NOV looks to spin off equipment distribution business next year

National Oilwell Varco is looking into spinning off its equipment distribution business in a public offering next year, a move that could bolster its depressed share price.

The future IPO is “in response to ongoing and increasing pressure from shareholders, who are saying the company should do something to get us some cash back and relieve some of the pressure that being a conglomerate was putting on the company,” said Brandon Dobell, an analyst at William Blair & Co.

Over the past year, NOV’s stock price has dipped about 2 percent, well below the performance of its peers in the oil field services sector, which averaged a 19.32 percent stock price climb over the past year, according to data compiled by Bloomberg. NOV’s stock hit $79.26 per share in midday trading Tuesday, up 1 percent from Monday’s close.

Like the company’s dividend increase earlier this year, NOV’s move to lighten its load shows the management is listening to shareholders, Dobell said.

Pete Miller, chairman and chief executive at NOV, said in a written statement Tuesday the company’s equipment distribution business, which brought in about 20 percent of NOV’s revenue in 2012, now has the size and scale to operate as a standalone company.

NOV’s distribution business, which sells maintenance, repair and operating supplies to the industry, would have more than 415 locations and operate in 26 countries. It grew significantly after the Houston oil field services giant bought two distribution companies last year.

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“As separate companies, the distribution business and the remainder of NOV will each be better positioned and have the enhanced operational flexibility to focus on their specific products, services and customers,” Miller said.

Some shareholders had previously asked NOV why – in a move to boost its share price – it had not previously considered splitting off one of its three distinct assets, especially as the equipment distribution business became a significant part of the company’s cash flow last year after the two acquisitions, Dobell of William Blair said.

Analysts with Houston investment banking firm Tudor, Pickering, Holt & Co. wrote that investors did not understand NOV’s move last year to buy distribution companies Wilson Supply and C.E. Franklin, but now the company is staging a new emerging company in the public markets.

“Distribution isn’t why investors own (National Oilwell Varco) and these businesses tend to be more highly valued by strategic partners as well as by the stock market,” Tudor Pickering analysts wrote Tuesday.

After the dividend increase and the spin off, the next thing on the minds of shareholders: transparency into NOV’s growth in rig technology.

“Rig technology is still the biggest segment in the company with the least visibility into it,” Dobell said. “If people are still pining for something, it’s that. It’s not where shareholders would like it to be, and valuation-wise you’re going to be at a discount from where you could be.”

The company has hired Credit Suisse Securities as a financial adviser and Locke Lord as a legal adviser to move forward the spin off process, which is expected to culminate in a new publicly traded company in the first half of next year.


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