McDonald's deal could be guide for KBR split

Other than their size, it’s hard to find much in common between fast food colossus McDonald’s and Halliburton, the world’s second largest oilfield services firm and the biggest U.S. contractor in Iraq.
But the two companies recently did choose the same route for jettisoning subsidiaries they no longer wanted.
Houston’s Halliburton said Monday it will dispose of its 81 percent remaining stake in KBR — its $10 billion engineering and construction unit — through a “split-off exchange offer” to Halliburton shareholders.
McDonald’s used the tool last fall to cut ties with Chipotle, the build-your-own burrito chain with several locations in Houston. And the process had results that may be instructive for Halliburton as it inches forward with its split-off plan in coming weeks.
In the case of Halliburton, the split-off exchange offer will allow shareholders to exchange all or some of their shares of Halliburton stock for the KBR shares Halliburton still owns.
Because the company being separated is typically smaller, has a lower buy-in price and growth potential, investors often see their shares as an attractive play.
McDonald’s investors viewed Chipolte as such, offering to trade McDonald’s shares for more Chipolte stock than the burger giant owned. And Halliburton may also find itself “oversubscribed” for KBR shares if investors believe, as some analysts do, that the unit is well positioned to grow with global energy needs in coming decades.
That could be good news for both Halliburton and KBR. In addition to allowing Halliburton to use KBR stock proceeds to buy back its own shares — and likely boost its stock price along with it — the move would lower the volatility in KBR’s stock price by guaranteeing that only those investors who wanted the stock got it.
The split-off exchange offer is more favorable to investors than a straight spin-off, which would distribute KBR stock to Halliburton shareholders, whether they wanted it or not, analysts said.
“I’d consider it pretty much in line with what management has been doing all along, trying to find ways to increase shareholder value,” said Roger Read, energy analyst with Netexis Bleichroeder Inc.
“They’ve been paying a small dividend. They’ve been doing share repurchases. Now, you have them saying, ‘hey, here’s another way to create value for Halliburton shareholders. First we IPO’d it. Then, we do a split-off, which reduces the share count, and that’s good for earnings per share.”

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