retain the McDermott
“MDR” listing on the New York Stock Exchange.
Management
McDermott’s existing corporate management team, including John
Fees and Michael S. Taff, Chief Financial Officer, will continue to
lead the Company until the separation is completed.
Mr. Fees concluded, “We are confident that the management teams
of B&W and J. Ray have the experience to lead these two
businesses as separate, public companies and create value for their
respective shareholders, employees, customers and other
stakeholders. Finally, the Board of Directors and I wish to express
our gratitude to our talented and dedicated employees, who will be
instrumental to the future success of B&W and J. Ray.”
Financial
Overview
At September 30, 2009, McDermott reported cash, cash equivalents
and investments totaling approximately $1.1 billion, virtually no
funded long-term debt, shareholders’ equity in excess of $1.7
billion and total assets of $4.7 billion. In addition, McDermott’s
subsidiaries had credit facilities totaling $1.3 billion. McDermott
believes that following the separation, each resulting company will
have substantial liquidity, ample access to capital and a strong
balance sheet. Both companies are expected to be well capitalized,
providing the financial flexibility to take advantage of future
growth opportunities.
Completing the
Spin-Off
The proposed tax-free spin-off will be accomplished through a
pro rata distribution to McDermott shareholders. Completion of the
spin-off is subject to a number of conditions, including final
approval by McDermott’s Board of Directors, confirmation of the
tax-free nature of the transaction, as well as effectiveness of a
Form 10 registration statement to be filed with the U.S. Securities
and Exchange Commission (“SEC”). The Form 10 will include detailed
information about B&W, the spin-off and related matters.
McDermott will distribute an information statement to shareholders
following completion of the SEC’s review of the Form 10. Approval
by the McDermott shareholders is not required for completion of the
spin-off.
Advisors
Morgan Stanley & Co. is serving as financial advisor and
Baker Botts LLP is serving as legal counsel to McDermott. Goldman,
Sachs & Co. is serving as financial advisor and Wachtell,
Lipton, Rosen & Katz is serving as legal counsel to the
McDermott Board of Directors.
Conference Call to Discuss
Separation
Date: Monday, December 7, 2009, at 8:30 a.m. EST (7:30
a.m. CST)Dial in: (800) 299.7098 (U.S.); (617) 801.9715
(International)Passcode: 35502183Live Webcast:
Investor Relations section of Web site at
www.mcdermott.comReplay: Available for two weeks in the
investor relations section of www.mcdermott.com
NOTE: To access an investor presentation related to the
transaction, please visit the Investor Relations section of
McDermott’s Web site at www.mcdermott.com
About McDermott
McDermott is an engineering and construction company, with
specialty manufacturing and service capabilities, focused on energy
infrastructure. McDermott’s customers are predominantly utilities
and other power generators, major and national oil companies, and
the United States Government. With its global operations, McDermott
operates in over 20 countries with more than 25,000 employees.
Forward Looking
Statements
In accordance with the Safe Harbor provisions of the Private
Securities Litigation Reform Act of 1995, as amended, McDermott
cautions that statements in this press release, which are
forward-looking and provide other than historical information,
involve risks and uncertainties that may impact the Company’s
actual results of operations or may otherwise be material. These
forward-looking statements include statements about the manner,
timing, tax-free nature and expected benefits associated with
separating McDermott’s principal operating subsidiaries, as well as
the anticipated management teams of the separated companies and
their experience to lead the two companies and create value for
their respective shareholders and the impact of pending regulations
on their respective businesses. Although we believe that the
expectations reflected in those forward-looking statements are
reasonable, we can give no assurance that those expectations will
prove to have been correct. Those statements are made by using
various underlying assumptions and are subject to numerous
uncertainties and risks, including the risk that the proposed
separation may not be completed as anticipated or at all, delays or
other difficulties in completing the separation, disruptions
experienced with customers and suppliers, the inability of either
J. Ray or B&W to successfully operate independently and the
inability to retain key personnel. If one or more of these risks
materialize, or if underlying assumptions prove incorrect, actual
results may vary materially from those expected, projected or
implied. For a more complete discussion of these and other risk
factors, please see McDermott’s annual and quarterly filings with
the Securities and Exchange Commission, including its annual report
on Form 10-K and quarterly reports on Forms 10-Q. This news release
reflects management's views as of December 7, 2009. Except to the
extent required by applicable law, McDermott undertakes no
obligation to update or revise any forward-looking statement.
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